1 TABLE OF CONTENTS

CHAPTER 5 STATE PLAN CONSIDERATIONS

................................ ................................ .. 3 5.1 State Plan Approaches

................................ ................................ ................................ ............ 4 5.1.1 Direct emission limits: rate

- based

................................ ................................ ...................... 4 5.1.2 Direct emission limits: mass

- based

................................ ................................ ................... 13 5.1.3 Portfolio approach

................................ ................................ ................................ ............. 29 5.1.4 State

- driven portfolio approach

................................ ................................ ....................... 36 5.1.5 Utility

- d riven portfolio approach

................................ ................................ ..................... 64 5.1.6 Multi

- state plans

................................ ................................ ................................ ................. 76 5.1.7 Other

................................ ................................ ................................ ................................ . 114 5.2 Incorporating demand

- side energy efficiency and renewable energy programs and measures under a rate

- based approach

................................ ................................ ...... 155 5.2.1 Adjusting EGU CO2 emission rates based on the effects of end

- use energy efficiency and renewable energy

................................ ................................ ................................ ... 155 5.2.2 Approaches for adjusting EGU CO2 emission rates

................................ .................... 176 5.2.2b Adjustment of CO 2 emission rate based on avoided CO 2 emissions

......................... 184 5.2.2c Adjustment based on the rate

- based emission limit in the state plan

....................... 186 5.2.2d Other considerations

................................ ................................ ................................ ..... 186 5.2.3 Methods and tools for quantifying avoided CO 2 emissions from end

- use energy efficiency and renewable energy

................................ ................................ .................. 189 5.2.3a Average emission rate approach

................................ ................................ ................... 195 5.2.3b Marginal emission rate approach

................................ ................................ ................. 196 5.2.3c Calculation tool method

................................ ................................ ................................ . 198 5.2.3d Electricity sector modeling method

................................ ................................ .............. 200 5.2.3e Considerations associated with use of an avoided emissions rate

.............................. 201 5.2.4 EE and RE Measures that can be incorporated

................................ ............................ 206 5.2.5 Other

................................ ................................ ................................ ................................ . 297 5.3 Quantification, monitoring, and verification of demand

- side energy efficiency programs and measures

................................ ................................ ................................ ................. 300 5.3.1 EM&V for demand

- side energy efficiency programs overseen by state PUCs

.......... 300 5.3.2 EM&V for Energy Efficiency Measures used in ISO Forward Capacity Markets

... 308 5.3.3 EM&V for Programs and Policies Not Typica lly Overseen by PUCs

........................ 309 5.3.4 Considerations: Accuracy of Energy Savings Estimates

................................ .............. 325 5.3.5 Considerations: EM&V Technical Considerations for State Plans

............................ 338 5.3.6 Options: Use of EM&V protocols and guidance

................................ ........................... 353 5.3.7 Options: EPA review of EM&V plans as part of the state plan review process

........ 394 5.3.8 Options: general quality standards for EM&V rigor and accuracy

........................... 404 5.3.9 EM&V Documentation in a 111(d) state implementation plan

................................ ... 408 5.3.10 CHP/cogeneration

................................ ................................ ................................ .......... 415 5.3.11 Other

................................ ................................ ................................ ............................... 416 5.4 Quantification, monitoring, and verif ication for renewable energy programs and

measures ................................ ................................ ................................ ......................... 421 5.4.1 Renewable portfolio standards: build renewable generating facilities

....................... 421 5.4.2 Renewable portfolio standards: bilateral contract model

................................ ............ 426 5.4.3 Renewable portfolio standards: REC mo del

................................ ................................ . 428 5.4.4 Renewable portfolio standards: Small distributed generators

................................ .... 4732 5.4.5 Feed

- in tariffs

................................ ................................ ................................ ................... 477 5.4.6 State tax incentives

................................ ................................ ................................ ........... 478 5.4.7 Options

................................ ................................ ................................ .............................. 482 5.4.8 Other

................................ ................................ ................................ ................................ . 486 5.5 Reporting and recordkeeping for demand

- side energy efficiency programs and

measures ................................ ................................ ................................ ......................... 494 5.5.1 Reporting for EE programs and measures

................................ ................................ .... 494 5.5.2 Oth er ................................ ................................ ................................ ................................ . 499 5.6 Reporting and recordkeeping for renewable energy programs and measures

............. 501 5.6.1 Reporting for renewable energy programs and measures

................................ ........... 501 5.6.2 Typical Reporting and Compliance Requirements under State RPS

......................... 503 5.6.3 Typical Reporting for Renewable Energy Deployment Programs

.............................. 506 5.6.4 Reporting for utility administered renewable energy incentive programs

................ 507 5.6.5 Reporting for renewable energy in centive programs administered by non

- profit or state entities

................................ ................................ ................................ ................... 507 5.6.6 Considerations for reporting requirements for renewable ene rgy measures in state plans

................................ ................................ ................................ ............................... 507 5.6.7 Other

................................ ................................ ................................ ................................ . 50 73 CHAPTER 5 STATE PLAN CONSIDERATION S

This chapter addresses comments received on the EPA’s proposed emission guidelines for state plans. Comments received on the following topics are covered in this chapter : state plan approaches; methods of incorporating RE and demand

- side EE programs/measur es into a rate

based state plan; quantification, monitoring, and verification of end

- use energy efficiency and renewable energy programs /measures ; reporting and recordkeeping for end

- use energy efficiency and renewable energy programs/measures; how interst ate effects are addressed ; approaches to projecting affected EGU CO 2 emission performance; how existing state programs and measures should be treated in state plans; how new fossil fuel

- fired EGUs not subject to Clean Air Act ( CAA ) section 111(d) are treated; how the remaining useful life of an affected EGU should be considered; whether state plans can include design, equipment, work practice and operational standards

, and whether application of those types of standards should be limited by CAA sectio n 111(h); comments on emission averag ing and trading (e.g., emission budget trading programs);
state

- specific implementation issues; and other comments related to the design and implementation of state plans.

Commenters also raised issues related to a num ber of topics that are not covered by this chapter. Please refer to the following chapters for responses specific to those issues:

• Chapter 1: Legal

• Chapter 2: Applicability

• Chapter 3: GHG Mitigation Measures

• Chapter 4: State Goal Computation

• Chapter 6: Sta te Plans

• Chapter 7: Interactions With Other EPA Programs and Rules

• Chapter 8: Impacts and Cost Analysis

• Chapter 9: Statutory and Executive Orders

• Chapter 10: Rule Language Corrections4 5.1 STATE PLAN APPRO ACHES

This section discusses comments on the state plan types and approaches, including rate

- based and mass

- based state plans, the state

- driven and utility

- drive n portfolio approaches, and multi

state plans. Also discussed in this section are comments regarding other alternative approaches to state plans, including a state commitment approach

, where states commit to a specific level of emission reductions using s tate programs that are not federal ly enforceable , carbon tax approaches that would levy a tax on CO 2 emissions from utility boilers, dispatch fee mechanisms where a fee is assessed for CO 2 emissions from electricity generators, and several other alternative approaches to implementing the CPP.

5.1.1 Direct emission limits: rate

- based

This section contains comments on the rate

- based emission limit plan approach for meeting the emission guidelines

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

.

Comment 1: Numerous commenters s upport ed ra te

- b ased emission limits

. Response 1: The final rule provides states with the ability to use a rate

- based plan approach. Plan approaches are addressed in the preamble to the final rule in section VIII.C. The EPA agrees with the commenters that a rate

- based ap proach can accommodate growth in electricity demand. However, the EPA disagrees with the assertion by commenters that growth in electricity demand cannot also be accommodated under a mass

- based plan approach. The EPA notes that under both approaches, CO 2 e missions reductions can be achieved while accommodating growth in electricity demand. Both rate

- based and mass

- based approaches apply to CO 2 emissions from existing affected EGUs. Electricity growth can be accommodated through a mix of electricity generation from affected EGUs, low

- and non

- emitting non

- affected EGUs (including new fossil fuel

- fired EGUs subject to CAA section 111(b), and reduc tions in electricity demand through demand

- side EE improvements.

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

Several commenters stated that they support the rate

- based emission limits. Many commenters stated that they supported a rate

- based approach because they believed this approach would better accommodate growth in electricity demand without compromising the effectiveness of the Clean Power Plan framework. Commenter s felt that rate

- based targets would be important f or accommodating growth in states like Florida that have population growth that is higher than the rest of the country. Commenter s stated that electricity demand in Montana, North Dakota, and South Dakota is expected to grow by 5 percent over the next five years and believe it is imperative that the EPA continue to allow states to comply with emission rate

- based goals.5 Commenter s noted that investments in commercial and industrial automation, growth in the communications and information technology, replacem ent of oil and natural gas

- fired residential furnaces by electric thermal heating systems, and increased demand for electric vehicles will result in an increase in electricity demand over the next several years. Commenter s believed that
a rate

- based system provides greater economic certainty and noted that emissions and electricity demand growth are highly correlated.

Commenter s believed that a mass

- based approach would slow or stop economic growth and believed that the rate

- based approach was necessary to allow for reductions in GHG emission rates while also increasing investments in new technology, encouraging implementation of best practices, and adapting to changes in electricity production methods overtime. C ommenter s stated that believe the rate

- based approach will provide reductions in emissions at the lowest compliance cost.

Commenter s stated that the rate

- based approach to regulation under section 111(d) is consistent with the statute and also best accommodates states' fluctuating needs and anticipat ed growth in electricity demand, without impacting economic growth. Commenters stated that d omestic economic growth is likely to reduce global CO 2 emissions by not "outsourcing" U.S. industrial activity and by shifting a greater share of industry to clean

- burning, natural gas

- powered operation in the United States. C ommenter s noted that the U.S. electric sector had an average carbon intensity of 1,10 9 lb CO 2 /MWh in 2011, while in China and India the average carbon intensities are 1,684 lb CO 2 /MWh and 1,887 lb CO 2 /MWh, respectively.

Commenter s recommended the EPA allow states the flexibility to structure the emission rate goals as the state believes a ppropriate.

Comment 2: Commenters believed that only rate

- based standards are allowed under section 111 of the Clean Air Act

Response 2: The EPA disagrees with the assertion that only rate

- based standards are allowed under section 111 of the CAA . While st andards of performance under CAA section 111(d) have typically been rate

- based, the definition of " standard of performance " in the statute (in CAA section 111(a)(1)) and the definition of " emission standard " in the EPA’s framework regulations at 40 CFR 60.21(f) do not preclude the use of mass

- based emission standards in a state plan. The
term " standard of performance " in CAA section 111(a)(1) means a " standard for emissions of air pollutants which reflects th e degree of emission limitation achievable through the application of the best system of emission reduction... " The definition of " emission standard " at 40 CFR 60.21(f) includes reference to an " allowance system " which involves a limit on mass emissions.

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

Commenter s believed a rate

- based standard is the only defensible approach allowed by section 111 of the Clean Air Act and noted that performance standards promulgated under 40 CFR Part 60 are generally rate

- based, concentration

- based, or prescribed work practices.6 Comment 3: Some commenters believed RE and demand

- side EE measures could be easily incorporated into rate

- based state plans

Response 3: The EPA agrees with the commenter ’s statement that RE and demand

- side EE measures may be easily incorporated into a rate

- based approach . Use of RE and demand

- side EE measures to adjust the reported CO 2 emission rate of an affected EGU is addressed in the preamble to the final rule in section VIII. K.1 . The EPA notes that electric generation from other resources such as CHP could be used to adjust the reported CO 2 emission rate of an affected EGU, as disc ussed in section VIII. K.1 of the preamble to the final rule.

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

Commenters believed that RE and demand

- side EE measures may be easily incorporated into a
rate

- based approach throu gh an adjustment or tradable credit system. Commenter s recommended that this approach should be applied to all demand

- side solutions, including fuel cells and CHP.

Comment 4: Commenters believed r ate

- based goals can be used in market

- based trading
programs

. Response 4: T he EPA agrees that rate

- based goals can be used in market

- based trading
programs . Rate

- based emission trading approaches are discussed in section VIII.C of the preamble to the final rule; specific requirements f or rate

- based emission trading approaches are discussed in section VIII. K.2.

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

Some c ommenter s disagree with other commenters who believed a mass

- based approach is necessary for states implementing a market

- based program. C ommenter s noted that a market

based trading system can be implemented under a rate

- based approach without the risk of limiting economic growth through a cap on emissions. C ommenter s cited a 2012 paper published by " Resources for the Future " that explains how a rate

- based trading program would work. C ommenter s further noted that rate

- based market systems could be implemented without requiring policymakers to make assumptions about the level of required future generation and would eliminate the need for allocating emission allowances.

Comment 5: Comments statin g that s tates should have flexibility to select either rate

- or mass

based limits

. Response 5: The EPA agrees with the commenter s , and in the final rule

, has provided states with the flexibility to choose either a rate

- based or a mass

- based plan approach. Plan approaches are discussed in section VIII.C of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:7 Commenter s recommend that states be allowed the flexibility to select a rate

- based approach o r a

mass

- based emission reduction approach that best suits their specific circumstances. C ommenter s stated that there may be discrete advantages to either a rate

- based or a mass

- based emission standard. Commenters stated that f or example, a rate

- based standard enable s states to accommodate future load growth, while a mass

- based standard would allow states to more readily account for unit retirements and other significant mass emissions reductions.

Comment 6: C omment s not support ing rate

- based limits b ecause commenters believed it would not reduce overall CO 2 emissions.

Response 6: The EPA disagrees with the commenters assertions that a rate

- based CO 2 emission limit provides incentives for increasing electricity generation. First, a rate

- based emission constraint represents a limit on emissions from EGUs that will generally increase generation costs for affected EGUs subject to the standard, which provi des economic incentives for replacement of that generation with low

- or non

- emitting resources, such as the utilization of RE and demand

- side EE measures . Replacement of electric generation with electric generation or electricity savings from other resourc es does not provide an incentive for increasing overall electric generation. In fact, to the extent that demand

- side EE is used to meet a rate

- based emission limit, this will provide an incentive for reducing overall electricity generation. Where affected EGUs may receive credit for emitting below a specified CO 2 emission rate, this provides an incentive for shifting generation to lower

- emitting generation sources, rather than an incentive for increasing electricity generation overall. While the EPA acknowl edges the potential for shifts in generation among states, the EPA has finalized uniform rate

- based CO 2 emission performance levels for affected EGUs, which results in a decrease in disparities in translated rate

- based CO 2 goals among states. These issues are discussed fully in section V.A and VI.B of the preamble to the final rule.

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

Several commenters were against rate

- based goals because they believe they will not reduce overall emissions and were concerned that in a rate

- based approach emissions could actually rise.

Commenter s argued that under a rate

- based standard states have two ways to reduce their emissions ratio:

• they can reduce their emissions, thereby reducing the numerator; or

• they can increase the total level of electricity generation from power plants with emission rates below the standard.

Commenters no ted that both measures would decrease the emission rate, but only the first approach would reduce the overall CO 2 emissions. Commenters stated that s ince an increase in electricity generation can lower the emissions ratio, they were concerned a rate

- based standard introduces incentives to increase production. Commenters noted that a study of rate

- based standards for transportation fuels showed that rate

- based standards can cause total CO 2 emissions to increase (see " Greenhouse Gas Reductions under Low Carbo n Fuel Standards " published in8 " American Economic Journal: Economic Policy " in 2009 and " Standards Versus Standards: The Effects of Different Pollution Restrictions ," published in " American Economic Review, " in 1991). C ommenter s recommended that the EPA co nsider the possible unintended consequence that a
rate

- based standard for CO 2 emissions in the electricity sector may increase overall CO 2 emissions, but also n oted that the impact of this incentive to increase production in the electricity sector may be less than the transportation sector due to electricity demand being relatively inelastic and therefore less likely CO 2 emissions would increase significantly as a result of the
rate

- based standard.

Commenter s were concerned t he disparity among the states' goals would give some states an incentive to " redispatch " load from a lower

- performing oil/gas or natural gas facility to a coal facility in a coal

- dominated state that has a higher lb/MWh CO 2 goal and expressed concern a
sta te with excess coal capacity and little NG capacity could actually increase CO 2 emissions while complying with the goal.

Commenter s argued that the rate

- based system combined with the possibility for fossil fuel EGUs operating below the emission standard for their state to earn credits for every MWh of energy they produce creates an economic incentive for increased production and hence increased emissions. C ommenter s noted that almost half of the 43 states with NGCCs operating in 2012 have NGCCs that alrea dy meet the state's 2030 emission goals. Commenters stated that b ecause Block 1 of the Proposed Rule does not impose a ceiling on NGCC emissions, the y believe these units will continue to generate electricity as long as there is an economic benefit. Commen ters stated that b y not capping actual emissions, the y believe that increased electricity demand will be met by building new NGCCs instead of by RE/EE. C ommenter s are concerned that rate

- based limits combined with no cap on emissions provides disincentives for investment in RE/EE and will result in increased emissions.

Comment 7: Comments requesting clarification to whether section 111(d) plans have to include enforceable EE measures for states using the rate

- based limits in a non

- portfolio plan

. Response 7: While the EPA is not finalizing a BSER that includes demand

- side EE , the final rule provides states with flexibility to use demand

- side EE in different ways to achieve the CO 2 emission performance rates for affected EGUs or state rate

- based or mass

- base d CO 2 goals. Demand

- side EE can be incorporated as a compliance mechanism under a rate

- based emission standard approach, or incorporated as a state measure. Demand

- side EE can also be used as a complementary measure (i.e., not included in a state plan) tha t can help affected EGUs meet a mass limit on CO 2 emissions. Plan approaches are discussed in section VIII.C of the preamble to the final rule.

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

Commenter s asked whether states that pursue building block 4 must include enforceable EE measures in their state plan for a rate

- based approach but not for a mass

- based approach.9 Comment 8: C ommenter s w ere concerned states would select rate

- based plans over mass

- b ased plans because there are more opportunities for REC trading than CO 2 allowance trading, and recommended the EPA allow states adopting mass

- based plans to take credit for REC purchases.

Response 8: The EPA does not agree with the concerns presented by t he commenter s . The EPA believes that there are significant benefits to mass

- based plans that will encourage states to consider this approach. In particular, mass

- based plans are significantly easier to implement and administer as well as avoid the need for complex provisions for quantifying and verifying MWh of replacement generation from measures such as RE and demand

- side EE . Furthermore, under a

mass

- based emission trading approach, RE and demand

- side EE can be utilized as an emission reduction strategy without the need for formal inclusion in the emission trading program. Instead, RE and demand

- side EE represent complementary measures that will reduce the cost of meeting a mass limit on CO 2 emissions, wit hout the need for complex quantification, verification, and administrative provisions. Plan approaches are discussed in section VIII.C of the preamble to the final rule.

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

Commen ter s are concerned that states will select the rate

- based based goals over mass

- based goals because there are currently more opportunities for REC trading than for CO 2 allowance trading. C ommenter s noted that only ten states currently have mass

- based CO 2 a llowance trading programs, but 38 states (including the ten states with mass

- based CO 2 programs) have RPS programs that provide for REC trading. Commenter s stated that the availability of REC trading may encourage states to select a rate

- based approach, th ereby undermining the flexibility that the EPA wants states to have. Commenters stated that t o avoid this problem, the y believe the EPA should ensure mass

- and rate

- based states have equal access to trading opportunities by allowing

mass

- based states to take credit for REC purchases (i.e., making REC purchase equivalent to CO 2 reductions) and allowing rate

- based states to take credit for purchases of out

- of

- state carbon allowances. If the EPA fails to take these steps, commenters were concerned that a state's choice of a mass

- based goal could disadvantage it when it comes to compliance strategies and the result would be a r ule that give significant incentive for states to select rate

- based goals even though
rate

- based programs will be more difficult to administer and enforce. C ommenter s noted that the same situation would occur with multi

- state plans and recommend ed that mul ti

- state programs also be allowed to take credit for out

- of

- region emissions reductions in the same way individual state plans would, provided the reductions result from in

- state or in

- region compliance efforts.

Comment 9: Comments stating that s tates emp loying a rate

- based goal should receive credit for retiring coal fuel

- fired EGUs

. Response 9: The EPA believes that the flexibility provided for states to craft plans that are appropriate for their circumstances and emission reduction strategies fully recognizes the role that retirement of affected EGUs can play. Under a rate

- based plan, retiremen t of a higher

emitting affected EGU will reduce the weighted average CO 2 emission rate of the remaining fleet of affected EGUs, helping a state to achieve its rate

- based CO 2 emission goal. States also have the alternative of implementing a mass

- based plan, where retirement of an affected EGU will10 help a state meet its mass

- based CO 2 emission goal. In both cases, retirement of an affected EGU is a compliance option for the owner or operator of an affected EGU, as a retired affected EGU will have no complianc e obligation under either a rate

- based or mass

- based CO 2 emission standard. Plan approaches, and the different types of emission reduction measures that they accommodate, are discussed in section VIII.C of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:
Commenters believed states with plans employing rate

- based goals should be allowed to take credit for the retirement of older fossil fuel

- fired EGUs when the replacement generation is from
out

- o f

- state or a non

- 111(d) generating unit. Commenters stated that in states with significant coal

- fired generation, where a coal

- fired unit shuts down and is replaced with out

- of

- state generation or simply is not replaced, the pre

- retirement and post

- retirem ent emission rate for the state would remain largely unchanged, thereby creating an incentive for older, less efficient coal

fired EGUs to continue to operate. C ommenters recommended the EPA provide a mechanism for states and companies to receive full cred it for retirements of existing coal plants in states with a
rate

- based standard. Commenters stated that b y ensuring that states and companies are able to get full credit for retirements of coal

- based units, the y believe the EPA will encourage future retire ments and gain the benefit of additional CO 2 emission reductions.

Commenter s stated that because the guidelines base compliance on a measure of CO 2 produced per megawatt hour generated, utilities have no incentive to close either natural gas or coal

- fired power plants. Commenters stated that e liminating both the emissions and the generation from the formula

, results in no net benefit either to the utility, to the state, or allegedly to the environment. C ommenter s asserted that EPA cannot have meant to discourage the closure of power plants. C ommenter s recommended that EPA allow utilities and states to claim credit for historic CO 2 emission levels from power plants for the first 10 years after the closure of the plant.

Comment 1 0: Comments stating that s tate plans with r ate

- based limits should not be allowed to make adjustments to their rates for voluntary RE programs

. Response 10: Under an emission standards plan type, any adjustment of the reported CO 2 emission rate of an affected EGU would take place in the context of a federally enforceable emission standard applied to affected EGUs. Eligible RE measures could generate emission rate credits (ERCs), which could be used to adjust the reported CO 2 emissio n rate of an affected EGU. Eligible measures that can generate ERCs are discussed in section VIII. K.1 of the final rule preamble of the CPP . Requirements for the issuance of ERCs are discussed in section VIII. K.2 . Under a state measures plan type, state me asures that use RE would need to be enforceable at the state level, consistent with requirements described in section VIII.C. 3 of the preamble to the final rule.

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

Commenter s recommended the EPA allow no adjustment to rates be made for voluntary RE for states using rate

- based limits.11 Comment 11: Comments suggest that t he EPA should create " Safe Harbor " for companies whose average emissions rate is below the state's rate

- base d goal

. Response 11: The EPA disagrees that a utility company should be allowed to meet the emission guidelines by demonstrating that their company

- wide CO 2 emission rate for all generation is less than the state rate

- based CO 2 goal in the emission guidelines. Consistent with the requirements of CAA section 111(d), these state CO 2 goals apply to affected EGUs in the source category subject to this final rule. See section IV.A of the preamble to the final rule for more information on EPA’s authority under 111(d).

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

Commenter s recommended the EPA include provisions in the final rule for a " safe harbor " that allows affected entities to show compliance with any state 111(d) plan through the demonstration of an emission rate near or below the state's emission rate goal. Commenters noted that a s an example, Entergy Arkansas, Inc.'s utility fleet emission rate in Arkansas (Entergy's largest coal generation stat e) was 99 lbs CO 2 /MWh in 2013, when nuclear generation was included and that b y comparison, Arkansas' final 2030 emissions rate goal under the Proposed Rule will be 910 lbs CO 2 /MWh. Commenters believe d that companies that can demonstrate they are below the state emission rate goal should be considered to be in compliance with the state 111(d) plan.

Comment 12: Comments stating that the EPA should provide methodology for how states determine compliance with rate

- based emission limits

. Response 12: In the final rule, the EPA has provided equations, and related examples, demonstrating the accounting method that must be used to adjust the reported CO 2 emission rate of an affected EGU under a rate

- based stat e plan. This accounting method, examples, and rationale, are discussed in section VIII. K.1 of the preamble to the final rule

. Issuance of ERCs to affected EGUs that perform below a specified CO 2 emission rate is discussed in section VIII. K.2 of the preambl e to the final rule. This section also provides equations for the required accounting method, example calculations, and rationale for the required method.

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

Commenter s were concerned the EPA has not provided the methodology for states to determine compliance with rate

- based limits. Commenters believed that rate

- based emission limits may be more restrictive than mass

- based limits depending on what method is used for determinin g compliance. Commenters were concerned that a state could be deemed out of compliance with its rate

- based standard despite having significantly reduced its CO 2 emissions and being in compliance under a mass

- based approach. Commenters provided the followin g example to illustrate why they believe a rate

- based approach could be problematic. Commenters stated that b ased on information provided in proposal and technical support documents, the 2030 goal for Utah is 1322 lbs of CO 2 /MWh for affected EGUs, which i s above the average emission rate for an NGCC power plant. Commenters stated that i n the 2012 baseline year, the average NGCC12 emission rate for affected EGUs located in Utah was 884 lbs CO 2 /MWh. Commenters argued that i f Utah were to adopt a mass

- based li mit, the allowable amount of CO 2 emissions in 2030 would be 21,747,459 tons/year. Commenters noted that i f Utah's largest emitter of CO 2 emissions is shutdown prior to 2030 and other affected EGUs remain operational, then Utah would achieve the mass

- based 2030 goal of 21,747,459 tons per year because the total emissions for the remaining affected EGUs would be 21,108,430 tons per year. Commenters assumed that

u nder a rate

- based approach, states would demonstrate compliance by employing the same methodology EPA used to determine the rate

- based goals. Commenters stated that if the MWh attributable to the shutdown of the high emitting plant are removed from the denominator along with the associated CO 2 emissions from the numerator, then Utah would not be in com pliance with the rate

- based limit because Utah's emission rate of 1824 lbs of CO 2 /MWh would be above the rate

- based limit of 1322 lbs of CO 2 /MWh.

Comment 13: Comments stating that b oth rate

- and mass

- based approaches are not viable

. Response 13: The EPA disagrees with the commenters’ assertion that the rate

- based and mass

approaches be eliminated, and has included both mass

- based and rate

- based approaches in the final rule. The EPA discusses the basis for its determination of the BSER, including i ts achievability, in section V of the preamble to the final rule.

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

Commenter s recommended the EPA eliminate the rate

- based and mass

- based approaches because (1) the heat rate im provements of 4

- 6% are largely unobtainable because utilities have been making efficiency improvements whenever economical and no realistic heat rate improvements exist, or because they might trigger New Source Review (NSR); (2) the heat rate improvement o f 4

- 6% would not achieve the goals; (3) limits on generation is not practically achievable without impacting the reliability of the electric system; and (4) there is no demonstrated technology that is commercially available to control CO 2 emissions.

Comment 14: Comments suggesting that extending authority for a multi

- state plan could result in delay of implementing the state plan.

Response 14: The emission guidelines provide flexibility to states to choose different approaches to state plan design, an d to consider a state’s particular circumstances in doing so. If certain plan approaches appear likely to run into roadblocks, a state may wish to choose another approach that is more likely to succeed

. Although the emission guidelines allow multi

- state p lans, such plans are not mandated. The state has the option of an individual state plan. The state also has the option of an individual state plan designed to link with other individual state plans to facilitate interstate emissions trading. See section VIII

. C of the preamble to the final rule for a discussion of state plan approaches

. The following are summaries of the specific public comments under this comment:13 Commenters stated that even where the MPSC believes its authority to be sufficient, extendin g that authority into new areas may well lead to litigation that could delay the implementation of any state plan. Commenters noted that one such new area would be the extent of the inter

- state cooperation that would be necessary for the development and im plementation of a multi

- state plan.

5.1.2 Direct emission limits: mass

- based

This section contains comments on the mass

- based emission limit plan approach for meeting the emission guidelines

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

Comment 1: C omments support ing m ass

- b ased l imits

. Response 1: The EPA agrees generally with the commenters and has highlighted the multiple benefits of a mass

- based plan approach, and market

- based emission budget trading approaches in particular, in the preamble to the final rule. These benefits include greater admin istrative simplicity and economic efficiency. In the final rule, the EPA has provided mass

- based state CO 2 goals in the emission guidelines, to facilitate the use of mass

- based plans by states. Plan approaches are discussed in section VIII.C of the preambl e to the final rule, and implementation considerations for mass

- based plans are further discussed in section VIII.J. The EPA also notes that it considers a rate

- based emission trading approach to be viable, and discusses in detail requirements for rate

- bas ed emission trading programs in section VIII. K.2 of the preamble to the final rule.

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

Several commenters supported mass

- based CO 2 emission limits for the following reasons:

• Efficient and cost effective method for achieving enforceable reductions.

• Simple to implement.

• Would ensure overall CO 2 emissions do not increase when combined with an emission cap

.

• Would achieve real, permanent, enforceable, and verifiable carbon dioxide reductions from existing sources.14 • Can accommodate many emission reduction strategies, including energy efficiency, renewable power, and add

- on controls, more easily than rate

based programs.

• Would enable the EPA to easily assess whether a state has attain ed its goal.

• Avoids many of the problems of the rate

- based system, including potential double

- counting due to trading of RECs among rate

- based states and between rate

- based and mass

- based states, treatment of new gas plants, and nuclear generation.

• Automa tically accounts for RE imported from other countries

• Easier to implement than a rate

- based system.

• Would make it easier for states to take advantage of the efficiencies of broad interstate trading programs.

• Would allow states to take credit for actions since 2005 that reduced mass emissions (e.g. coal plant retirements, efficiency improvements).

• Would focus emission reductions on affected sources.

• Would treat all compliance equally and results in compliance choices based on the lowest dollar per ton redu ced compared with the proposed
rate

- based approach which provides "extra credit" for RE and incremental EE and less credit for gas switching.

• Would provide full credit for plant retirements, which is important for states like West Virginia and Kentucky tha t rely almost entirely on coal

fired plants.

• Avoids estimating the reduction in electricity output associated with EE improvements.

• Would allow voluntary energy efficiency and DSM measures to be treated as complementary to the plan allowing them to be chan ge over time without the need to update the state plan.

• EM&V measures would not be needed for RE and EE programs

.

• Provides a transparent approach to reducing emissions

.

• Would maintain the integrity, security, and reliability of the electric grid

.

• Allows EGUs to continue to use a diverse fuel mix

.15 • Gives states the flexibility to achieve their individual emission reduction goals

.

• Would not discourage the use of RE and EE like more complicated rate

based plans would do

.

• States have the authority to imple ment a mass

- based limit.

Some commenters noted that many states already have experience with mass

- based CO 2 limits and believe that this approach will make it easier for states to comply with the rule. Commenter s noted that mass

- based regulatory approaches have been shown to be highly effective in addressing conventional air pollutants emissions, including the NOx SIP Call program and Acid Rain trading program. Commenter s thought the EPA should be consistent with other rules that
set mass

- based li mits for the electricity generation sector (e.g., CSAPR, Clean Air Interstate Rule (CAIR), NOx SIP Call, and the Clean Air Mercury Rule (CAMR)). C ommenter s believe d that these rules demonstrate that mass

- based standards are a reasonable basis for pollution control measures and notes that section 111(d) allows the EPA to set a mass

- based standard for this rulemaking. Commenter s recommended the EPA provide guidance that facilitates the mass

based approach and encourages states considering mass

- based approache s to use existing carbon trading markets or establish new markets using these proven frameworks.

Commenter s stated that mass

- based programs are more easily enforced. Commenters noted that complex modeling, projection, allocation and verification systems ne eded for a rate

- based system are not necessary for a mass

- based system and that power plant emissions are easily measured and recorded by widely available continuous monitoring equipment.

Commenters believe that mass

- based programs are one of the most effe ctive ways to transparently track and verify emissions reductions and compliance.

Commenters stated that a mass

- based approach simplifies compliance and enforceability, and avoids legal and accounting complexities associated with other rate

- based approache s. Commenter s believe d the more straightforward design of mass

- based plans would make them less susceptible to strategic maneuvers by states than rate

- based plans. Similarly, commenter s believe d that a mass

- based system with a cap on fossil

- fueled power pl ant emissions would be inherently simple and straightforward, and that a complex rate

- based system that only a few can understand will not meet with the same level of acceptance and support by the public.

Commenter s believe d a mass

- based approach is more e fficient than a rate

- based approach. Commenters noted that if two states have the same load but different starting emissions rates, then the states with the higher rate has more incentive to invest in emissions reduction, even though the emissions reductio n are not more beneficial in one state than in the other.

Commenter s supported the mass

- based approach because it provides greater flexibility, easier to implement, and ensures emissions are reduced. C ommenter s believed that for emissions trading,
rate

- ba sed programs suffer from a lack of experience, with few examples to cite ( the EPA's lead trading program being the most prominent.) Commenters stated that a lack of familiarity within the trading community can be a hindrance to the early acceptance and eventual adoption of16 programs with tradable performance standards. Commenters noted that mass

- based programs were designed for emissions trading, and have clearly established performance records. Commenters believe d that the acknowledged success of the trading programs such as Title IV/Title I, RGGI, AB 32, etc. makes the mass

- based option a logical candidate for consideration by many states. Comme nter s also noted that another disadvantage for implementation of rate

based programs is that they require mechanisms to credit energy efficiency and renewable generation. Commenters argued that t hough the crediting mechanism can be created within a particu lar state to satisfy its requirements, the necessary EM&V programs can be resource intensive and air pollution control agencies may not have the appropriate staffing or expertise to certify energy efficiency reduction credits. Commenters noted that is a pa rticular concern for multi

- state rate

- based trading programs because the handling of these special reduction credits must then be coordinated to ensure consistent treatment. Commenters noted that for mass

- based programs there is no need for credit trading because investments in these alternative resources are accounted for under a state budget approach by lowering overall emissions.

Comment 2: Comments stating that T ribes and t erritorial a reas s upport ed m ass

- b ased l imits

. Response 2: The EPA agrees with commenters and has provided both rate

- based and mass

based goals in the final rule to allow tribes to choose the approach that is most appropriate for affected EGUs in their jurisdiction. The EPA worked with the Navajo Nation to determi ne the appropriate mass

- based CO 2 goals prior to finalizing the rule, and will continue to support and give guidance to the tribe during implementation of the rule.

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

Commenters support mass

- based emission goals for tribal areas and territories because mass

based goals are the most effective, efficient and transparent approach to significant CO 2 emission reductions from the designated facilities. Commenters assert that mass

- based goals will allow for entities to more easily demonstrate compliance with the CO 2 emissions reductions at the designated facilities using continuous emission monitoring and allows energy efficiency and renewable energy programs to be more easily incorporat ed into tribal and territorial plans without the need for modeling of emission reductions required for rate

- based plans.

Commenter s also stated that mass

- based goals would better enable allowance trading mechanisms, which they believe d would provide emiss ion reductions at the lowest cost.

Commenter s believe d the mass

- based limits would be the best approach for the Navajo Nation's power plants . Commenters stated this approach would allow them to take credit for CO 2 emission reductions that have been achieve d at FCPP and for reductions that will be achieved at NGS. Commenters requested the EPA work with the Navajo Nation to determine appropriate

mass

- based goals for the FCPP and NGS plants.17 Comment 3: Comments suggesting that m ass

- based standards are more consistent with building blocks 2, 3, and 4

. Response 3: In the preamble to the final rule, the EPA demonstrates how the BSER is achievable under either a rate

- based or mass

- based approach. In particular, section V.A.5 of the preamble describes actions tha t affected EGUs can take to achieve standard of performance derived through the application of the BSER, under both a rate

- based and mass

- based approach.

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

Commenter s believe d that a mass

- based standard would be more consistent with building blocks 2, 3, and 4 since each of these measures ensures that the highest emitting generators operate less frequently to reduce the mass of emissions.

Comment 4: C omment s support ing mass

- b ased limits but recommend ing the final rule accommodate states that already comply with RGGI.

Response 4: The EPA agrees with the c ommenters , and in the final rule

, has provided states with the flexibility to implement either a rate

- based or mass

- based plan approach. To facilitate mass

based plans, the EPA has included state mass

- based CO 2 goals in the final rule . Plan approaches are discussed in section VIII.C of th e preamble. The preamble to the final rule discusses the existing emission budget trading programs currently being implemented by California and the RGGI participating states, and explains available state plan pathways that would accommodate use of these p rograms to meet a state CO 2 emission goal. These pathways would facilitate the continued implementation of these state programs and the ability to use them to meet the emission guidelines. These issues are discussed in section VIII.J of the preamble to the final rule.

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

Commenter s believe d that mass

- based emission limits are critical to helping states take advantage of the lowest cost carbon reduction options under the EPA's proposal , but recommended that the final rule accommodate states that are already complying with RGGI requirements (such as coverage of new units) so that duplicative regulation may be avoided.

Comment 5: Comments stating that m ass

- based emission allowan ces should be allocated based on historic emissions

. Response 5: The EPA does not take a position in the final rule on how states implementing an emission budget trading program under either an emissions standards plan type or a state measures plan type must or should allocate emission allowances. States have the discretion to allocate allowances as they see fit considering the circumstances in their state and other policy considerations. Plan approaches are discussed in section VIII.C of the preamble to the final rule,18 and implementation considerations for mass

- based plans are further discussed in section VIII.J of the preamble to the final rule.

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

Commenter s recommended mass

- ba sed emission allowances be allocated to affected sources based on their historic emissions. C ommenter s prefer this approach because it avoids complicated allowance allocation systems, auctions, taxes or other added costs.

Comment 6: Comments stating that s tates should auction emission allowances rather than allocating them

. Response 6: The EPA does not take a position in the final rule on how states implementing an emission budget trading program under either an emissions standards plan type or a state

me asures plan type must or should allocate emission allowances. States have the discretion to allocate allowances as they see fit considering the circumstances in their state and other policy considerations. Plan approaches are discussed in section VIII.C of the preamble to the final rule, and implementation considerations for mass

- based plans are further discussed in section VIII.J of the preamble to the final rule.

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

Commenter s recommended that states adopting mass

- based emission standards should auction allowances rather than allocating them for free. Commenters stated that a uctioning allowances provides affected sources the ability to purchase the number of allowances they nee d for compliance and provides a fair, equitable and economically efficient method of distributing allowances to affected sources.

Comment 7 : Comments stating that the EPA should clarify that mass

- based allowance programs can be used to comply with the ru le

. Response 7: The final rule provides states with the flexibility to implement either a rate

- based or

mass

- based plan approach. To facilitate mass

- based plans, in the final rule the EPA has included
state mass

- based CO 2 goals. Plan approaches are discussed in section VIII.C of the preamble to the final rule. Implementation considerations for mass

- based plans are further discussed in section VIII.J of the preamble to the final rule.

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

Commenter s believe d it is important for the EPA to make it clear that mass

- based allowance programs may be used to comply with its rate

- based targets, but that state emission standards

" shall be no less stringent " than federal emission guideli nes as required by section 111(d).19 Commenters stated that

, p rovided a state's mass

- based targets have an equivalent degree of stringency, they believe that a wide range of design choices should be permitted.

Comment 8 : Comments stating that RGGI and other programs demonstrate that plans with

mass

- based limits would be successful

. Response 8: The EPA agrees with the commenters and has highlighted the multiple benefits of a

mass

- based plan approach, and market

- based emission budget trading approaches in particular, in the preamble to the final rule. These benefits include greater administrative simplicity and economic efficiency. In the final rule, the EPA has provided mass

- based state CO 2 goals in the emission guidelines, to facilitate the use of mass

- b ased plans by states. Plan approaches, including multi

- state plans and multi

- state coordination, are discussed in section VIII.C of the preamble to the final rule, and implementation considerations for mass

- based plans are further discussed in section VIII.J of the preamble to the final rule. In addition, the preamble to the final rule notes, in multiple instances, the successful i mplementation of state emission budget trading programs, such as RGGI, and the potential for their incorporation in state plans.

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

Many commenters supported a mass

- based system w ith a cap on fossil fuel

- fired power plant emissions. Several of these commenters specifically mentioned RGGI as an example of a successful mass

- based program and noted that RGGI has demonstrated that a mass

- based trading system can achieve greater emissio ns reductions at a lower cost, while creating jobs, maintaining reliability, and improving the regional economy. Commenters noted that RGGI has successfully reduced regional CO 2 emissions by more than 40 percent from 2005 levels and that New Hampshire has achieved CO 2 emission reductions of over 48 percent from 2005 levels. C ommenters further emphasized that RGGI is expected to achieve an additional 14 percent reduction from its 2014 cap of 91 million tons by the year 2020 and that new sources are covered

u nder the RGGI cap. Commenter s states that "RGGI has demonstrated that, by working together, groups of states can achieve greater emission reductions at a lower cost, while creating jobs, maintaining grid reliability, and improving the regional economy." C o mmenters believe a mass

based program like RGGI avoids many of the complications of a rate

- based approach and simplifies compliance and enforceability.

Commenter s stated that ma n y states and other stakeholders have requested the EPA use a mass

based allow ance approach because of the simplicity of this approach. Commenters noted that a number of states have already implemented mass

- based allowance systems. Commenter s noted that California's Global Warming Solutions Act (AB32) and to some extent Colorado's C lean Air, Clean Jobs Act (CACJA) included mass

- based limits.

Commenter s believed that a final section 111(d) rule containing an emission standard in the form of a mass

- based system would likely be much more easily integrated into any future economy wide gr eenhouse gas legislation.

Commenter s noted that a market

- driven, mass

- based program like RGGI also provides additional emission reduction benefits by leveraging the value of emission allowances. Commenters noted20 that t he RGGI states distribute RGGI CO 2 all owances primarily through regional auctions

, and that revenues from these auctions are then used by each RGGI state to fund a variety of EE, RE, and other GHG emission reduction programs and projects, which yield significant additional GHG emission reducti ons in all sectors of the economy. C ommenter s believe d other mass

- based programs could achieve similar additional benefits through the use of allowance revenues.

Commenter s noted that RGGI has shown that mass

- based programs can be used in a multiple ISO environment.

Comment 9: Comments stating that i nnovative carbon reduction programs such as RGGI should not be stymied by incorporating their provisions into SIPs.

Response 9: The final rule provides for the incorporation of existing emission budget trading programs, such as RGGI, in state plans. These existing programs could be included in a state measures plan, as discussed in sections VIII.C. 3 and VIII. J of the preamble to the final rule. Under this approach, the emission budget trading program would be incorporated as a state

enforceable measure, rather than a federally enforceable emission standard. Alternatively, states could include emission budget trading programs as f ederally enforceable emission standards under an emission standards plan type, as discussed in section VIII.C. 2 of the preamble to the final rule. In addition, in the final rule, the EPA has provided multiple routes for states to implement multi

- state emis sion budget programs through a state plan under CAA section 111(d). These approaches are discussed in section VIII.C.5 of the preamble to the final rule. The EPA believes that these multiple plan approaches facilitate the continued implementation and impro vement of programs such as RGGI.

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

Commenter s stated that the Regional Greenhouse Gas Initiative (RGGI) and similar programs have

"demonstrated that compliance with environmental programs can be monetized such that it is factored into power sector economic decision making in ways that reduce the cost of controlling pollution, maintain electricity system reliability and work within th e least cost dispatching principles that are key to operation of our electric power grid."

Commenters stated that they are skeptical RGGI's success can be extended or duplicated through implementation of the 111(d) rule as proposed. Commenters stated that they are concerned that the EPA's proposed use of SIPs to lock in federally enforceable gains will discourage new interstate agreements and improvements to existing ones; states could end up disassociating themselves from RGGI.

Comment 1 0 : Comments stati ng that m ass

- based limits w ould encourage states to import electricity from states with rate

- based limits

.21 Response 10: In response to comments, the EPA has made changes to the final e mission guidelines to address this concern under mass

- based plans. T he EPA requires that mass

- based plan must demonstrate that it has provisions that mitigate the potential for emission leakage. These requirements, and the rationale for their inclusion in the emission guidelines

, is discussed in section V III.J.2.b of the prea mble to the final rule.

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

Commenter s believe d that states with mass

- based limits will have an incentive to import electricity from rate

- based states.

Comment 11 : Comments asking whether RE and EE programs have to be federally enforceable in a mass

- based state plan

Response 11: In the final rule, the EPA is providing states with the flexibility to use an emission budget trading program that covers emission sources beyond aff ected EGUs subject to CAA section 111(d) to meet the emission guidelines. This approach may be taken through a state measures plan type. Under this approach, a state mass

- based CO 2 emission goal for affected EGUs must be achieved through the plan. However, an emission budget trading program used to achieve this goal could include emission sources beyond affected E G Us.

Under a plan that includes a mass

- based emission budget trading program, RE and demand

- side EE are complementary measures that do not need to be included in a state plan. Even though not included in a plan, these measures will reduce CO 2 emissions, helping affected EGUs meet the established emission budget. Alternatively states may choose to implement a mass

- based state measures plan type, where state measures, which may include RE and demand

- side EE, are used to achieve a state mass CO 2 g oal. Under that plan approach, those state measures are not federally enforceable. These issues are discussed in the preamble to the final rule in section s VIII.C and VIII. J.

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

Commenter s asked whether meeting the mass

- based emissions cap will be the only federally enforceable component of the states' plan under the CPP, even if the emissions cap covers new sources or other sources that are not affected sources under the CPP. Com menters asked whether the EPA will only consider whether the broader regional cap is met in determining a state's compliance.

Commenter s asked the EPA to confirm that complementary RE and EE programs need not be separately quantified or accounted for, and would not become federally enforceable. Commenters noted that a benefit to this approach is the avoidance of a host of complexities associated with enforceability, accounting, and " double

- counting ."22 Comment 1 2 : Comments stating that the EPA should clarify whether differences in applicability and scope will be allowed

. Response 12: In the final rule, the EPA is providing states with the ability to use emission budget trading programs that apply to a broader set of emission sources than just affected EGUs subject to CAA section 111(d) to meet the emission guidelines. State plan approaches that include emission budget trading programs that include a broader set of emission sources beyond affected EGUs are addressed in sections VIII.C. 2.b and VIII.J of the preamble to the final rule.

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

Commenter s requested the EPA clarify its treatment of distinctions between state programs included as part of state plans and th e requirements of the CPP under CAA Section 111(d). Commenters noted that RGGI states understand that, provided a state or region makes an acceptable equivalency demonstration in its plan, the EPA will allow for applicability or other differences between t he scope of 111(d) and those of state programs. Commenters provided for example, if a state program has a broader applicability than the affected sources covered under the CPP (e.g., new as well as existing sources), that this should not create significant complications for the EPA or the states, and can be incorporated through modeling or other projections used in the rate

- to

- mass translation. Commenters contended that as long as a state or region can demonstrate that its plan is projected to result in an equivalent level of emission reductions from affected sources without weakening the stringency of the targets, then the EPA compliance and enforcement requirements are satisfied. Commenters noted that this approach has been used before by the EPA under the CAA, including in the context of State Implementation Plans ("SIPs") for nitrogen oxides ("NOx").

Comment 1 3 : C omment s recommend ing emission allowance s be auction ed and the proceeds by distribut ed to state residents

. Response 13: The EPA does not take a position in the final rule on how states implementing an emission budget trading program under either an emission standards plan type or a state measures plan type must or should allocate emission allowances. States have the discre tion to allocate allowances as they see fit considering the circumstances in their state and other policy considerations. Plan approaches are discussed in section VIII.C of the preamble to the final rule, and implementation considerations for mass

- based pl ans are further discussed in section VIII.J of the preamble to the final rule.

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

Commenter s recommended the EPA allow states to use " an upstream cap

- and

- permit system " in which t he state would cap emissions, auction CO 2 emission allowances (permits) to EGU's, and then the state would distribute the revenue as per capita dividend to the state's legal residents. Commenters stated that states would ideally coordinate with other states in their region and each year the number of allowances would decline until the state or regional target is

m et. Commenters recommended that no traders or speculators should be able to purchase

a llowances and no offsets should be allowed impact emissions, would be tracked using the23 number of allowances. Commenters also recommended that the revenue should not be distributed as a credit against customer's energy bills but rather as a direct rebate p aid directly by the state to all legal residents. Commenters stated the reason for distributing dividends via direct payment rather than via utilities, is that credits against utility bills mask the higher cost of energy and thus reduce the incentive to co nserve energy.

Commenters believed that " an upstream cap

- and

- permit system " is preferable to a carbon tax or fee without an upstream cap because it sets the quantity of carbon that can be burned. Commenters believed that such a system would be easy to adm inister with the prices paid by the companies set by auctions rather than government. Commenters noted that the California and Regional Greenhouse Gas Initiative (RGGI) have shown that emission allowance auctions can be conducted fairly and efficiently, an d noted that if predictability in prices is desired, a floor price on allowances could be included in the system.

Comment ers also argued against allowing auction revenues being spent by state governments on conservation programs, stating that the cap is t he cap on emissions and the gradual annual reductions in the cap that reduces emissions, rather than spending of revenue on particular
programs.

Comment 14 : Comments stating that states may be disadvantaged by setting a mass

- based limit and supported a l east cost dispatch approach.

Response 14: The EPA disagrees with the comment. A mass

- based emission limit that includes emission trading facilitates least

- cost dispatch of affected EGUs, as it establishes a market piece for emis s ion allowances. This market price or allowances is in turn considered in the variable operation and maintenance costs for an EGU, in a manner that considers the CO 2 emission rate of each EGU, facilitating least

- cost dispatch of EGUs in meeting the mass

- based emission limit.

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

Commenter s believe d states may be disadvantaged by setting a mass

- based target because the measures the EPA has considered as part of an adjusted emission rate goal may or not di rectly displace emissions from affected sources in manner proposed due to the interconnected nature of the electric grid. Commenters noted that under a least cost dispatch approach, emissions are always reduced from the marginal generating units at a speci fic point in time. Commenters noted that a s an example, the increased use of renewable energy or energy efficiency measures could at times displace emissions from out of state generation or gas

- fired generation, which they believe may not affect emissions from affected sources within a state to the degree proposed.

Comment 15 : Some commenters believed increases in electricity demand would make

co mpliance with mass

- based limits more difficult for natural gas

- fired EGUs and rural electric companies

.24 Response 15: The EPA disagrees with the comment’s assertion that the state mass

- based CO 2 goals in the emission guidelines would " penalize " natural gas

- fired EGUs. As discussed in section VII of the preamble to the final rule, the state mass

- based CO 2 emis sion goals are derived from the CO 2 emission performance rates for NGCC and steam generating units in the emission guidelines.

T he EPA also disagrees with the contention by commenters that growth in electricity demand cannot be accommodated under a mass

- based plan approach. The EPA notes that under both
rate

- based and mass

- based approaches, CO 2 emissions reductions can be achieved while accommodating for growth in electricity demand. Both rate

- based and mass

- based approaches apply to CO 2 emissions from existing affected EGUs. Electricity growth can be accommodated through a mix of electricity generation from affected EGUs, low

- and non

- emitting non

- affected EGUs (including new fossil fuel

- fired EGUs subject to CAA section 111(b), and reductions in electricity demand through demand

- side EE improvements )

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

C ommenter s believe d mass

- based limits will penalize natural gas

- fired EGUs. Commenters noted that Coffeyville and Winfield plants in Kansas are natural gas

- fired plants that are below the state lb/MWh goal. Commenters stated that i f the goal is converted to a mass

- based limit, then Coffeyville and Winfield would likely be forced to make reductions through demand

- side management programs or additional investments in renewable energy, which they stated would have a large impact on customer electricity rates. Commenters also noted that if some coal

- fired generators are retired, Coffeyville and Winfield may be dispatched more often and would have greater problems meeting a mass

- based limit even though the overall amount of state GHG emissions will have been reduced considerably.

Commenter s w ere concerned that increased demand for electricity from natural gas drilling and compression caused by Building Block 2 would likely make compliance with mass

- based limits more difficult, especially for ru ral electric companies due to the increased demand for electricity from natural gas drilling and compression facilities in rural areas.

Comment 16 : Comments stating that m ass

- based limits would be more expensive and make electricity consumers uncompetit ive

. Response 16 : The EPA disagrees with the commenters’ assertions that mass

- based goals would be more expensive and make electricity uncompetitive. The EPA highlights in the preamble to the final rule the multiple benefits of a mass

- based plan approach. There is a wide

- ranging literature on the economic efficiency and successful implementation of mass

- based emission budget trading programs, including successful implementation of programs by the EPA and
states. In the final rule, the EPA has provided both rate

- based and mass

- based goals to allow states to choose the approach that is most appropriate for affected EGUs in their jurisdiction.

The following are summaries of the specific public comments under this comment:25 Commenter s believed that it would be a serious mistake for states to convert intensity goals to

mass

- based goals because the costs of achieving emissions reduction using a mass

- based limit would more expensive than achieving the same reduction with a rate

- based system. Commenters argued that st ates that adopt a mass

- based system place themselves at a severe competitive disadvantage, not only with respect to other states, but also with respect to foreign jurisdictions that adopt a rate

- based target or no target at all. Commenters stated that mass

- based limits have regressive distributional effects that can be avoided with a rate

- based system of control. Commenter s argued that emissions trading has been most successful when designed to achieve an intensity goal rather than a mass

- based goal

, and be lieved that the success of the 1980s program to phase out the use of tetraethyl lead as an octane booster in gasoline was due to the EPA's decision to adopt an intensity

- based limit, rather than a mass

- based limit.

Comment 17 : Comments expressing concern that m ass

- based limits would not reduce emissions

. Response 17 : The EPA disagrees with the commenter s . Emission limits that achieve mass

- based CO 2 goals will reduce CO 2 emissions from affected EGUs. The EPA notes that increased electricity demand could be met through a mixture of electric generation from affected EGUs, new EGUs subject to CAA section 111(b) (which are also subject to CO 2 emission constraints, other low

- and non

- emitting generation, and demand

- side EE)

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

Commenter s argued that a mass

- based goals would not result in a reduction in emissions because increased demand would be met with additional generation. Commenters argued that the EPA, Ohio EPA nor any other ent ity has the authority to limit generation.

Comment 18 : Comment s suggesting the proposed BSER would make mass

- based limits inflexible

. Response 18 : The EPA disagrees with the commenter s . Demand

- side EE could be used as an emission reduction strategy under a mass

- based plan approach, as discussed in section VIII .C.2.b of the preamble to the final rule. The EPA also notes that a state is not required to implement in its state plan the measures determined by the EPA to be the BSER.

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

Commenter s believe d that any state choosing a mass

- based compliance approach would do so to avoid implementing costly and technically unreasonable EE measures and exposing electricity rate payers to increased costs. However, c ommenters believe d the flexibility of the mass

- based approach is eliminated because the states must employ the proposed BSER.26 Comment 19 : Comments stating that s tates using a mass

- based limit should be allowed to expand their program to cover new natural gas plants

. Response 19 : In the final rule, the EPA is providing states with the ability to use emission budget trading programs that apply to a broader set of emission sources than just affected EGUs subject to CAA section 111(d) to meet the emission guidelines

. This approach is addressed in sections VIII.C. 2.b and VIII.J .2 of the preamble to the final rule. In response to comments, the emission guidelines include requirements that a mass

- based state plan must demonstrate that it includes provisions to mitigate the potential for emission leakage. One approach for meeting this requirement is inclusion of new EGUs in an emission budget trading program, through requirements under s tate law. These requirements, and options for meeting them, are discussed in section VIII.J.2.b of the preamble to the final rule.

In the final rule, the EPA does not prescribe allocation approaches for states implementing emission budget trading programs as part of a state plan. A state could choose to include an allocation " set

- aside " such as the one suggested by the commenters.

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

Commenter s recommended the EPA allow and encoura ge states that choose mass

- based systems to expand their budgets to cover new natural gas plants and to regulate them under the same

mass

- based system the state uses to regulate existing power plants under Section 111(d). Commenters stated that inclusion o f new natural gas plants is important because it will avoid creating a dispatch cost advantage for new gas power plants relative to comparable existing gas power plants, which would distort market outcomes and provide an incentive for operating new gas pla nts that have unregulated emissions.

Commenters also recommended that states adopting mass

- based emission limits with allowance trading (i.e. a cap

- and

- trade program) should be required to include a "set

- aside" mechanism for voluntary RE that would set asi de and retire allowances for voluntary RE purchases made by facilities within the state. Commenters believed that without such a mechanism, voluntary actions to reduce emissions in capped sectors would not reduce emissions but would instead allow other sou rces to emit more. Commenters stated that a set

- aside mechanism for voluntary RE, like those used in the California and RGGI programs, would restore the impact of the voluntary market to reduce total CO 2 emissions.

Comment 20 : Comments stating that t he EPA should require states to adjust goals to account of voluntary RE generation

. Response 20 : The EPA disagrees with the comment. Such concerns do not warrant changing
state CO 2 goals. States can address aspects of the voluntary RE market, including provision of incentives for voluntary RE purchase, in the design of their state plans. In addition, private standards, such as Green

- e, can address the issues raised by the commenter in the context of those private standards for the recognition of voluntary RE purchases. In addition, the requirements for rate

- based emission trading programs in the emission guidelines, which are27 discussed in section VIII.K.2 of the preamble to the final rule, do not allow double counting and include requirements that are designed to preclude such outcomes in practice.

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

Commenter s stated that for states using a mass

- based appro ach, the EPA should require states to adjust the goals to account for any voluntary RE generation within the state. Commenters noted that voluntary RE is already tracked using RECs and REC retirement either in RE tracking systems or by contractual agreemen ts and that CRS and Green

- e can report to the EPA and the state the quantity of certified and verified voluntary sales data annually to prevent double counting and ensure that this generation is not included in 111(d) compliance.

Comment 21 : Comments sta ting that the RE and demand

- side EE programs in m ass

- based state plans sho uld not be federally enforceable and regulated facilities should not have to quantify the impacts of these programs.

Response 21 : Under a plan that includes a mass

- based emission budget trading program, RE and demand

- side EE are complementary measures that do not need to be included in a state plan. Even though not included in a plan, these measures will reduce CO 2 emissions, helpin g affected EGUs meet the established emission budget. Alternatively, states may choose to implement a

mass

- based state measures plan type, where state measures, which may include RE and demand

side EE , are used to achieve a state mass CO 2 goal. Under that plan approach, those state measures are included as part of the plan but are not federally enforceable. These issues are discussed in the preamble to the final rule in section s VIII.C and VIII. J.

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

Commenter s recommend ed that states adopting mass

- based goals should be able to demonstrate compliance through emission monitoring at regulated facilities and should not be required to quantify impacts from EE and RE programs or make such EE and RE programs federally enforceable

.
Commenter s note d that RE and EE programs can act as complementary policies under a mass

based program that need not be separately accounted for or made federally enforceable. Commenters stated that a mass

- based approach also circumvents interstate issues , such as those regarding which state receives "credit" for various RE and EE measures.

Similarly, commenter s wanted assurance from the EPA that existing state RE and EE measures do not have to be federally enforceable parts of a state plan if the state p lan imposes a sufficiently stringent mass limit on affected EGUs. Commenters noted that RE and EE programs have historically been solely under the purview of state law and that Illinois' existing RPS and Energy Efficiency Portfolio Standard were a result o f state legislation and are not federally enforceable. Commenter s recommended that such existing RE and EE measures should continue to be enforceable only under state law and that only the EGU emission limits should be federally enforceable. To maintain fl exibility and autonomy, Commenters believe d Illinois should not be28 required to make such measures federally enforceable as part of its state plan, but should be able to take them into account in meeting the criteria for state plan approval.

Comment 22 : Comments stating that the EPA should allow states to apply mass

- based limits to both new and existing sources

. Response 22 : In the final rule, the EPA is providing states with the ability to use emission budget trading programs that apply to a broader set of emission sources than just affected EGUs subject to CAA section 111(d) to meet the emission guidelines. This includes new EGUs subject to emission standards under CAA section 111(b). This approach is addressed in sections VIII.C. 2.b and VIII.J .2.b of th e preamble to the final rule.

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

Commenters recommended the EPA allow states to use a mass

- based system applied to the energy system as a whole so that both new and existing sour ces are included. C ommenters believe a more rational and cost

- effective market response will result if both new and existing sources are subject to the same regulatory program and market signals.

Comment 23 : Comments stating that m ass

- based limits may act as disincentive for states to support electric vehicle programs

. Response 23 : The EPA believes that the commenter s ’ concerns are not warranted, and notes that
a state mass

- based CO 2 goal applies to affected EGUs, rather than all electric generation. In particular, the EPA disagrees with the contention by the commenter s that growth in electricity demand cannot be accommodated under a mass

- based plan approach. The EPA notes that under both rate

- based and mass

- based approaches, CO 2 emissions reductions can be achieved while accommodating growth in electricity demand. Both rate

- based and mass

- based approaches apply
to CO 2 emissions from existing affected EGUs. Electricity growth can be accommodated through a mix of electricity generation from affected EGUs, l ow

- and non

- emitting non

- affected EGUs (including new fossil fuel

- fired EGUs subject to CAA section 111(b), and reductions in electricity demand through demand

- side EE improvements )

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

Commenter s w ere concerned the increased electrical load due to additional deployment of electric vehicles (EVs) will make compliance more difficult for states adopting a mass

- based goal. Commenters noted that EVs could ac count for 1 percent of elect ricity demand by 2020, and up to 5

- 7 percent of electricity used in the leading EV states by 2030. If all light duty vehicles in a state were converted to EVs, c ommenters noted that electricity consumption would rise by approximately 20 percent

. Commenters believe d this increase is large enough to impact a state's ability to meet a mass

- based target. Commenters believe d mass

- based limits could act as a disincentive for the state or utilities in the state to actively support EVs.29 5.1.3 Portfolio a pproach

This section contains general comments on the portfolio plan approach for meeting the emission guidelines . Specific comments on the state

- driven and utility

- driven portfolio approaches are included in subsections 5.1.4 and 5.1.5, respectively.

Comm enters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are provided for these topics.

Comment 1: Comments suggesting that s tates should be allowed to select

, and enforce EE
p rograms, rather than the EPA

. Response 1: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployme nt programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, in particular comm ents raised about applying federally enforceable requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6. d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such m easures could be used to adjust the reported CO 2 emission rate of an affected EGU as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measur es under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C. 2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are desc ribed in section VIII. K.1 of the preamble to the final rule.

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

Commenter s supported the proposed portfolio approach for state implementation plans, whereby states have the ability to select, adopt, and enforce energy efficiency policies and programs, rather than the EPA enforcing them. Commenters indicated this would generate s ignificant flexibility for the states, allowing for a broad range of efficiency programs to be considered for a state's implementation plan.

C ommenter s stated that utilities are already implementing energy efficiency programs for their customers in a wide range of policy contexts

-- some states have adopted formal energy savings requirements (e.g., an energy efficiency resource standard, or EERS), some have set energy savings goals, some have adopted energy efficiency rules, some allow energy efficiency prog ram30 funding and savings levels to be driven by integrated resource plans (IRPs), and some undertake energy efficiency program review and approval on an annual, biennial, or triennial basis, without any formal energy savings standards or goals. Commenters n oted that all are valid approaches to utility energy efficiency policy and program implementation. Commenters suggested that the EPA allow all approaches to be included in state plans, and then used during the implementation phase. Commenters noted that no n

- utility energy efficiency programs have a proven track record of achieving energy savings in many states and provide a strong complement to utility programs.

As proposed, Commenter s said the Clean Power Plan allows both utility and non

- utility programs t o receive compliance credit for energy savings. However, Commenters requested clarification on which types of programs are eligible for inclusion in state implementation plans for compliance with the proposed Clean Power Plan. Commenters suggested that the se programs be considered for compliance purposes, and not impact the existing goals established for states. Commenters proposed the following:

• Commenters suggested that the EPA allow states and utilities to receive compliance credit for a wide variety of utility programs, including but not limited to: measure

- based incentives, behavior change programs, transmission and distribution system upgrades, financing programs, building code support programs, and incentives for CHP. Commenters indicated that this a pplies to IOUs, municipal utilities, and rural electric cooperatives.

• Commenters suggested that non

- utility state and private sector energy efficiency policies and programs be eligible for compliance credit and may include: building energy codes, lead

- by

- e xample programs, energy retrofit ordinances, tax incentives, financing programs, public sector energy efficiency improvement policies or programs, programs to spur market transformation, state

- based appliance efficiency standards, state policies or program s to foster adoption of CHP systems, and state programs to improve industrial or agricultural efficiency. In particular,

c ommenters noted the private sector plays an essential role in achieving higher efficiency standards through the innovation of technolo gy and new products, also serving as a significant platform for economic development and job creation. According to the commenter s , policies or programs adopted and/or implemented by local governments should be eligible for compliance credit if they are in cluded in state implementation plans.

• Commenters suggested that the EPA recognize that the same type of energy savings may be considered as a utility program in one state and a

non

- utility energy efficiency program in another state. On the topic of claiming the energy savings from building energy code compliance,

c ommenter s noted that in Massachusetts, Rhode Island, and California, utilities are managing code compliance enhancement programs. Commenters noted that in Illinois, as part of work showing the cost

effectiveness of such an initiative, it was calculated that improv ing code31 compliance to 100% (based on a 70% compliance rate) would save 2,000,000 therms and 38,000 megawatt

- hours per year. Commenters noted that program design and pilot studies are also being done in Nebraska and Michigan to tailor code compliance enhan cement programs in those states.

• Commenters suggested that compliance credit be awarded for energy efficiency improvements within utility T&D systems, including Conservation Voltage Reduction (CVR). Commenters noted that CVR provides energy savings for end

- use consumers as well as some reduction in distribution system losses.

Commenters suggested that compliance credit be awarded for states that adopt minimum efficiency standards on products not regulated by th e federal government under the National Appliance Energy Conservation Act (NAECA) legislation. Commenters noted that California and other states have adopted state efficiency standards in recent years on televisions, battery chargers, and other electronic products. Commenters cited the Appliance Standards Awareness Project (ASAP), which indicates that twelve states currently have state appliance efficiency standards in effect. Commenters noted ASAP's suggestion that there are twelve products including telev isions, set

- top boxes, battery chargers, commercial and industrial fans, and pumps that states could adopt efficiency standards for, and that doing so would provide substantial net economic benefits for consumers and businesses. Commenters noted that ASAP has estimated the energy savings potential state

- by

- state in 2025 and 2035, assuming that state standards on these twelve products are adopted in 2014.

Commenter s stated there are many different business models that can be used by a state to successfully deploy EE measures, including but not limited to state operated programs, independent third party programs, and utility

- run programs. Commenter s recommended that the EPA allow the states flexibility in determining which business models to utilize in their compliance plans. Commenter s stated utility operated programs in particular have many advantages in the deployment of EE: strong community relationships, access to all customers, patient capital, economies of scale. Commenter s stated all of these advantage s are critical to the success of EE programs. Commenter s stated additional advantages include utility bills, which can be used for on

- bill repayment of EE upgrades, access to customer data, and utility brand/customer relationships. Commenter s stated the op portunity for universal access provides another critical element of success for EE. Commenter s stated as a society, we decided long ago that electricity, and the economic and social benefits that come with it, should be available to every citizen. Commente r s stated the utility is the best means by which to accomplish that goal. Commenter s believed an evolved utility model can meld the best of what we have today with new technologies and new thinking to reduce GHG emissions and yield EE benefits to every uti lity customer.

Commenter s stated that in addition to ESPCs, they recommended that the EPA provide specific guidance to states that other non

- utility delivered EE can be included in state compliance plans. Commenter s stated the EPA may wish to provide addi tional information in the final CPP on building codes; States should get credit for EE and CO 2 reductions resulting from adopting, updating and increasing compliance with building energy codes.32 Commenter s recommend ed a broad range of energy efficiency programs and policies be allowed in state compliance plans and that adopt ion and enforce ment of such measures be left with the states, rather than the EPA. Commenters also agreed with the RGGI states that they must be gi ven flexibility to modify such measures and policies, as they are meant to evolve to changing technologies, market circumstances, etc., and, thus, cannot remain static over the 15

- year EPA compliance period. Commenters stated that w hile the EPA noted the c hallenges of using building energy codes as a compliance strategy due to EM&V issues, they felt very strongly that energy codes should be part of any allowable compliance strategies, as should state

- based appliance efficiency standards. According to the co mmenter s , other programs and policies that should also be considered for eligibility include state and municipal building energy standards (i.e., "leading

by

- example" programs), which the Northeast has considerable experience with and which have produced s ubstantial energy savings over the years; and policies that enhance private financing of energy efficiency projects (e.g., loan loss reserve funds, or Property Assessed Clean Energy Districts (PACE) initiatives).

While energy efficiency efforts are a trie d and true least cost means to achieve proposed Clean Power Plan goals, c ommenter s said their inclusion in state implementation plans should be facilitated and the EPA requirements clarified as explained below:

• Commenters stated that the proposed portfolio approach is wise in that it allows efficiency measures to be considered "implementing measures" that are complementary to EGU limits, but not directly enforceable, while allowing states to adopt and enforce as appropriate (79 FR 34901

- 03).

• Commenters reco mmended that states be able to modify the energy efficiency policies and programs contained in state plans during the implementation phase. Commenters said this would help to ensure that new technologies can be incorporated, ensure that results from EM&V

w ork can be acted upon, and otherwise support best energy efficiency practices as they evolve over time. Commenters noted that energy efficiency policies and programs change over time, and that they are not set in place and left unchanged for 10 or 15 years. Commenters indicated that this flexibility allows states to make up for any emissions reduction shortfall if energy efficiency policies and programs are not as effective as expected, and allows for other adjustments if energy efficiency policies and programs turn out to be more effective than expected in the initial state implementation plans.

• Commenters suggested that states be required to include provisions in their state implementation plans to avoid double counting of energy savings among the various energy efficiency policies and programs included in the plans (e.g., for projects that participate in both utility and

non

- utility programs). Commenters recommended that states be given th e flexibility to determine which program receives the compliance credit and detail how double counting will be avoided in the state implementation plan.33 Comment 2 : Comments requesting clarification on whether or not plans with EE and RE have to also incl ude enforceable measures for these programs in state plans using the portfolio approach

Response 2 : Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This i ncludes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, in particular comments raised about applying federally enforceable requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizi ng the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such me asures could be used to adjust the reported CO 2 emission rate of an affected EGU as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measure s under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are descr ibed in section VIII.K.1 of the preamble to the final rule.

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

When a state uses a mass

- based goal with enforceable measures, commenter s asked if the plan needs to include enforce able measures for the EE, RE, and other measures that will be used to meet the mass

- based measures or if compliance with the mass

- based goals sufficient

. Commenters also asked what mechanisms the EPA envisions that could allow a state to transfer credit fr om state

- implemented measures to individual EGUs and who is liable if these credits do not materialize.

Comment 3 : Some commenters o ppose federal enforcement of state

- driven portfolio measures

. Response 3: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirement s and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, in particular comments raised about applying federally enfo rceable requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. Howe ver, the EPA is finalizing other plan34 approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the repor ted CO 2 emission rate of an affected EGU as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan ap proach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

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

Commenter s noted that there are two different issues under the portfolio approach. Commenters explained that the "utility

- driven" portfolio approach seems to lead t o federal enforceability for the affected EGUs, while federal enforceability is not as clear under the "state

- driven" approach. Commenters opposed federal enforceability for third parties that are not part of the affected EGUs. Commenters argued this is t he responsibility of the state and enforcement on entities other than the affected EGUs should be the sole responsibility of the state.

Comment 4: Comments suggesting that s tates should be given flexibility in how they meet the CPP consistent with the fle xibility provided states in developing CAA Section 110 SIPs to meet NAAQS.

Response 4: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, in particular comments raised about applying federally enfor ceable requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. Howev er, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the report ed CO 2 emission rate of an affected EGU as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:35 Commenter s stated that consistent with the principle of cooperative federalism, the CAA supports providing flexibility to states to meet environmental goals. Commenters noted that measures provided for in Section 110 SIPs have been considered and implemented by stat es in the past in order to meet NAAQS and that section 111(d) does describe the process as SIP

- like. Commenters agreed with this concept and supported that states have flexibility in selecting measures to meet the required state goals.

Comment 5: Comments suggesting that s tates should have flexibility to allow building codes, standards and behavioral programs to count toward compliance with the CPP.

Response 5: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would hav e been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, in particular comments raised about applying federally enforceable requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing t he portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outl ined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

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

Commenters stated that to achieve the stated emission goals for the long term, as market potential for traditional programs is reduced by future regulation and efficiency improvements, it is likely that programs that are often outside of the scope of ut ility DSM programs and potential studies, such as local and state

- level improvements to building codes and standards, as well as behavioral programs may be required to meet the long term goals. Commenters encouraged the EPA to provide flexibility to states in allowing codes, standards, and behavioral programs to count toward the emission reduction goals, and to work with states to establish reasonable and appropriately streamlined measurement and verification requirements for such programs.36 5.1.4 State

- driven portfolio approach

This section contains comments on the proposed state

- driven portfolio plan approach for meeting the emission guidelines

. Commenters have raised a number of issues related to this subsection which are organized by topics (com ments) below. Responses are provided for these topics.

Comment 1: Many commenters s upport ed the s tate

- drive p ortfolio a pproach

. Response 1: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described b y the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally e nforceable requirements that apply to non

- EGU entities.

I n response to comments, particular ly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6. d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such m easures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measu res under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C. 2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are des cribed in section VIII. K.1 of the preamble to the final rule.

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

Commenters supported the state

- driven portfolio approach for the following reasons:

• Gives states greater flexibili ty and discretion for developing their state plans

.

• Allows easier incorporation of EE/RE measures.

• Allows states to reduce emissions through a wide array of programs that improve the performance of the grid as a whole.

• Many states already have programs t hat could be included in a portfolio approach, including at least thirty states with enforceable renewable portfolio standards, at least seven states with policy goals to increase37 renewable power in their states, and almost all states have implemented

ener gy efficiency programs.

• Allows measures such as EGU repowering and retirements.

• Provides maximum flexibility to take local circumstances, economics and state policy into account

.
C ommenter s supported the state

- driven portfolio approach because they beli eve states are better positioned to adopt and enforce measures such as energy

- efficiency programs and building codes and standards. Commenter s believed that states should have the primary role in implementing section 111(d).

Commenter s recommended that th e EPA ensure that its proposed Section 111(d) guidelines can accommodate all of the different energy efficiency and renewable energy options, including energy efficiency standards that reduce demand now being satisfied by fossil plants, renewable energy st andards that increase the amount of emission

- free power on the grid, and dispatch rules that favor lower

- carbon sources of energy over higher

- carbon sources. Commenter s recommended the EPA clarify how states can include third party provided energy efficiency programs in state plans. Commenter s stated that utilities are already implementing energy efficiency programs for their customers in a wide range of policy contexts and noted that some states have adopted formal energy savings requirements (e.g. , an energy efficiency resource standard or EERS), some have set energy savings goals, some allow energy efficiency program funding and savings levels to be driven by integrated resource plans (IRPs), and some simply undertake energy efficiency program rev iew and approval on an annual, biennial, or triennial basis, without any formal energy savings standards or goals. Commenter s recommended the EPA allow all of these approaches to be included in state plans.

Comment 2: Comments stating that s tates should be able to modify EE programs in state

- driven portfolio plans

. Response 2: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administe red RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In respon se to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emi ssion standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where38 such measures could be i ncluded as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emis sion rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

Under the state plan approaches discussed in the final rule

, demand

- side EE programs addressed in state plans could be modified over time. Under a state measures plan approach, such modifications

, depending on their scope

, could potentially require a modification to the state plan, if it substantially changed a state measure and how it is quantified and verified. Under a
rate

- based emission standards plan, energy efficiency programs could generate ERCs. Modifications to qualifying energy efficiency programs applying for the issuance of ERCs could require a resubmission of an eligi bility application to the administering state regulatory body, but would not require a revision to the state plan. State plan approaches are described in section VIII.C of the preamble to the final rule. Requirements for rate

- based emission trading program s are described in section VIII. K.2 of the preamble to the final rule.

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

Commenter s recommended that states be able to modify energy efficiency programs contained in
state

- drive portfolio plans during the implementation phase to ensure new technologies are incorporated and improvements in EM&V implemented.

Comment 3: Comments stating that the EPA should allow credit for new natural gas plants in state portfolio plans

Response 3: In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfoli o approach is discussed in section VIII.C.6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a
rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reporte d CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

In addition, the EPA is not allowing crediting for generation from new NGCC units under a rate

based emission standards plan type. This prohibition, a nd the rationale for it, is discussed in section VIII.K.1.b of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:39 Commenter s recommended states using the portfolio approach be allowed to count th e emissions avoided by using new natural gas plants that are not regulated under 111(d) for the same reasons it is permissible to count emissions avoided by new energy efficiency resources or new renewable energy resources, which are also not regulated und er Section 111(d). Commenters noted that allowing credit for new natural gas plants recognizes the carbon budget and commitment accounting principles, which are critical to ensuring efficiency and effectiveness in mitigating climate change.

Comment 4: Comments suggesting that s tate

- portfolio approach applied to groups of states submitting joint plans

. Response 4 : In response to comments, particularly those comments raised regarding applying federally enforceable CAA requirements under a state plan to no n

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII. C.6.d of the preamble to the final rule. However, the EPA is finalizing other plan approac hes that will allow for multi

- state plans, as well as coordination among states in the implementation of individual state plans. These approaches are described in section VIII.J.3 and VIII.K.4 of the preamble to the final rule.

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

Commenter s believe d that the portfolio approach could be applied to groups of states submitting joint plans provided they account for the total impact of all programs on sources within their boundaries.

Comment 5: Comments suggesting the s tate

- portfolio approach is natural extension of state's baseline modeling

. Response 5: The EPA is not providing for the " baseline emissions projection pathway " available for SIPs under CAA section 110, as it is not appli cable for state plans under CAA section 111(d), which must include standards of performance for affected EGUs. State plan approaches are described in section VIII.C of the preamble to the final rule, which includes a discussion of the legal basis for these plan approaches.

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

Commenter s stated they believe that most states will select the EPA's "[b]aseline emissions projection pathway" and believe d portfolio programs will substanti ally limit Section 111(d) source emissions. Commenter s stated that the portfolio approach is a natural extension of the baseline modeling states routinely do when developing state implementation plans for air quality programs and believe many existing prog rams can form an important foundation for developing state plans based on the portfolio approach. However, the c ommenters recommended regular program evaluations and necessary revisions to the portfolio.40 Comment 6: General comments opposing the state

- driven portfolio approach

. Response 6: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particular ly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section V III.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, wher e such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan a pproach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

In addition, a number of commenters raised questions that implied there would be challenges implementing a portfolio approach given their specific state circumstances. The portfolio approach was one of multiple plan approaches provided to states in the pro posal, which a state could choose to use if it aligned with state circumstances and the regulatory structure in the electric power sector in a state. While the EPA is not finalizing the portfolio approach, the final rule provides multiple plan approaches, including multi

- state approaches, that accommodate the wide range of measures currently being implemented in the electric power sector that reduce CO 2 emissions, and a wide range of differing circumstances among states, including circumstances described by the commenters. Finally, many of the commenters asserted that the EPA is requiring states to direct the dispatch of affected EGUs through their state plans. This assertion is false. States could implement market

- based emission standards as part of their s tate plan that would incent the generation shift of affected EGUs if it is economic al to meet an emission standard. In all cases, the owner or operator of an affected EGU would retain the decision of whether to dispatch the affected EGU.

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

Several commenters did not support a state

- driven portfolio approach. Commenter s stated that a
state

- driven portfolio approach would be unworkable because a state cannot mandate the redispatch o f a NGCC unit owned by one utility in one RTO to offset the retirement or reduced dispatch of a coal unit owned by another utility in another RTO, even if both units are located in the same state. Commenter s believe d that states would have difficultly comp lying with a state

driven portfolio approach because of the obligations this approach places on states to41 enforcement renewable portfolio standards, customer energy efficiency standards and the EPA market intervention to curtail existing coal dispatch to f avor the dispatch of (currently) more expensive existing NGCC resources.

Commenter s argued that state

- driven approach is based on a misapprehension that the fleet of generation serving any given state is both diverse and interchangeable, regardless of uni t ownership or even location within different RTOs. Commenters stated that redispatch in particular would be impractical for EGUs that are located in different RTOs. Commenters provided the following examples of situations in which they believe a state

- driven portfolio approach would be impractical:

• South Dakota has only one coal plant (Big Stone) that is owned by Otter Tail Power, Montana

- Dakota Utility Resources, and NorthWest ern Energy and one NGCC plant (Deer Creek) that is owned by Basin Electric Power Cooperative. Commenters also stated that the Big Stone plant is located in the MISO region, while Deer Creek will be located in SPP.

• Wyoming has 10 coal plants that qualify a s "affected units" under the proposal and only one 95 MW NGCC plant, all with various and multiple owners. Commenters noted that one unit (LRS Unit 1) located in SPP, and the rest of the generation in the state are tied into the western grid managed by the Western Electricity Coordinating Council in the electrically separate western interconnection.

• Missouri River Energy Resources (MRES) have just begun the construction of the Red Rock Hydroelectric Project near Pella in Iowa with the goal of reducing or o ffsetting the MRES CO 2 emissions rate at their LRS plant

. Commenters noted that they have no affected units under the CPP located in Iowa. Commenters believed that it would be unjust if Iowa adopted a state portfolio approach that required RE and EE genera ted and saved by MRES in Iowa to be used to achieve reductions of CO 2 emitted by other utilities that own and operate EGUs in Iowa

. Commenters also argued that the state

- driven portfolio approach establishes the framework for states to violate the Fifth Am endment because it would allow states to take MRES property without compensating MRES.

Commenters expressed concern that the EPA has provided insufficient information about how a
state

- driven portfolio approach would work. Commenter s asked how state agenc ies, public and private nonprofits, and electric distribution utilities could be assigned section 111(d)

- related responsibilities and notes that integrated resource planning ("IRP") is not available to all states. Commenters ask ed how states that do not or cannot use the IRP process would implement a
state

- driven portfolio. Commenter s believe d more guidance and support from the EPA is necessary to help states recognize emissions reductions resulting from annual energy investments in energy efficiency and renewable energy investments made as a part of federal, state, and local public facilities retrofits utilizing Energy Savings Performance Contracting and other innovative42 implementation mechanisms. Commenters stated that programs operated by State Energy Offices, the U.S. Department of Defense, General Services Administration, and U.S. Department of Energy achieve $7 billion of e nergy efficiency and renewable energy investments annually and rely mostly on private sector financing.

Commenter s believe d the portfolio approach:

• Is more restrictive option than it appears to be because factors such as whether a state has deregulated its electricity sector and whether a state has a mandatory RPS or EERS dictate how a state can incorporate RE and EE measures into its state plan.

• Does not resolve how the EPA can enforce measures against entities over which the EPA has no jurisdiction or th e mechanism by which the EPA would enforce against entities that do not have permits.

• Does not " accommodate a diverse range of state approaches " since a state must either have a legally binding RPS or EERS, rather than a voluntary RE or EE target, or must have a vertically integrated electricity sector that engages in integrated resource planning. Both of these options involve regulating the electricity sector.

C ommenter s w ere concerned that Indiana would not be able to successfully regulate, implement and enforce a state

- driven portfolio approach because: (1) the legislature would be hostile to demand

- side energy efficiency programs ( c ommenters noted that Indiana has eliminated its demand side energy efficiency programs); and (2) regulating other entities would be complicated because more parties would be involved. Commenters noted that a portfolio approach may require action from the state legislature and from the Indiana Utility Regulatory Commission.

Commenter s stated that a state

- driven portfolio approa ch is unworkable because it is based on a misunderstanding that power plants serving any given state are interchangeable, regardless of unit ownership or even location within different RTOs. Commenters stated that a state cannot mandate the redispatch of a NGCC unit owned by one utility in one RTO to offset the retirement or reduced dispatch of a coal unit owned by another utility in another RTO, even if both units are in that state. Commenters asserted that r edispatch, could not be achieved because the two plants are in separate RTOs.

Comment 7: Comments suggesting that the s tate

- driven approach is unconstitutional

. Response 7: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.43 In response to comments, particularly those raised about applying federally enforceab le CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. Howev er, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the report ed CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

See the Legal Memorandum accompanying this rule for the EPA's discussion of the commenters' hypothetical concerns about the Contract Clause and Just Compensation Clause of the U.S. Constitution.

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

Commenter s stated that a state cannot compel a multi

- state utility to reallocate to that state's portfolio the renewable energy credits or energy efficiency credits from the utility's out

- of

- state generation resources that the utility or another state is using towar d compliance with the rule in the other state. Commenters believe d that such as action by a state would be an " unconstitutional taking of the utility's property or abrogation of the utility's contracts."

Comment 8 : Comments suggesting that the e nforcemen t of EE programs in a state

- drive n portfolio plan would be challenging

. Response 8: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceab le CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. Howev er, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the report ed CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the44 preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

In the final rule, energy efficiency mandates on electric distribution utilities (e.g., an EERS) could be included by a state as a state

- enforceable measure under a state measures plan. In this example, such requirements apply to electr ic distribution utilities, which must design and implement energy efficiency deployment programs to achieve a certain amount of annual energy savings, as a percentage of annual utility sales. Many states currently have such requirements.

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

Commenter s w ere concerned about how energy efficiency mandates would be made enforceable under a portfolio approach when it is the customers' decision to undertake an energy efficiency

measure. Commenters noted that emission reductions obtained through energy efficiency depend largely on customer investment and behavioral change and whether end

- use consumers can be required under a state plan to undertake energy efficiency measures.

Comment 9 : Comments suggesting that t he EPA should allow states to use performance

contracting for d emand

- s ide EE and RE

. Response 9: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, i n a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirem ents that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rati onale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measure s plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures t hat may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

Performance contracting approaches for both renewable energy and end

- use energy efficiency could be incorporated under both a rate

- based emission standards plan and as state measures under a state measures plan. These approaches are described in section VIII.K.1 of the preamble to the final rule.45 The following are summaries of the specific public comments under this comment:

Commenter s recommended that states include performance

- contract EE and RE programs in their state

- driven portfolio plans. C ommenter s also noted that states have already adopted performance contracting enabling legislation that would make it easy for states to include this approach in state

- driven portfolio approach. Commenters stated that additional guidance was needed for states to have co nfidence that the EPA will recognize energy efficiency savings and distributed renewable energy generation delivered by performance contracting projects and also encouraged the EPA to approve state plans that include them. Commenters also suggested that th e final rule:

• Identify performance

- contracting as a possible compliance pathway for inclusion of EE and RE state plans;

• Recognize existing performance contracting EE and RE activities;

• Require states to identify sources targeted for performance

- contracting projects (e.g., state

- owned, hospitals, universities, etc.);

• Require a state or national registry be set up to track avoided emissions from performance

- contract projects;

• Identify key compliance criteria, including M&V protocols, auditing requirements, ev aluation methods, and corrective measures;

• Allow states to take credit for actions taken after the Clean Power Plan was proposed and before the interim compliance period begins (2020), count that credit toward achievement of the state's compliance obligati on;

• Address the stranded emission reductions penalty created when energy efficiency projects are implemented in electricity

- importing states;

• Encourage use of tradable credits for EE and RE projects.

Comment 10 : Comments suggesting that a s tate

- driven por tfolio approach that includ es re

dispatch would be unconstitutional

. Response 10: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

adm inistered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the46 portfolio approach. The EPA’s rationale for not finalizing the portfolio ap proach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- bas ed emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.

The c ommenter s ’ assertion that the EPA is requiring states to direct the dispatch of affected EGUs through their state plans is false. States could implement market

- based emission standards as part of their state plan that would incent the ge neration shift of affected EGUs if it is economic al to meet an emission standard. In all cases, the owner or operator of an affected EGU would retain the decision of whether to dispatch the affected EGU

. For more background, s ee the discussion of the Just Compensation Clause in the Legal Memorandum accompanying the final rule.

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

Commenter s argued that a state

- driven approach that includes redispatch would be unworkable because the EPA cannot by rule give states the right to order redispatch of separately owned facilities "without violating basic legal and constitutional principles." Commenters believed that a state could not order private parties to operate their resources to meet the State's objectives because such an order would constitute a confiscation of private resources without compensation, in violation of the Fifth Amendment's Takings Clause.

Comment 11 : Comments suggesting that e ntities regulated under the portfolio approach should be exempt from future regulation

. Response 11: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

administered RE and d emand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is di scussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally47 enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be include d as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission r ate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

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

Commenter s stated that the EPA must include protections to ensure that entities regula ted under a portfolio approach are not unfairly penalized by any future NSPS program rules. Commenters noted that the largest consumers of electricity may have demand

- side energy efficiency measures imposed on them under a portfolio approach. Commenters argued that i f the EPA decided to also establish section 111 GHG standards of performance, then these same sources would be subject to two sets of potentially duplicative, inconsistent or incompatible requirements. Commenters believe d it is important the E PA address this issue by either: (1) including a provision in the final rule that exempts affected entities from future standards of performance issued under Section 111 if they are subject to legally binding emission reductions under a State implementatio n plan; or (2) ensure that sources subject to regulation under a Section 111(d) portfolio approach will receive full credit for GHG emission reduction activities if new standards of performance for GHG emissions are imposed.

Comment 12 : Comments r ecommen d ing s ources subject to demand

- side EE programs under
state

- driven portfolio plans b e exempt ed from any future regulation under NSPS for GHG emissions.

Response 12: Under the proposed portfolio approach, a state could have used a wide range of
measures, s uch as those described by the commenters, in a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures wou ld have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finali zing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measure s outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.48 The following are summaries of the specific public comments under this comment:

Commenter s stated that any sources regulated under a portfolio approach ( e.g., state imposed demand

- side energy efficiency measures) should be exempt from or give n credit toward any subsequent GHG regulations if the EPA expands the NSPS program. Commenters noted that the

" U.S. Environmental Protection Agency Fiscal Year 2015 Justification of Appropriation Estimates for the Committee on Appropriations " is seeking ap propriations to consider GHG emission limits for petroleum refining, pulp and paper facilities, municipal solid waste landfills, iron and steel production, animal feeding operations, and Portland cement manufacturing. Commenters were concerned that a sourc e could become subject to future regulation under an NSPS for GHG emissions, when they are already subject to requirements under a state’s portfolio plan. Commenters were particularly concerned about percentage

- based standards of performance that require sources to reduce emissions to x percent below some historical average. Because the emission reduction approaches identified in a BSER analysis are likely to be similar
to those that would be targeted in a State portfolio approach, Commenters believe d it is possible that sources located in States that adopt a portfolio approach would have already implemented some or all of the pollution control technologies identified. Comme nters believe d it would be arbitrary and capricious to require a source to install additional pollution control measures under future rulemakings if it has already installed measures to comply with a CPP state

- driven portfolio plan.

Comment 13: Comments questioning if affected EGUs would be required to assume part of the responsibility for compliance under a state

- driven portfolio approach

Response 13: Under the proposed portfolio approach, a state could have used a wide range of

measures , includ ing utility

- administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU

en tities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This include s a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such m easures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:49 Commenter s asked whether it is EPA's intent that each affected EGU have an emission limitation and assume part of the responsibility for compliance. C ommenter s were concerned the EPA's
state

- driven portfolio approach will put all the compliance burden on the state to reduce CO 2 emissions under Section 111(d).

Comment 14 : Numerous commenters supported state plans that include state commitments for EE and RE programs.

Response 14: Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, i n a state plan. This includes utility

administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirem ents that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rati onale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measure s plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures t hat may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

The EPA is not finalizing the state commitment approach, which is a variant of the portfolio approach. The EPA is finalizing the state measures approach, which provides for similar plan measures, but with federally enforceable backstop emission standards for affected EGUs that would be triggered if the state measures do not achieve the required level of emission perf ormance for affected EGUs. As a result, the state measures plan approach provides similar flexibility as the state measures approach, but while assuring that the requirements of the emission guidelines are achieved. The state measures approach, and the EPA ’s rationale for finalizing this approach, is described in section VIII.C. 3 of the preamble to the final rule.

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

Several commenters supported the state commitments option. Commenters supported state enforceable commitments because they believe they are a useful compliance planning tool for section 111(d) EGU plans and because they give states flexibility to continue to innovate and improve programs. Commenters stated they be lieve d the state commitment approach would encourage participation in state programs because participants would no longer be concerned about federal enforcement under the Clean Air Act. Commenter s believe d this approach help50 incentivize states to use RPS a nd other state programs as compliance tools, and would facilitate the use of renewable energy. Commenter s believe d a state commitment approach is necessary because they believe it is not practical to make "outside the fence" measures federally enforceable against third parties. Commenter s noted that this approach recognizes that when multiple measures produce emissions reductions, not all of the measures need be federally enforceable. Commenters noted that as an example, a statewide emission cap on EGUs cou ld be supported by various energy efficiency and renewable energy policies, but the cap itself would be the only measure that must be federally enforceable because compliance with the cap accounts for the effects of the other programs. Commenter s believe d that regular reporting and contingency plans can ensure the state makes continuous progress towards meeting federal targets and noted that the proposed rule already includes CEMS monitoring for covered EGUs.

Commenters supported the state of Michigan commi tment approach because they already have state RE and EE requirements that they would like to count toward compliance, but do not necessarily want to mandate these requirements as part of the state's section 111(d) plan.

Commenter s encouraged the EPA to f inalize a rigorous state commitment

- based approach as an option for state planning because they believe this approach enhances state's ability to deliver the required reductions. Similarly, commenter s believe d the state commitment approach to be the
most e fficient and effective method for a state to achieve its CO 2 goals.

Commenter s believe d that many states, including their own state of Washington, would prefer to commit to achieving certain reductions and be held accountable to those reductions through th e operation of renewable energy and energy efficiency programs, without making the specific provisions of those programs federally enforceable. Commenter s believe d that a commitment approach should be included because some states may be concerned about inc luding state energy programs in their federally enforceable compliance plans.

Commenter s believe d that states would be primarily committing to implementing established programs that are already resulting in substantial emission reductions, which means tha t more data, and experience are available to support projected emission reductions. As a result,

c ommenters believe d that the EPA should approve larger commitments where states have properly supported their proposed program by careful analysis. C ommenter s believe d that larger commitments are appropriate because Congress's endorsement of substantial state flexibility in section 111 (d) planning.

Commenters believe that state energy efficiency and renewable energy programs implemented or expanded for purpos es of compliance should not be under EPA's direct enforcement authority or evaluated for 'adequacy' by EPA during plan approval. Commenters asserted that t he state plans should provide sufficient assurance that overall emission targets will be met.

Commenters supported the state commitment approach because they believe Federal enforceability reduces a state's flexibility to modify these programs to continue achieving state objectives. Commenter s believe d the state commitment approach would avoid repe ated review, approval and maintenance of state 111(d) plans. Commenter s stated that cap

- and

- trade and energy sector programs are complex and have to be regularly adjusted through state rulemakings, which would be difficult to manage if these programs becam e subject to additional federal51 oversight. Commenter s supported the state commitment approach because it would avoid EPA enforcement of energy efficiency policies and programs included in state Section 111(d) plans. Commenters noted that without the state commitment approach the rule would limit the state's ability to modify energy efficiency policies and programs as conditions change and could result in enforcement actions if efficiency policies and programs are not as successful as initially hoped. Commen ter s note d that energy efficiency policies and programs are typically reviewed and modified at least once every five years. C ommenter s believe d that it is essential that the EPA allow for modifications in energy efficiency policies and programs over time i f it wants to encourage states to take maximum advantage of energy efficiency as a compliance strategy and that states should be allowed to modify their energy efficiency policies and programs without formal approval of the EPA as long as they comply with rules regarding which types of programs are eligible for savings credits, follow EM&V guidance, and take steps to prevent double counting of energy savings. Commenters note d that without a state commitment approach the rule discourages states from includin g energy efficiency initiatives in state Section 111(d) plans. Commenters recommended the EPA clarify that enforcement actions on individual energy efficiency policies and programs will not be taken and are not allowed as long as a state's emissions rate t argets are being met.

Commenters recommended that states and EPA regional offices should decide which particular measures must be reflected in enforceable plans. Commenter s wanted the EPA to work with states and stakeholders to determine what requirements would be needed for a state commitment plan, including EGU

- specific measures to ensure electrical reliability and the smooth functioning of the market. Commenter s also requested the EPA allow a wide range of backstop designs in state compliance plans to en sure that any compliance shortfalls from non

- EGU specific programs are minimized. Commenters noted that these programs have the greatest potential to provide the most effective emissions and energy savings.

C ommenter s believe d that a state commitment appro ach could also benefit other states which are considering enhanced energy sector programs. Commenters stated that s tate energy regulators are also more likely to support a commitment approach with its balance between accountability and policy discretion an d that energy regulators in many states have decades of experience and well

- established policies in place to provide the accountability required in a 111 (d) compliance plan.

Commenter s recommended the " state commitment approach" be included as part of a new approach to implement Building Block 4 as "best management practices".

Commenter s recommended that a mass

- based approach backed by state commitments (typically enforced through state legislation) should be allowed as this would provide for state flexibility while assuring the state goals are met and verifiable. Commenter s suggested the state plan be allowed to serve as a "standard of performance" on its own, provided the state takes responsibility for meeting the goals upon itself as an entity. C ommenter s suggested the state's responsibility for its plan should be allowed for the portfo lio approach or the state plan with commitments approach.52 Comment 15: Comments suggesting that s ection 110 of the Clean Air Act provides legal precedent for the state commitment approach

. Response 15: The EPA is not finalizing the state commitment approa ch.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the port folio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.

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

Commenter s believe d there is legal precedent for using the state commitment process and stated that the EPA has previously approved several state implementation p lans (SIPs) under Section 110 of the Act that are structured using this commitment approach, including plans in California, Texas and New York. Commenters noted that these SIPs contain target

- level emission reduction commitments; an accounting mechanism to provide for state air quality program equivalency demonstrations; and robust evaluation, monitoring and verification (EM&V) strategies.

Comment 16: Comments suggesting that the s tate commitment approach would make it easier for California to integrate se ction 111(d) guidelines with existing state prog rams.
Response 16: The EPA is not finalizing the state commitment approach.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approache s that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.53 The EPA believes that the state measures plan approach provides the flexibility to implement programs such as those in California mentioned by the commenter , and provide states with the ability to harmonize their energy and environmental poli cy mandates while meeting the emission guidelines.

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

Commenters believe a commitment approach would be useful to California since it would be easier to integrate section 111(d) g uidelines with its other programs. Commenter s stated that commitment approach avoids direct federal enforcement of state energy programs, which helps place the task of harmonizing energy and environmental policy mandates at the state level. Commenter s also noted that California's commitments would be supported by state enforcement authority under the following existing state laws and regulations:

• California's GHG programs contain specific reporting requirements, reduction targets, and deadlines for these ta rgets to be achieved.

• California's regulatory agencies have broad authority to enforce these GHG reduction measures (e.g., California law imposes significant criminal and civil penalties, as well as injunctive relief for violations of AB 32)

• California's RE standards require regulated entities to provide regular reports on compliance with RE requirements and requires regulatory agencies to enforce an entity's failure to comply.

• The California Public Utilities Commission oversees and enforces RE standards applicable to investor

- owned utilities, and the California Energy Commission and the ARB enforce the RE requirements with regard to local publicly

- owned utilities.

Comment 17: Comments suggesting that EPA recognition of complementary measures will help

s tates design commitment

- based plans

. Response 17: The EPA acknowledges the comment

. Under a plan that includes a mass

- based emission budget trading program, RE and demand

- side EE are complementary measures that do not need to be included in a state plan. E ven though not included in a plan, these measures will reduce CO 2 emissions, helping affected EGUs meet the established emission budget. Alternatively, states may choose to implement a mass

- based state measures plan type, where state measures, which may in clude RE and demand

- side EE, are used to achieve a state mass CO 2 goal. Under that plan approach, those state measures are included as part of the plan but are not federally enforceable. These topics are discussed in the preamble to the final rule in secti ons VIII.C and VIII.J.

The following are summaries of the specific public comments under this comment:54 Commenter s supported provisions that allow the EPA to recognize certain energy programs as

" complementary " measures, because recognition of complementary measures will help states to design their state plans. Commenters stated that support this approach because it recognize that when multiple measures produce emissions reductions, not all of the measures need be federally enforceable. Commenters stated that as an example, a statewide emission cap on EGUs may be supported by various energy efficiency and renewable energy policies, but the cap itself may be the only measure that must be federally enforceable, si nce it accounts for the effects of the other
programs. Commenters stated that t his sort of analysis will help states design appropriate federal compliance strategies, while maintaining room for continued state

- level program development to support their req uired emissions reductions.

Comment 18 : Comments suggesting s tate commitment

- based plans should have "backstop" requirements to ensure compliance with state goals

. Response 18: In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfoli o approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a
rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reporte d CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

In lieu of the portfolio approach, which the EPA is not finalizing, the EPA is finalizing the state measures plan approach. The state measures approac h would provide for implementation of similar state and utility approaches for reducing CO 2 emissions from affected EGUs as under the portfolio approach. However, under the state measures approach, these measures would be state enforceable and would be cou pled with federally enforceable emission standards for affected EGUs that would be triggered if the required level of CO 2 emission performance for affected EGUs is not achieved through the state measures. The state measures approach is described in section VIII.C. 3 of the preamble to the final rule.

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

Commenters supported state

- driven portfolio plans but believe that any plan adopting a

" portfolio " of measures must also include fe derally enforceable emission limitations that require affected EGUs to demonstrate compliance with the relevant standards of performance in the event that the portfolio measures fail to deliver the required emission reductions. C ommenters stated that "back stops" in state plans would require covered entities to make up the difference in emissions if the state falls short of its state commitments and should be automatically triggered55 when a short fall occurs. Commenter s recommended state plans included detailed criteria for when the "backstops" will be implemented and could be based on tonnage reports from C EMS compared to the commitment trajectory. Commenters stated that as an example of a possible "backstop" measure, c overed EGUs could be required to retire additional carbon allowances, acquire RECs to offset their emissions, or take similar actions. Commenter s suggested that "backstop" provisions could be triggered when a state's emissions from affected EGUs significan tly exceed its projected emission performance glide path for more than one year, including years after any interim contingency measures have been put into effect.

Commenter s stated that "backstop" provisions could take the form of a requirement that regula ted EGUs make sufficient reductions or secure sufficient credits from re

- dispatch, renewable energy generation, and energy efficiency activities to make up the shortfall within the same compliance year. Commenters stated that t he obligation to make up the shortfall , could be allocated among sources in any manner acceptable to the state. Commenter s stated that the state should be allowed to choose the mechanism for the federally enforceable "backstop" limit and that it could take the form of a mass

- based all owance system or a rate

- based averaging system. Commenters stated that i nterim contingencies could include expansions of state program commitments, such as committing more of the underlying resource savings from an existing energy efficiency resource stand ard, or scaling up the state programs themselves if all underlying resources have been committed.

Commenters stated that " backstop " measures could be included in operating permits and should be enforceable by citizen suit and by the EPA under section 113 a gainst covered EGUs when the criteria for implementing "backstops" are met and noted that such enforcement provisions would provide strong incentives to meet the commitments by both covered EGUs and states.

Commenters recommended that i f the commitment pr ogram covers a broader range of entities, the commitments should be reviewed and monitored with greater care and include contingency plans that will be triggered if the anticipated reductions do not fully materialize. Commenter s also stated that state plan s that include commitments must clearly state the types of contingency measures that will be triggered when the emission reductions are not met.

Commenters recommended the EPA ensure that state commitment plans are either composed of specific federally en forceable components or contain backstops that are federally enforceable. Commenters considered enforceability to be a key element necessary to ensure the integrity of the Clean Power Plan and noted that enforceability is explicitly provided for in Section 111(d) (specifically 42 U.S.C. 7411(d)(1)(B) requiring state plans to "provide . . . for the implementation and enforcement of standards of performance" established under section 111(d)). The commenters said state plans composed of an emission rate tradin g program, an allowance trading program, or other requirements that apply directly to sources will provide a clear and traditional enforcement pathway, but expressed concern state commitment approach takes a different approach in which third parties other than emitting EGUs (including the state itself) could be responsible for emission reductions under a state plan. In order to satisfy the enforceability requirements of the statute and to ensure the environmental integrity of the standards, the commenter re commended the EPA either: (1) specific measures must be federally enforceable (e.g. the state's renewable portfolio standard becomes federally enforceable, or the delivery of a specific quantity of demand

- side energy efficiency [kW of demand reduced] by an56 energy efficiency program becomes federally enforceable); or (2) the state plan must include federally enforceable, backstop policy measures that will be automatically triggered and take effect without further action by the state or EPA should the state f ail to achieve its required emission budget or rate by more than a de minimis percentage at any required reporting deadline. The commenters said the backstop must be designed by the state to secure at minimum the shortfall in the required emission reductio ns, and should apply directly to the regulated sources. As an example of possible backstop requirements, the commenters said that regulated sources could be required to secure renewable energy credits sufficient to make up the shortfall within a year and a half of the compliance deadline. Commenters said that such backstop requirements should be included in the operating permits of the regulated entities as part of the section 111(d) standard of performance, and would be federally enforceable by the EPA and through citizen suits under sections 113 and 304 of the Act, respectively. Commenters added that backstops would allow states to satisfy the requirement that state plans contain enforceable measures, while also preserving flexibility for states to adopt s tate commitments or portfolio approaches that are not themselves federally enforceable. Commenters said that backstops would provide regulated sources with certainty about the implications of any failure of the state to meet its compliance obligations. The commenters also noted that it would be important for states to take corrective measures to ensure that the compliance failure was not repeated.

Comment 19: Comments suggesting that m easures already implemented by state should not be federally enforceable

. Response 19: The approach described by the c ommenters is inconsistent with CAA section 111(d), which requires states to establish standards of performance for affected EGUs . The state plan approaches finalized by the EPA fully accommodate the current range of existing state programs, under either an emission standards or state measures plan approach. State plan approaches are described in section VIII.C of the preamble to the final rule.

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

Commenter s recommended that EPA recognize some measures now in force represent baseline measures that need not themselves be federally enforceable because they are already in force, have been incorporated into state policy , and refl ect the status quo

.
Commenters further stated that EPA had already recognized existing state programs in the "baseline pathway" of the roadmap for integrating renewable energy and energy efficiency into criteria pollutant plans, and recommended that EPA d o the same in the Clean Power Plan. Commenters added that states should have obligations to report changed circumstances to the EPA, but the programs should otherwise form part of the baseline analysis rather than be treated as new enforceable measures.

Comment 20: Comments suggesting the s tate commitment approach creates incentive for states to work with regulated entities

.57 Response 20: The EPA is not finalizing the state commitment approach. Under the proposed portfolio approach, a state could have use d a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio appr oach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU en tities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would al low the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.

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

Commenter s recommended that a properly designed state commitment approach should include incentives for state planners and covered entities to work together to se cure reductions from the electric system as a whole and recommended the EPA only approve plans that are rigorous and include such incentives.

Comment 21: Comments regarding s tate

- commitments and RE/EE trading with other states

. Response 21: The EPA is no t finalizing the state commitment approach. Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- administered RE and demand

- side EE deploy ment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII .C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where s uch measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where58 such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

In addition, the EPA is providing for a range of multi

- state plan approaches and multi

- state coordination in the implementation of individual state plans. These approaches are described in section VIII.C.5 of the preamble to the final rule.

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

Commenter s recommended states that make individual commitments to emissions reductions be able to design state plans that rely in part on particular actions in other states for which both states have agreed credit is to be reallocated. If state A commits to reductions which are achieved in part by the operation of a renewable energy source in s tate B, then the c ommenters believe d state A should be able to take credit for the emissions reductions in state B provided the total reductions are underwritten by a federally enforceable commitment in both states and appropriate contingency measures and backstops are included. Although the analysis to support such plans is likely more complex than that required for allowance systems, the c ommenters believe d the EPA should allow states to incorporate this type of approach into their section 111(d) plans.

Comment 2 2 : Comments suggesting that s tates should have discretion in enforcement of RE/EE
programs

. Response 22 : The EPA is not finalizing the state commitment approach. Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceab le CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. Howev er, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the report ed CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.59 The following are summaries of the specific public comments under this comment:

Commenter s support ed the state commitment approach but believe d state should be given the discretion to decide which state agency will have the authority to enforce the requirements for RE and EE programs.

Comment 23 : Comments suggesting that a b roader approach to state commitments would provide greater flexibility t o states

. Response 23 : The EPA is not finalizing the state commitment approach. Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- admin istered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In re sponse to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio appr oach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.

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

Commenter s supported the state commitment approach . Commenters stated that they consider the proposed limited state commitment approach under which the state assu mes responsibility for and credits EGUs with the amount of emission reductions expected to be achieved from RE or demand

- side EE measures to be too restrictive. Commenters stated that support a broader state commitment approach that would provide greater f lexibility to states.

Comment 24 : Comments requesting clarification on incorporat ing voluntary programs into state plans

Response 24 : The EPA believes the commenter s , in describing " voluntary " measures, are referring to incentive programs to accelerate the deployment of technologies and practices, such

as RE and demand

- side EE technologies. Such programs could be incorporated in either a rate

-60 based emission standards plan approach or a state measures plan ap proach. Plan approaches are described in section VIII.C of the preamble to the final rule. Eligible measures that could be used to adjust the reported CO 2 emission rate of an affected EGU are described in section VIII. K .1 of the preamble to the final rule.

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

Commenter s wanted to know how states could incorporate energy efficiency measures into their section 111(d) implementation plans without imposing a federally enforceable oblig ation on the entities implementing those measures. Commenters also asked whether the EPA would allow states to include "voluntary" measures (such as programs that change building occupant behavior or incentivize private sector investment in energy efficiency) that are not enforceable against a particular source or implementing party in their section 111(d) plans, and if so, whether there will be any restrictions on the amount of credit allocated for such measures and whether additional EM&V requirements would apply.

Comment 25 : Comments stating that t he EPA provided insufficient information on the proposed state commitment approach

. Response 25 : The EPA is not finalizing the state commitment approach. Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- administered RE and dema nd

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed i n section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to th e final rule.

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

Commenter s noted that they had difficulty understanding the two different options for state commitment plans described in the proposal and wanted the EPA to provi de more specificity as to how, and what level of detail, would be required in the state plan under either option.61 Commenters stated that information regarding these two options is insufficient for them to be able to provide meaningful comments and asked th e following questions:

• How do the two options differ?

• Would state plans that include one of the state commitment options have to include approved components such as EM&V?

• Would the "full responsibility for achieving the emission performance level" be applied to the EGU and would the EGU in return receive a rate indicative of the performance expected as a result of HRIs and EE/RE?

• Would state commit to crediting a certain a mount of EE/RE from a "state pool" and if so how would this work?

• What if the state's EE/RE pool does not produce as expected? Is the EGU out of compliance or is the state subject to enforcement?

Comment 26 : Comments requesting guidance on measures, emi ssions, and enforcement in a state commitment approach.

Response 26 : The EPA is not finalizing the state commitment approach. Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, particularly those raised about applying federally enforceab le CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. Howev er, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the report ed CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule.

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

Commenter s wanted clarification on the following issues related to the state commitment approach:62 • What types of state commitments would be acceptable?

• What quantity of emissions could be included as part of a state commitment?

• How would a state commitment be structured?

• How would a state commitment be enforced?

Comment 27 : Comments regarding " r ate

- of

- progress" provisions in State Commitments

. Response 27 : The EPA is not finalizing the state commitment approach. Under the proposed portfolio approach, a state could have used a wide range of measures, such as those described by the commenters, in a state plan. This includes utility

- administered RE and demand

- side EE deployment programs, as well as other requirements and programs implemented by states. Under the portfolio approach, these plan measures would have been federally enforceable requirements that apply to non

- EGU entities.

In response to comments, pa rticularly those raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in

s ection VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be included in state plans. This includes a rate

- based emission standards pl an, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- e nforceable measures under both a rate

- based and

mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affec ted EGUs are described in section VIII.K.1 of the preamble to the final rule.

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

Commenter s expressed concern that if Texas includes a renewable program, an efficiency program or an improvement in the utilization rate of gas plants in its section 111(d) plan, the EPA would consider these to federally enforceable. Commenters stated that Texas leg islators do not want to mandate that a specific percentage of its energy comes from gas, efficiency or renewable energy. Commenter s asked whether a state commitment that uses market trends to develop "a rate

- of

- progress

- like provision" would be acceptable. Commenters suggested that

u nder such a provision, Texas would report on its rate of adoption during the implementation period and promise to review and modify its plan if targets are not met.6 3 Comment 28 : Comments suggesting e nforcement against non

- EGUs m ay deter states from selecting the portfolio approach.

Response 28 : In response to comments, in particular comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures out lined by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards fo r affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a
rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C. 2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII. K .1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are described in sect ion VIII. K.2 of the preamble to the final rule.

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

Commenter s expressed concern that th e portfolio option may not be a practical option for many
states and may be more challenging to implement and enforce than a plan with requirements assigned only to affected EGUs because RE and demand

- side EE measures in state plans would be federally enforceable

.
Commenters stated that such enforceability concerns , whether apt or not, (including citizen suit liability associated with these programs under the portfolio plan design) could deter many states from opting for the portfolio approach

. Commenters stated that it would be unfortunate if these perceived plan d esign challenges slowed needed emissions reductions. Commenters stated that EPA could make the portfolio approach more attractive by recognizing that the obligations on affected entities in these programs may be imposed at a high level (e.g., a federally

- e nforceable obligation to participate in a state energy program, rather than federal enforcement of each individual program element).

Comment 29 : Comments suggesting that t he EPA should provide guidance to states on how to incorporate state EE programs wit hout those measures becoming federally enforceable

. Response 29 : In response to comments, in particular comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outline d by the commenters to be included in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for af fected EGUs, and the state measures plan64 approach, where such measures could be included as state

- enforceable measures under both a
rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to t he final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are described in section VIII.K.2 of the preamble to the final rule.

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

Commenter s request ed that the EPA provide additional guidance on how states can include energy efficiency measures in their plans wi thout those measures becoming federally enforceable. Commenters argue d that states are concerned about including energy efficiency programs and measures in their Section 111(d) plans due to the prospect of having those programs and measures become federall y enforceable. Commenters ou t lined the EPA's proposal which stated that states can avoid this problem by adopting "complementary" programs that would not be enforceable components of the plan but would be used to facilitate achievement of the required emission performance levels by affected EGUs. Commenters suggest ed that anot her approach states could use is inclusion of a panopoly of compliance measures in the state plan, the aggregate impact of which exceeds the required emission reductions. Commenters stated that t his

over

- compliance would allow states to later drop one or m ore measures without causing a compliance/enforcement problem. Commenters also suggest ed that the EPA allow states to include "voluntary" measures in their Section 111(d) plans that are not enforceable against the implementing entity but can be used to rec eive some credit toward compliance with the emissions guidelines. Commenters stated i f EPA does approve inclusion of voluntary measures for credit, they can introduce additional mechanisms to ensure that emission targets are met in the event that the volun tary measure does not result in the anticipated emission reductions.

Commenters also argue d that the EPA should require state plans to include contingencies in the event that energy efficiency initiatives are less effective than predicted. Commenters state d that

e ach state plan should include an automatic fall back plan (be self

- correcting) or identify corrective measures to employ if milestones are not met.

5.1. 5 Utility

- driven p ortfolio approach

This section contains comments on the proposed utility

- driv en portfolio plan approach for meeting the emission guidelines

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

Comment 1: Some commenters support ed the utility

- driven portfolio approach

. Response 1: In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not65 finalizing the portfoli o approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a
rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C. 2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII. K.1 of the preamble to th e final rule. Requirements for rate

- based emission trading programs are described in section VIII. K.2 of the preamble to the final rule.

The EPA disagrees with the co mmenters that the other plan approaches provided for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

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

Commenters support the utility

- driven portfolio approach. C ommenters believe a utility

- driven portfolio approach is workable because direct emission limits cannot be effectively imposed and met by existing plants. Commenter s believed that the other approaches were not viable, stated tha t the other approaches should be withdrawn, and that the utility

- driven portfolio approach be the only approach included in the final rule. C ommenter s also recommended state plans provide utilities with compliance options rather than mandates to use the bu ilding blocks. C ommenter s believed states should allow utilities "to choose the most practical and cost effective manner of achieving the

... CO 2 reduction goal." Commenters suggested states develop plans that include enforceable milestones with penalties for failure to meet those milestones.

Comment 2: Comments suggesting that the EPA should require all states to adopt a utility

driven portfolio plan

. Response 2: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section V III.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where su ch measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable m easures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements66 for rate

- based emission trading programs ar e described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approache s provided for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

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

Commenters recommended the EPA to withdraw the other three approaches and require all states
to adopt a utility

- driven portfolio approach. Commenters believe d the other approaches are unworkable and that the utility

- driven approach is consistent with the manner in which the industry has been regulated historically. Commenters stated that the utility

- driven portfolio approach eliminates the implementation issues with the other approaches and avoids the legal issue over whether the EPA an d states have the authority to regulate entities other than those responsible for emitting CO 2

. Commenters noted that emissions from power plants are the target of this regulation and therefore, power plant sources should be the entities regulated by this rule.

Comment 3: Comments suggesting that u tility

- driven portfolio approach is fair because it provides an even playing field for all utilities.

Response 3: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6. d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measu res could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are describ ed in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approaches provid ed for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

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

Commenter s believed the utility

- driven portfolio approach was a fair approach because it would make the emitters of CO 2 directly responsible for reducing the CO 2 emissions from their affected units and would not unjustly burden non

- emitters with the expense of compliance. Commenters67 argued that the utility

- driven approach creates an even playing field in which each utility is treated the same regardless of their o wnership structure. Commenters noted that each affected EGU would be responsible only for its own CO 2 emissions and would not be obligated to offset emissions of a utility which has a significantly larger emission profile within the s tate. Commenters gave the example of LRS in Wyoming which would be obligated under the utility

driven approach to offset its CO 2 emission rate and utilities with more efficient units would not have to meet a higher reduction due to the averaging that a state

- wide approach would impose.

Comment 4: Comments suggesting generation shift and use of RE should remain the responsibility of utilities under a utility

- driven portfolio approach

. Response 4: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards p lan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affe cted EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other p lan approaches provided for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

The EPA also notes that the plan approach des cribed by the commenter s is available under the
rate

- based emission standards plan approach provided for in section C.2.a of the preamble to the final rule.

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

Commenter s supported the utility

- driven portfolio approach because they believe utilities should remain responsible for making decisions on redispatching NGCC resources and RE. Commenters noted that mechanisms already exist that allow for determining compliance usin g redispatch and RE, and noted the Midwest Renewable Energy Tracking System (M

- RETS) used in Illinois, Indiana, Iowa, Manitoba, Minnesota, Montana, North Dakota, Ohio, South Dakota, and Wisconsin to verify compliance with state and provincial renewable ene rgy requirements by tracking Renewable Energy Credit (REC) in the form of a tradable digital certificate for each MWh. Commenters note d that such programs ensure that double

- counting of RE does not occur68 and would be consistent with building block 3. Comm enters believe d that similar systems will develop for the systematic crediting of energy efficiency savings.

Comment 5: Comments suggesting that the u tility

- driven portfolio approach is less complicated than the other approaches making development and app roval quicker and easier

. Response 5: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission

s tandards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of th e preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are descri bed in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approaches provided for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

The EPA disagrees with the commenter’s assertion that other plan approaches are more complex. None of the plan approaches in the final rule mandates action under any of the BSER building bl ocks. See section VIII.C in the preamble to the final rule for details on the state plan approaches.

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

Commenter s supported the utility

- driven portfolio approach because state pl ans based on this approach would be less complicated and therefore easier to develop and implement. Commenters argued that states will have only one

- year develop their state plans (with the potential for a 12

- month extension under certain conditions) and a lso noted that that the EPA has extended it s usual four

- month review period to one year, which they see as "tacit acknowledgement that this unprecedented regulatory structure is excessively complex." Commenters believe d that a utility

driven portfolio appr oach that gives the utilities the flexibility to choose from among the four building blocks, but does not attempt to mandate action under any individual block, would avoid many of the complexities of the other proposed approaches.69 Comment 6: Comments suggesting u tility

- driven approach maintains existing processes for resource planning

. Response 6: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirement s under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is fin alizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate o f an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Re quirements for rate

- based emission trading programs ar e described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approaches provided for in the final rule are not viable and has provided a d etailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

The EPA disagrees with the commenter s that the proposed portfolio approach is the only approach that would provide for the use of a utility IRP process. The EPA notes that utilities have factored in a wide range of environmental requirements into their IRP processes and will continue to do so with this final rule.

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

Commenter s supported the utility

- driven portfolio approach because it maintains the existing process by which utilities plan for resources, including the integrated resource planning methodologies that take into account variables such as cost, environmental requirements and allows states and other regulatory bodies of consumer

- owned utilities to exercise their authority to impose specific regulatory requirements for resource planning. Commenters stated that these bodies ensure utilities are adequately balancing the obligation to serve the customer and provide
cost

- effective electricity with the need to observe state and federal laws and regulations, as well as regional transmission operator const raints. Commenters argue that t his is an extensive process that requires a complex balance of competing interests and technology. Commenters believe d that the utility

- driven portfolio approach is the only approach that would continue to allow the utility t o make its own decisions, in concert with regulators, on how best to achieve its CO 2 reductions without jeopardizing reliability or affordability.

Comment 7: Comments suggesting that the u tility

- driven approach avoids legal issues associated with states confiscating RE and EE from utilities

.70 Response 7: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally e nforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- based emission tradin g programs ar e described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approaches provided for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

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

Commenter s supported the utility

- driven portfolio approach because utilities would be al lowed under this approach to use all of their RE and EE resources regardless of the location of the resource to offset their CO 2 emissions. Commenters also noted that the utility would continue to control its renewable and non

- emitting resources and any RECs or other attributes that are associated with them, as well as maintain the savings associated with EE. Commenters noted that
t he utility

- driven por tfolio approach avoids potential legal issues presented by the other proposed approaches that would allow states to confiscate renewable energy and would interfere with existing contracts. Commenters further stated that the utility

- driven portfolio approac h prevents the "stranding of non

- emitting assets" and avoids "the constitutional prohibition against taking private property without just compensation" that the commenter s believed would occur with the other proposed approaches.

Comment 8 : Comments sugges ting that the u tility

- driven portfolio approach avoids potential

" double regulation " of utilities

. Response 8: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emis sion rate of an affected EGU, as part of federally enforceable emission71 standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan
appro ach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the fin al rule. Requirements for rate

- based emission trading programs ar e described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approaches provided for in the final rule are not viable and has p rovided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

The EPA disagrees with the commenter s ’ assertion that other plan approaches would result in conflicting and duplicat ive requirements across states, and notes that the scenarios described by the c ommenters are not accurate depictions of potential outcomes under the plan approaches in the proposed or final rule.

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

Commenter s supported the utility

- driven portfolio approach because they believe this approach is the only approach that avoids utilities being subject to conflicting and duplicative reduction requirements imposed when the multiple states in which they operate choose different pathways that may impose a reduction obligation on an EGU in one state and a state

- portfolio approach in another. Commenters noted that under the utility

- driven portfolio approach each state plan would require each utility with at least one affe cted EGU within the state to meet the CO 2 emission reduction goal established for the state either on a unit

- by

- unit basis or on average basis across all EGUs within the state. Commenters noted that this approach ensures that only those utilities responsib le for the generation of CO 2 emissions within the state shoulder the obligation to reduce the CO 2 emitted in the state and further ensures that all affected units in the United States are subjected to a CO 2 reduction requirement with no unit slipping throu gh the cracks or being subject to a "double regulation" by different states.

Commenters noted that a s an example of how a utility could be subject to " double regulation ," if the Laramie River Station in Wyoming is subjected to a utility

- driven portfolio a pproach by the state of Wyoming requiring this source to reduce its CO 2 emissions, it would be duplicative for the state of Iowa to take a state

- driven portfolio approach which would impose a CO 2 reduction goal on this utility in a state where it has no af fected EGU and would require the utility to achieve renewable energy and energy efficiency goals to meet Iowa's CO 2 reduction target because the utility serves load in Iowa with generation from the Laramie River Station. Commenters stated that i n this situ ation, Laramie River Station would be required to reduce its CO 2 emissions from the source of the generation for Wyoming but also to reduce CO 2 a second time to meet Iowa's goal. Commenters argue d that t his issue could be further compounded if other states, such as Minnesota, North Dakota and South Dakota, also adopt the state

- driven portfolio approach. Commenters believe d this "double regulation" is fundamentally unfair and would cause wholesale electricity rates to increase to cover the duplicative costs.72 Commenters also noted that if Wyoming adopts the utility

- driven portfolio approach and Minnesota imposed both its RES mandate (Minn. Stat. section 216B.1691) as well as a CO 2 reduction mandate, then the Laramie River Station would have to further re duce CO 2 emissions to meet the Minnesota requirements in addition to the emission reduction already required to meet Wyoming's goal. Commenters argued that b ecause the generation is regulated at the source of the emissions

, the electricity that is transmit ted into Minnesota has already been subject to significant CO 2 reduction and should not be re

- regulated in Minnesota merely because it is generated out of state. Commenters recommended that to avoid the possibility of "double regulation," that EPA make the utility

- driven portfolio approach the only option available to
states.

Comment 9: Comments suggesting that the u tility

- driven portfolio approach forces EGUs to bear the burden of emissions reductions from RE and EE, would be difficult to implement, and would leave EGUs vulnerable to non

- compliance with CPP.

Response 9: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan appro aches that would allow the same types of measures outlined by the commenters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as pa rt of federally enforceable emission standards for affected EGUs, and the state measures plan approach, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are desc ribed in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- base d emission trading programs are described in section VIII.K.2 of the preamble to the final rule.

The EPA disagrees with the commenters that the other plan approaches provided for in the final rule are not viable and has provided a detailed discussion of th e design of these approaches and their implementation in section VIII of the preamble to the final rule.

The EPA notes that the commenter s appear to be questioning the viability of a rate

- based plan approach that uses RE and demand

- side EE measures to adj ust the reported CO 2 emission rate of an affected EGU. The EPA disagrees with the commenter s , and has described in detail how a
rate

- based emission standards or state measures approach would be implemented, including adjustment of the CO 2 emission rates of affected EGUs. These approaches are discussed in sections VIII.C and VIII. K of the preamble to the final rule.

The following are summaries of the specific public comments under this comment:73 Commenter s stated that a portfolio approach that includes renewa ble measures and demand

- side energy efficiency programs would not be feasible. Commenters stated that a utility

- driven portfolio approach would force EGUs to bear the burden for the required emission reductions from RE and demand

- side EE and would also req uire new measures to track compliance. Commenters were concerned about how compliance would be determined and noted that the unpredictability of these programs makes them difficult for ensuring compliance.

Commenter s thought that the EPA should provide a thorough assessment of the different plan types and the questions and potential problems each may pose. Commenters expressed concern about the following issues related to the utility

- driven approach:

• How adequate RE a nd EE would be assured for a utility

- driven portfolio approach. If sufficient RE and EE was not available, then EGUs could be vulnerable to noncompliance.

• How a utility

- driven plan would be implemented in states with un

integrated power systems having var ying degrees of separate ownership of generation, transmission and distribution.

• Whether adequate RE and EE would be feasible to construct or implement.

Comment 10: Comments suggesting that Integrated Resource Planning (IRP) should be incorporated into state plans

. Response 10: The EPA disagrees that IRP s could be included in a state plan as an enforceable measure, as IRP is a planning process. Enforceable measures adopted as a result of an IRP process could potentially be included in a state plan, depen ding on the specifics of the measure.

The EPA also disagrees that the emission guidelines usurp utility commission regulatory authority and undermine existing integrated resource planning processes. The EPA notes that IRPs can be used to inform the develo pment of state plans and utility strategies for meeting environmental requirements at least cost.

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

Commenters recommended the IRP be used as a compliance approach and should be incorporated into state plans.

Commenters stated that Block 2 usurps MN's and OH's regulatory authority over MN electricity resource planning and cost recovery and should be eliminated from the CPP. Commenters stated that the MN utilities commission has pr ovided for implementation of a mature integrated resource planning and engineering review process. Commenters said that the state's utilities propose measures for meeting customer electricity needs and cost recovery for resource deployment and operation th at balances the economics, reliability, environmental performance74 and socioeconomic impacts while managing risk, consistent with state law, and these IRP measures include significant public stakeholder input and are subject to a transparent, robust,

measur ed and just regulatory process; Commenters said they are designed to deliver universally available, least cost supply of reliable electricity to Minnesotans; and commenters stated, over the years, the IRP process has provided for the deployment of electric generation including provisions for recent and ongoing deployment of environmental control retrofits on fossil units as reviewed and recommended by the air pollution control agency. Commenters remarked that this state regulator review includes analysis of whether environmental measures are cost effective through determination of economic break points above which further action is assessed as uneconomic (i.e., deployment of measures through the "heel of the cost curve"). Commenters noted that the economic a nalysis includes consideration of environmental emission externality costs, including those for CO 2 , PM, SO 2 and NOx.

Comment 11: Integrated Resource Planning (IRP) should not be included in state plans

. Response 11: The EPA is not finalizing the portfolio approach. In response to comments, specifically comments raised about applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio approach. The EPA’s rationale for not f inalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the commenters to be used in state plans. Th is includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO 2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan approach, wh ere such measures could be included as state

- enforceable measures under both a rate

- based and mass

- based plan approach. These plan approaches are described in sections VIII.C.2 and 3 of the preamble to the final rule. Eligible measures that may be used to adjust the reported CO 2 emission rate of affected EGUs are described in section VIII.K.1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are described in section VIII.K.2 of the preamble to the final rule.

The EPA d isagrees with the commenters that the other plan approaches provided for in the final rule are not viable and has provided a detailed discussion of the design of these approaches and their implementation in section VIII of the preamble to the final rule.

The EPA generally agrees with the commenter s , but notes that IRPs can be used to inform the development of state plans and utility strategies for meeting environmental requirements at least
cost.
The following are summaries of the specific public comments under this comment:

Commenter s were concerned that the integrated resource planning (IRP) process will be used by some states for imposing portfolio

- type obligations because IRPs have never been used to establish environmental regulations. Commenters noted that i n Virginia and North Carolina, the IRP is only a plan that does not provide approval for or commitment to build a particular75 resource. Commenters noted that the IRP is a utility plan for meeting forecasted peak and annual energy demand and reserve m argins using a combination of supply

- side and demand

- side resources over a specified future period and represent a snap

- shot that must be periodically re

evaluated and revised as circumstances change. Commenters believe d that although IRPs may be used to provide guidance to states on setting long

- term goals, they should not be used to set standards or regulatory requirements. For these reasons, commenter s recommended that elements within IRPs should remain non

- binding on utilities. Commenters also recommended that i f the EPA allows states to use IRPs to establish utility portfolio requirements, the EPA allow states to make periodic adjustments and modifications to plans based on a utility IRP.

Comment 12: Comments suggest ing that the u tility

- drive n portfolio approach may not be practical for all EGUs due to factors such as amount of energy efficiency that is cost effective and fuel prices.

Response 12: The EPA acknowledges the comment and notes that demand

- side energy effi ciency could be used in a state plan under both an emission standards plan and a state measures plan in the final rule . The EPA is providing this flexibility to allow states to choose a plan approach that best aligns with its circumstances, regulatory structure in the electric power sector, and state legislation and other requirements. State plan approaches are described in section VIII.C of the preamble to the final rule.

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

C ommenter s explained that Washington's Energy Independence Act (1

- 937) requires that each qualifying electric utility must pursue all available conservation that is cost

- effective, reliable, and feasible. Commenters stated that the amount of energy efficien cy that is achievable and cost

effective varies from year to year, and from utility to utility, due to variable factors such as the price of fuel and the local development of the efficiency market. Commenters stated that the two state agencies that oversee the utilities' implementation of the Energy Independence Act (the Utilities and Transportation Commission and the Washington State Department of Commerce) do not have the statutory authority to mandate a specific percentage of a utility's load to come fro m conservation. Commenters stated that in 2012 and 2013 the state's energy efficiency achievement was just over one percent of retail sales.

However, Commenters stated that the utilities in aggregate are expecting about 25 percent less conservation for th e 2014 and 2015 biennium, due to two factors; low natural gas prices reducing the cost

- effectiveness of some energy efficiency opportunities and the historical effectiveness of existing energy efficiency programs.

Commenters noted that around 20 percent of Washington's load is served by utilities that do not meet the customer threshold in the law and are not subject to the [Washington] Energy Independence Act requirements. Commenters explained that these are small consumer

- owned utilities that obtain nearly all of their energy from the Bonneville Power Administration

. According to the commenter s , with some of cheapest energy in the country, the energy efficiency potential is considerably less than a larger utility with more expensive power (e.g., BPA PF

- 1476 P ublic Tier One rates in 2014 are $31.50/MWh. Commenters stated that even if the [Washington] Energy Independence Act was extended to these small utilities, the low avoided costs and relatively expensive administrative costs would prevent them from achievin g cost

effective conservation at the same level as the larger utilities. Commenters stated that it would help if the small utilities pooled their resources into a larger umbrella organization that could achieve the necessary efficiencies of scale.

Commente rs stated, despite claiming that affected sources may implement renewable energy (RE, building block 3) and demand

- side energy efficiency (EE, building block 4) standards, in actuality, such standards are promulgated and implemented by the states, not by e xisting sources. Commenters argued that states have varied regulatory frameworks for the electric industry that could impede their ability to enforce requirements related to building blocks 3 and 4 directly against many designated facilities. Commenters sa id certain owners and operators of EGUs are not subject to rate regulation or review of new resources, and have no retail customers. Commenters stated that such EGUs have no capability to require the addition of renewable resources within a state, and no a bility to provide incentives for adoption of EE measures among retail customers.

5.1.6 Multi

- state plans

This section contains comments on multi

- state plan approaches.

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

Comment 1: Numerous commenter s s upport ed the use of m ulti

- s tate p lans to meet the emission guidelines

. Response 1: The EPA generally agrees with the commenters and in the final emission guidelines provides for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint mul ti

- state rate

- or mass

- based goals and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in sections VIII.C.5, VIII.J.3 , and VIII.K. 4 of the preamble to the final rule.

With regards to the commenters’ concerns that the EPA would extend the timeframe for compliance for those states participating in a multi

- state plan, the EPA is not finalizing different time frames for com pliance between individual

- state and multi

- state plans.

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

Several commenters supported the EPA's decision to allow multi

- state or regional plans. Commenters presented t heir reasons for supporting the multi

- state option which include:77 • Ensures states have the opportunity to take advantage of low

- carbon technologies found outside of their boundaries.

• Will result in larger emission reductions

.

• More likely to reduce emission s when combined with mass

- based targets

.

• May afford timelier carbon emissions reductions than a single state plan

.

• More cost effective/reduces compliance costs.

• Provides greater flexibility/more options.

• Better able to maintain grid reliability.

• Recognize s the regional structure of the electricity market.

• Easier to implement EE and RE across state line

• Best approach for achieving compliance with state RE targets

.

• Avoids distortions and inefficiencies in the market place.

• Minimizes risks of double countin g carbon reductions.

• Makes compliance easier, especially for the largest utilities that serve more than one state and operate under several different state regulatory regimes (e.g., PacifiCorp, American, Xcel Energy, and cooperatives such as Tri

- State)

.

• Re wards early actors like the northeast states participating in the R egional G reenhouse G as I nitiative

.

• Fosters greater innovation opportunities

.

• Better for customers

.

• Reduced administrative costs to the EPA

.

• Could provide a more level playing field acro ss states

.

• Less price volatility for states using market

- based trading programs

.

• Distributes the burden of compliance over more states and utilities

.

• Leakage may be less significant

.78 • Expands the geographic size of balancing areas allowing for a greater percentage of intermittent power sources (e.g., wind, solar)

. Some commenters noted that an analysis by MISO showed that regional compliance options save approximately $3 billion annually compared to sub

- regional (e.g. individual state plans) approaches

Commenters supported multi

- state or regional compliance options and quoted results from recent modeling performed by their regional transmission organization , PJM

. Commenters noted that the y analyz e d of the impacts of several different scenarios applied across the PJM's region found that multi

- state approaches are much more cost

- effective. Commenter s quoted from the analysis stating the estimated compliance costs under a regional approach is five times less than under individual state pl ans

. Commenters supported the multi

- state approach but were concerned EPA would extend the timeframe for compliance for those states that select the interstate approach.

Commenters supported a multi

- state approach because utilities often cross several st ate borders. Commenter s support ed regional approaches because they offer cost

- effective solutions, help overcome technical challenges (such as cross

- state power flow and crediting), simplify compliance by decreasing the number of markets created, and reduc es implementation costs.

Commenter s supported multi

- state plans because they simplify compliance obligations and market structures for businesses operating in multiple states, and increase market transparency and competition, which they believe will ultim ately lead to lower implementation costs.

Commenter s believe d the EPA should recognize and encourage multi

- state and regional energy efficiency efforts and compliance strategies, particularly where those programs use harmonized, consistent and transparent efficiency EM&V protocols and approaches and accounting stand ards for quantifying electricity savings and CO 2 reductions.

Commenter s believe d multi

- state planning would mitigate some double counting concerns and inefficient dispatch created by a patchwork of state plans, especially where similar units in different s tates share a power market with substantially different CO 2 costs. However,
commenter s were concerned that states may not be able to design multi

- state plans in the limited amount of time between finalization of the guidelines and the due date for complian ce plans. Commenters recommended the EPA incentivize multi

- state planning and should not punish states that are unable to develop regional compliance plans by limiting their use of RE reductions for compliance. Commenters stated that the EPA should minimiz e double counting concerns by providing clear guidance as to how to attribute reductions associated with RE before states submit compliance plans because this may encourage states to develop cooperative approaches for addressing the interstate effects of R E generation. Commenters recommended that i f states working on multi

- state plans are not able to finalize them within the allowed time frame, then the EPA should grant them additional time because the benefits of multi

- state plans outweigh reasonable delay s in plan submittal. Commenter s recommend ed the EPA allow states " broad flexibility to innovate and develop multi

- state trading programs that take full advantage of opportunities for reducing costs for electric customers."79 Comment 2: Comments suggesting that m ulti

- state programs have resulted in higher electricity prices

. Response 2: The EPA disagrees with the commenter s and is not aware of implementation problems, such as those described by the commenter, that have arisen as a result of the RGGI
program. The EPA is also not aware of any reliability concerns that have emerged as a result of RGGI , or reliability concerns related to RGGI raised by the FERC

. The final emission guidelines provide for multi

- state plan approaches, including multi

- state plans with joint multi

- state rate

- or

mass

- based emission trading programs through a single state plan. These multi

- state approaches are described in sections VII I.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.

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

Commenter s opposed to multi

- state allowance trading programs like RGGI. Commenters noted that New England exper ienced problems with pipeline constraints due to the rapid conversion to gas and has experienced high electricity costs as a result. Commenters were concerned that similar problems could be encountered in other multi

- state regional plans. For these reasons

, c ommenters believed RGGI should not be promoted as a model program for the country and noted that FERC has described reliability and cost concerns with the RGGI program.

Comment 3: Comments suggesting t he EPA should allow states participating in multi

- state plans to distribute CO 2 emissions reductions from EE among states in the multi

- state area as long as the total CO 2 emission reductions claimed are equal to the sum of each participating states EE reductions.

Response 3: The EPA has clarified th e treatment of EE resources across states in the final rule. This is discussed in section VIII.K.1.a.(2) of the preamble to the final rule.

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

Commenter s noted that the EPA would treat EE differently under multi

- state plans than it would under single

- state plans. Commenters stated that for multi

- state plans, the EPA proposes to allow participating states "to distribute the CO 2 emission reductions among states in the multi

- state area, as long as the total CO 2 emission reductions claimed are equal to the total of each state's in

state emissions reductions that result from demand

- side EE measures implemented in those states." Commenters believed that attempting to limit EE in multi

- state plans based on origin would unnecessarily complicate implementation of multi

- state plans. Commenters supported the EPA's proposed approach to allow states to determine how to distribute such EE

- related emission reductions is appropriate.

Comm ent 4: Comments from Indian Tribes support multi

- state approach

.80 Response 4: The EPA has clarified the treatment of RE resources across states in the final rule. This is discussed in section VIII.K.1.a.(2) of the preamble to the final rul e. The EPA has also clarified in section VIII.K.1.a.( d) that RE resources located in Indian country could be used to meet the emission guidelines in a state plan.

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

Commenter s were concerned th at none of the Indian Tribes were asked to participate in EPA's meetings regarding multi

- state plans. Commenters noted that Indian Tribes can be treated as states under Section 301(d) of the Clean Air Act and believed that the EPA should have involved them in meetings with states concerning multi

- state planning efforts. Commenters stated that state renewable portfolio standards would allow renewable energy generated in one state to count toward meeting a renewable portfolio standards in another state. Commenter s stated that the same opportunity should be given to Indian Tribes and noted that renewable energy, such as FCPC's biodigester and biogas generator facility in Milwaukee, WI, could be used to help neighboring states meet their CO 2 emission reduction requirements while the Tribes could use the money from such sales to reinvest into their own economies. Commenters recommended that EPA engage Tribes in a discussion about this opportunity and how it might fit under the Proposed Rule.

Commenters also suggested that the five regional planning organizations (RPOs) should also be

cons ulted for multi

- state planning and noted that these organizations have provided financial support in the past, established a framework for cooperation between states and Tribes, and have a proven track record of using their combined technical, policy, and legal resources and expertise to address air quality issues effectively on a local, regional, and national level. Commenters also stated that some RPOs also understand and respect Tribal cultural values and practices, which would help in implementing the P roposed Rule across state and Tribal borders.

Comment 5: Comments s upport ing multi

- jurisdictional plans between states, territories, and areas of Indian Country

. Response 5: The EPA generally agrees with the commenters and in the final emission guidelines provides for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state rate

- or mass

- b ased goals and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in sections VIII.C.5, VIII.J.3, and VIII.K.4 of the pr eamble to the final rule. In section VIII.A of the preamble to the final rule, the EPA has clarified that use of the term " state " in the preamble includes territories and tribes that have obtained TAS for the purpose of developing and submitting to the EPA for approval a tribal implementation plan implementing the final EGs.

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

Commenter s supported the EPA's proposal to allow multi

- jurisdictional plans or agreements to be developed among states, territories, or Indian country to minimize the overall financial impact of 111(d) standards.81 Comment 6: Comments suggesting that RGGI demonstrates that multi

- state plans can be successful

. Response 6: The EPA agrees with the commenters that a multi

- state emission budget trading program, of which RGGI is an example, is a viable means of meeting the emission guidelines. In multiple places in the preamble, the EPA notes the successful implementation of the RGGI program and the advantages of a multi

- state emission budget trading program approach. T he final emission guidelines provides for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plan s with joint multi

- state rate

- or

mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or

mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in sections V III.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Commenter s noted that the Regional Greenhouse Gas Initiative (RGGI) has demonstrated that a regional approach is a practical framework for reducing carbon pollution. Commenters stated that that the "Regional Investment of RGGI CO 2 Allowance Proceeds 2012 Report" estimated that "RGGI proceed investments in energy efficiency, clean and renewable energy, and other strategic energy programs will return more than $2 billion in lifetime energy bill savings to more than 3 million particip ating households and more than 12,000 businesses in the region" and that programs funded with RGGI allowance proceeds have reduced 792,000 short tons of CO 2 emissions

. Commenters also noted that RGGI has shown that EE and RE measures can be successfully im plemented as part of a multi

- state program.

Commenter s were supportive of using RGGI as a compliance mechanism for the Northeast.

Commenters stated RGGI has demonstrated that regional plans can be successful. Commenters stated that the mass

- based approach is a cost

- effective way to achieve substantial CO 2 emission reductions and particularly recommended the EPA facilitate the use of regional mass

- based approaches as a means of compliance with state targets. Commenters stated that i n addition to reducing emi ssions, RGGI provided the following other benefits, including:

• An 8 percent drop in electricity rates;

• $2.4 billion in economic development;

• $2 billion saved through energy

- efficiency measures;

• More than 23,000 job

- years of work created; and

• $10.4 bil lion in health benefits from 2009

- 2013 due to co

- benefits of carbon pollution reduction, such as reductions in sulfur dioxide, nitrogen oxides and mercury reductions that has benefitted wildlife and habitat.82 Comment 7: Commenters recommend credit for red uctions accrue to the state and/or utility customers whose actions result in the reductions, irrespective of where the actual reductions

occur.
Response 7: T he EPA notes that the basis for the comment, that credit for emission reductions must accrue to the state or utility customers whose actions cause the reductions, is not defined in practice . The final rule creates a construct for rate

- based emission trading programs where ERCs may be issued for measures that occur inside or outside a state. Under a mass

- based emission budget trading program, the concept in the comment is not relevant.

The EPA has clarified the treatment of RE, demand

- side EE, and other resources across states in the final rule. This is discussed in section VI II.K.1.a.(2) of the preamble to the final rule. In addit i on, the final emission guidelines provides for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

state rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Commenter s support multi

- state programs but recommend the EPA a dhere to the principle that credit for reductions realized must accrue to the state and/or utility customers whose actions cause the reductions, irrespective of where the actual reductions occur. Commenters asserted that

m eeting this challenge may be made easier if the EPA widens the design and timing for allowable multi

- state tran sactions.

Comment 8 : Comments suggesting that the EPA should allow states to enter into multi

- state plans at any time

. Response 8: States may enter into a multi

- state plan subsequent to approval of a single

- state plan, through a plan modification. The plan modification process is described in section VIII.E. 7 of the preamble to the final rule. In response to comments, t his section includes a discussion of the process and requirements that apply when a state seeks to join or exit an already approved multi

- state plan , through a plan modification

. These provisions also address the commenters’ concerns regarding " anti

- backsliding "

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

Commenter s recommended states should be allowed to enter into multi

- state compliance approaches at any time before or during the compliance period. Commenters also encouraged the EPA to include an option to allow states to change the approach by which they will meet the emission reduction interim and final goals. Commenters stated that f or instance, if a state submits, and the EPA approves, a multi

- state compliance plan based on BSER, states should not be barred from changing to a multi

- state plan in later years. Commenters recommended the EPA include an option for states to enter into multi

- state compliance approaches at any time after83 submitting single

- state compliance plans and recommended the process should be designed to be as simple and streamlined as possibl e, in order to encourage states to enter into regional agreements.
Commenters stated states have different legislative and regulatory processes for enacting a 111(d) plan, and these processes may not conclude at the same time. Commenters said certain RGGI states, for example, entered the program at different times because of differing state law requirements and decision making processes. Commenters said the EPA should enable multi

state collaboration by recognizing that states may arrive at the final decisi on to participate at different points in time. Commenters said the RGGI model provides a clear example of how states can implement a program with "on

- ramps" that enable additional states to participate. .

Commenters stated just as states may join a multi

- s tate effort at different times, the EPA should recognize that states in a multi

- state effort will require flexibility to deal with the unexpected departure of a participating state. Commenters said the EPA should work with states engaged in

a multi

- state p rocess to ensure that states can effectively address the situation of one state leaving

a multi

- state effort such as RGGI.

Commenter s also recommended that the anti

- backsliding provisions should not apply to states that seek to join a multi

- state plan afte r initially submitting a single

- state plan.

Comment 9: Comments suggesting that t he EPA should allow states to demonstrate compliance

on a regional basis

. Response 9: The EPA agrees with the commenter and the final emission guidelines allow states
to demonstrate compliance on a regional basis. This is described in section VIII.C.5 of the preamble to the final r ule.

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

Commenter s believe d the EPA should allow states to demonstr ate compliance on a regional basis. Commenter s noted that u nder a mass

- based regional system of compliance like RGGI, states would pool their individual state emission budgets and comply with those emission budgets on a regional basis, while still allowing for enforcement by states against their own sources that do not have sufficient allowances. Commenters argued that a lthough a particular state's actual emissions could theoretically exceed its individual state emission budget in a particular year, this should not affect the EPA's willingness to accept a regional program as a pathway for compliance. Commenters believed that a s long as the regional program demonstrates that emissions from sources within the region will collectively meet the EPA's emission guideline

, the plan could still serve as the basis for each state's implementation plan.

Comment 10: Commenters supported regional plans because they would avoid many of the interstate issues related to EE and RE , and avoids potential m arket distortions.84 Response 10: The EPA has clarified the treatment of RE, demand

- side EE, and other resources across states in the final rule. This is discussed in section VIII.K.1.a.(2) of the preamble to the final rule. In addition, the final emission guidelines provides for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

While the EPA believes there are advantages to multi

- state plan approaches, as discussed in the preamble, the final emission guidelines provide a clear basis for addressing the issues raised by the commenter s in the context of a single

- state plan.

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

Commenter s noted that a regional program has the benefit of addressing some of the interstate issues raised by the EPA in its questions. Commenters stated, for example, that if an energy efficiency policy in State A leads to a reduction in em issions in neighboring State B, State A cannot necessarily take direct credit for those emission reductions outside its borders in its section 111(d) implementation plan. Commenters continued stating that l ikewise, because State B would have no basis for e nforcing State A's energy efficiency program, State B cannot necessarily include State A's efficiency policy in its plan. Commenter s believe d it may be challenging to make a rigorous demonstration that investments in energy efficiency or renewable
energy r esult in any quantifiable level of emission reductions within the state.

Commenter s stated that they prefer a regional program because emission reductions anywhere in the region reduce the overall demand for emission allowances, as regulated sources requi re fewer allowances for compliance. Commenters also stated t hey believe d that allowing regional compliance can avoid market distortions that would result in less than optimal policy decisions. Commenters noted that a state that is not participating in a re gional program might choose not to invest in energy efficiency or renewable energy if it would not be able to fully credit the benefits of doing so in its section 111(d) compliance plan

, and instead may make less than optimal investments in fuel

- switching or plant

- specific improvements. Commenters argued that states not participating in a regional program may have less reduction of emissions for a given level of effort.

Comment 11: Comments suggesting that r egional p rograms b etter r eflect the r egional n ature of

e lectrical g rid

. Response 11: While the EPA believes there are advantages to multi

- state plan approaches, as discussed in the preamble, the final emission guidelines provide clear pathways for states to meet the emission guidelines through a singl e

- state plan. States are free to assess the potential benefits of a multi

- state plan or coordination with other states in the implementation of their single

- state plan. The final emission guidelines provides for multiple multi

- state plan approaches that st ates may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state85 rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of
rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Commenter s believe d r egional approaches to emission reduction better reflect the regional nature of the electrical grid. Commenters argue d that i f the EPA allows only a state

- by

- state compliance approach, it may create inefficiencies and unnecessary complications for states, a nd regulated

sources. Commenters noted that regional programs like RGGI help to ensure that the most cost

effective emission reductions occur across the region. Commenters noted that electricity generation has shifted from coal

- fired plants to natural gas and renewable sources located elsewhere in the RGGI region. Commenters also noted that emissions in Rhode Island increased because of the more efficient natural gas

- fired power plants in that state. Commenters noted that if the increase in Rhode Island's g eneration had been constrained by a Rhode Island

- specific cap, one or more of the coal

- fired plants that closed elsewhere in New England may have had to remain open to meet demand, thereby increasing emissions and costs to consumers.

Similarly, commenter s supported multi

- state plans for the Southeast because of the large utilities that operate across state lines, such as Duke Energy, Southern Company and the Tennessee Valley Authority (TVA). Commenters believed that b y allowing states to work together to c raft multi

- state compliance plans, the EPA is acknowledging the cross

- state operations of many major utilities.

Comment 12: Comments suggesting that s tates should work with ISOs, RTOs, EIM, and FERC to develop multi

- state plans

. Response 12: In the final emission guidelines, the EPA is requiring states to consult with the applicable ISO, RTO, or balancing authority in which a state is located to evaluate any potential electric reliability concerns related to a single

- state or multi

- state plan. This requir ement is discussed in section VIII. G.2 of the preamble to the final rule. The EPA also encourages states to consult more broadly with the applicable ISO, RTO, or balancing authority in which a state is located. Such organizations may be able to assist stat es in developing regional strategies that can meet the emission guidelines at lower cost than a single

- state plan, and can also help facilitate coordination in the development and implementation of single

- state plans.

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

Commenters suggested that states work with regional grid operators (including ISOs and RTOs), Energy Imbalance Market (EIM), and FERC to develop regional plans.

Commenter s noted that grid operators have extensive experience with integrating new resources onto the grid and can help coordinate the changes necessary to integrate RE and EE in a manner that ensures electricity is reliable and affordable. Commenters noted that in terstate collaboration is already required through the Federal Energy Regulatory Commission's Order 1000 which86 requires all public utility transmission providers to participate in a regional planning process that considers the impacts of state and federal energy and environmental policies, such as renewable energy standards, state energy efficiency resource standards, and the CPP, on transmission system needs. Commenters argued that Order 1000 creates a mechanism for neighboring states and regions to plan a nd pay for new transmission in a way that is mutually beneficial and can help ramp up wind and solar power and energy efficiency.

Commenter s recommended the final rule recognize the role and function of the RTOs as EGUs are dispatched by RTOs that cross s tate lines and are responsible for providing economic and reliable dispatch of resources within a specified region.

Comment 13: Comments suggesting that m ulti

- state plans focused on the electricity system as whole will result in the greatest emission reductions

. Response 13: The EPA agrees with the commenters that a multi

- state emission budget trading program, of which RGGI is an example, is a viable means of meeting the emission guidelines. In multiple places in the preamble, the EPA notes the success ful implementation of the RGGI program and the advantages of a multi

- state emission budget trading program approach. The final emission guidelines provides for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state rate

- or

mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or

mass

- based emission trading programs though a single

- state plan. These multi

- state approaches

ar e described in sections VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule. The EPA notes that RE and demand

- side EE requirements and programs can be used as complementary measures that help achieve mass

- based emission limits at lower cost. Such complementary measures do not need to be included in a state plan.

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

Commenter s stated that emi ssion reduction programs that are focused on the electricity system as a whol e achieve the greatest emission reductions. Commenters noted that RGGI states implement a suite of programs to pursue the best opportunities for emission reductions from the power sector, including energy efficiency goals and renewable energy standards. Commenters stated t he price signal provided by the cost of RGGI allowances raises the relative cost of higher

emitting plants, leading to increased generation at lower

- emitting, more efficient plants, even as overall system

- wide emissions have declined sub stantially. Commenters stated that a system

based approach is not only best

- suited to realize the emission reduction potential of cleaner energy supplies and energy efficiency, it fits precisely within section 111(d)'s mandate to EPA to develop guidelines for states to implement the " best system of emission reduction ."

Comment 14: Comments suggesting that t he EPA should support but not require multi

- state plans

.87 Response 14: The final emission guidelines allow for, but do not require, multi

- state plans. The final emission guidelines also provide for coordination among states in the implementation of single

- state plans. The final emission guidelines provide for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches ar e described in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Some commenters believed that the EPA should not require multi

- state plans, but shou ld allow states to voluntarily enter into cooperative agreements it the states determine it is mutually agreeable and EPA determines a multi

- state plan achieves the emission reduction goals. Commenters also stated that the EPA should not set goals that are based on an assumption that states will collaborate in multi

- state plans.

Comment 15: Comments suggesting r equirements for multi

- state plans should not be overly burdensome

. Response 15: The EPA has finalized requirements for multi

- state plans that are n o more burdensome than those for single

- state plans, considering that there are unique aspects of multi

state plans and multi

- state coordination in the implementation of single

- state plans that must be addressed to assure that approved state plans achieve the CO 2 emission performance rates or
state rate

- based or mass

- based CO 2 goals. Generally, the EPA’s goal is to facilitate and encourage multi

- state plans and multi

- state coordi nation, as such approaches can meet the emission guidelines at lower cost than single

- state plans and provide mutual benefits across
states.
The following are summaries of the specific public comments under this comment:

Commenter s recommended the requirements for multi

- state plans should be no more burdensome than those for single

- s tate implementation plans. Commenters also suggested the EPA should make interstate coordination as easy and straightforward as possible.

Comment 16: Comments that t he EPA should encourage adoption of multi

- state plans because they represent a step toward a national GHG program

. Response 16: The EPA acknowledge s the comment and the commenter s ’ support for allowing states to submit multi

- state plans. The final emission guidelines allow for, but do not require, multi

- state plans. The final emission gui delines also provide for coordination among states in the implementation of single

- state plans. The final emission guidelines provide for multiple multi

state plan approaches that states may take to meet the emission guidelines. This includes multi

state p lans with joint multi

- state rate

- or mass

- based goals, and the ability to collaborate with88 other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in section s VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.

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

Commenter s stated that a national GHG program would be a more cost

- effective approach since it would encou rage the least

- cost reduction in overall emissions, regardless of where in the nation that reduction is available. Commenters noted that they understand that a nationwide program is not feasible in the near term as it would require legislation; however the y support the encouragement included in the proposal for states to join together in multi

- state compliance plans.

Comment 17: Comments that the EPA should clarify that states may re

- allocate mass

- based targets in multi

- state plans

. Response 17: In the final emission guidelines, the EPA has finalized the proposed approach where states may aggregate their individual state mass

- based CO 2 goals into a single joint goal that applies to the group of participatin g states. Under this approach, the multi

- state plan must meet the joint goal, which applies for the group of affected EGUs in the participating states. This approach is described in section VIII.C.5 .b of the preamble to the final rule. Since the multi

- state plan must meet a single joint mass

- base d CO 2 goal that applies to all affected EGUs in the group of states, there is no need to " reallocating " individual state mass

- based CO 2 goals, as suggested by the commenter.

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

Commenter s requested the EPA clarify that if a group of states, like the RGGI states, translate the regional rate target to a mass

- based target those states have the option of re

- allocating the

mass

- based target

.

Comment 18: Comments suggesting that s tates with different goals would be reluctant to enter into multi

- state plans

. Response 18: In the final emission guidelines

, the EPA has made a number of revisions to the BSER that result ed in different state rate

- based CO 2 goals from those in the proposal. Generally, these revisions to the BSER serve to reduce the disparity among individual states’ rate

- based CO 2 goals. I n the final emissions guidelines, the EPA has finalized source sub category

- specific CO 2 emission perform ance rates that reflect the application of BSER to affected NGCC and steam units, respectively, throughout the contiguous United States. T he individual state s’ rate

based and mass

- based goals are state

- specific representations of the CO 2 emission performan ce rates for the two subcategories of affected EGUs, based on the composition of the fleet of affected EGUs in a respective state. These revisions address a number of the concerns raised by89 commenters. These topics are discussed at greater length in sectio ns V, VI, and VII of the preamble to the final rule.

In addition, as described by the commenters, the perceived reluctance of states with different CO 2 goals to enter into multi

- state plans, and the reasons for such reluctance, are speculative. The EPA is aware of multiple dialogs among states in different regions of the country about potential multi

- state collaboration to meet the emission guidelines. There are multiple benefits to multi

- state approaches, including analyses by ISOs and RTOs referenced in o ther comments. The comments equate the level of a state CO 2 goal with compliance costs and economic impacts from achievement of a goal, with lower goals resulting in greater compliance costs economic impacts. This is a gross oversimplification that ignores potential differences in marginal emission abatement costs in different states based on the composition of the fleet of affected EGUs in a state and other factors. Also, states exist in regional electricity grids, meaning the costs of meeting the emission guidelines in one state may impact wholesale electricity prices in another state and related electricity ratepayer impacts. All of these potential dynamics create incentives for state collaboration in finding the most economically efficient and mutually b eneficial methods for meeting the emission guidelines.

The EPA provides multiple approaches in the final emission guidelines to facilitate collaboration among states, including approaches that will allow states to develop multi

- state approaches over time. This includes multi

- state plans with joint multi

- state rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approac hes are described in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Some commenters stated they thought differences in state goals would make it difficult for states to enter into multi

- state plans. Commenter s were concerned that states may be reluctant to collaborate with other states whose reduction targets require a vastly different level of effort. Commenters stated t he RGGI states, for example , developed their collaborative effort based on a shared view of the level of the regional emission reduction goals and they prefer to maintain those regional emission reduction goals by joining with other states that have comparable reduction targets. Com menters noted that states with a less ambitious reduction target may hesitate to join a regional program with other states that have more stringent emission reduction requirements. For this reason, Commenters recommend ed that the EPA reduce the existing di sparity of the EPA's emission reduction targets.

Commenter s asked why states with different final goals would enter into multi

- state plans. As an example

, c ommenters ask ed why Iowa with a 16% reduction goal would agree to p artner with Minnesota with a 41 p ercent reduction goal.

Commenter s believe d that states will be reluctant to cooperate with states that have more stringent goals than their own state and that there will be no cooperation unless the goals are fair and reasonable.90 Commenter s noted that a m ulti

- state approach would allow facilities to redispatch their coal
gen eration plants from one state to their NGCC plant in other states. Commenters presented the example of Idaho Power , which can redispatch the coal generation it owns in Nevada (North Valmy Generating Station) and Wyoming (Jim Bridger Power Plant) to its Langley Gulch NGCC plant located in Idaho , and also the example of Avista which would be able to redispatch coal generation it owns at Montana's Colstrip plant to its Rathdrum NGCC plan t in Idaho. However, c ommenters believed that while Idaho's multi

- state utilities may seek a regional compliance solution, there is little incentive for Nevada, Wyoming, and Montana to collaborate with Idaho. Commenters believed the EPA must provide more i ncentives for states to participate in multi

- state plans, because the current proposal limits Idaho's ability to take advantage of coal

to

- NGCC redispatching (Building Block 2), which they believe would likely leave Idaho with a state plan that is burdenso me on ratepayers and does not reflect a BSER that has been adequately demonstrated for Idaho.

Commenter s thought while larger groups of states may be able to create sufficient cross

incentives to justify working together on a compliance plan, states findin g themselves in bilateral electric relationships will likely be unable to partner to the same extent. C ommenter s argued that it would be illogical for a state that had an easier and more cost

- effective path to compliance to partner with a state that found itself in a more challenging position. Commenters recommended the EPA should incentivize bilateral partnerships to ensure that states that are at a compliance disadvantage are not excluded from partnership opportunities that could substantially reduce
comp liance costs.

Similarly, commenter s thought that multi

- state planning would be more difficult due to

" inequitable burdens that the Clean Power Plan creates among states " and believe that they " will impact whether states choose to collaborate on multi

- state plans, including cap

- and

- trade
programs

. " C ommenter s noted that differences in the proposed CO 2 emission reductions among states are especially noticeable in certain regions of the country. Commenters that a s an example, the North Central region ranges from 11 percent and 16 percent in North Dakota and Iowa to 35 percent and 41percent in South Dakota and Minnesota, respectively. C ommenter s believed that

" having such a wide disparity in the state goals discourages states, such as Iowa, from joining togeth er to develop multi

- state plan with a state such as Minnesota, which faces a more stringent interim and final goal. " Commenters argued that states with more stringent emission reduction goals will be " forced to look exclusively at developing their own indi vidual state plans. "

Commenter s noted that states with a diverse mix of generating resources within their state are not likely to partner with a state that relies substantially on affected coal

- fired EGUs, lacks NGCC resources, and has poor opportunities f or renewable energy development, or one which relies heavily on hydropower. Commenters also believed that there would be too much uncertainty as to whether states participating in a multi

- state would be able to comply with the goals.

Although commenter s s upported the multi

- state approach because it would likely reduce compliance costs, they were concerned that the EPA's proposal had failed to recognize the hurdles to the implementation of a regional plan that make such an approach unlikely to work since it is unclear why a state would want to switch to a regional goal more stringent than its individual goal.91 Comment 19: Comments suggesting that s tates should be able to enter multi

- state agreements without the need to combine state goals

. Response 19: In response to comments, the EPA is finalizing approaches for multi

- state collaboration, through the interstate transfer of ERCs and emission allowances among state rate

based and mass

- based emission trading programs, respectively. These multi

- state approache s, which include the ability for states to join a multi

- state approach over time, are described in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Commenters recommended the EPA clarify that states may cooperate regionally without combining state goals into a regional goal. Commenter s recommended the EPA expand the options to allow a variety of multi

- state arrangements, and allow states to update th eir plans if they later decide to enter into multi

- state agreements. Commenters stated that states in a mass

based multi

- state program such as RGGI should not need to combine their state emissions budgets into a single regional emissions budget, though sta tes may choose to combine state budgets into a single regional budget. RGGI demonstrates that it is possible for individual states to enact individual state allowance budgets and then agree to accept the allowances from other
states.

Comment 20: Comments that suggest the EPA should require a memorandum of understanding

. Response 20: The EPA is not requiring states that engage in a multi

- state plan to enter into a memorandum of understanding. Such non

- binding agreements often specify collaborative efforts among states, or the agreed outcomes of such collaboration but are not necessary for collaboration.

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

Commenter s recommend ed the EPA recognize the importance of multi

- state dialogues, provide states flexibility to participate in these multi

- state processes while considering their individual compliance options and sugg ested the EPA require a "Memorandum of Understanding" or similar agreements for states considering a multi

- state approach to encourage states to participate in multi

- state dialogues. Commenters suggested that such an agreement should demonstrate meaningful commitment to a multi

- state planning process and a timeline for concluding the process, but should not be a burdensome requirement that necessitates legislation.

Comment 21: Comments suggesting that s tates with approved mass

- based plans should be able
to link their plans without review/approval by the EPA

.92 Response 21: In response to comments, the EPA is finalizing a " trading ready " approach for the linkage among rate

- based and mass

- based emission trading programs, respectively. This approach would not re quire further approval by the EPA, beyond its approval of individual state plans designated as " trading ready " in order to effectuate links among such programs. This approach is described in sections VIII.A, VIII.J.3, and VIII.K. 4 of the preamble to the fi nal rule.

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

Commenter s recommended states and regions with approved mass

- based compliance plans should be able to link their approved programs without the need for further the EPA review provided there is no impact on the overall level of emission reductions achieved. Commenter s stated that this approach would reduce the administrative burden for implementing multi

- state or multi

- regional compliance programs, reduce compliance c osts for states, and encourage larger groups of states to work together.

Comment 22: Multi

- state plans should include "unwinding protocols" addressing situations where one or more states decides to withdraw from a multi

- state plan

.
Response 22: The EPA a cknowledges the commenters’ concerns. In order to avoid a multi

- state plan becoming unapprovable due to one state submitting an unapprovable portion of a multi

- state plan, withdrawing from the multi

- state plan, or failing to implement the multi

- state plan, states may include express severability clauses if their multi

- state plan is able to stand without further revision if one of the situations described above occurs. The severability clause must specify how the remainder of the multi

- state plan or individu al state plan would continue to function with the withdrawal of a state or states, and may also include pre

- specified revisions. The EPA will evaluate the appropriateness of such a clause as part of its review of the multi

- state plan submittal. See section VIII.E of the preamble to the final rule for more details

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

Commenter s recommended the EPA require "unwinding protocols" be included in multi

- state plans to allow individual states to withdraw from a multi

- state plan. Commenters recommended that protocol be a pre

- determined methodology for apportioning emission reductions be tween states in the event that a state exits a multi

- state plan that should ensure electric consumers in a state are not surprised by higher than expected compliance costs due to their state or another exiting a multi

- state plan.

Comment 23: Comments that t he EPA should develop guidance to support states wishing to develop multi

- state plans

.
Response 23: The final emission guidelines provide for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

-93 state rate

- or mass

- based goals, and the ability to collaborate with other states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are describ ed in detail in sections VIII.C.5, VIII.J.3, and VIII.K. 4 of the preamble to the final rule.

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

Several commenters requested the EPA provide additional guidance on multi

- state pla ns.

Commenter s recommended the EPA provide additional guidance on the acceptable forms of multi

- state approaches. Commenter s recommended the EPA develop guidelines for multi

- state or regional implementation plans that reflect best practices and optimize e missions reductions and cost effectiveness. Commenter s requested additional guidance on the range of multi

- state approaches that could be used and specifically requested guidance on ways in which a program should function, including: guidance on program ad ministering entities and agreements; and possible frameworks for emission reduction crediting of renewable energy and energy efficiency.

Commenter s suggested the EPA provide support for common accounting and measurement systems for states using the multi

- s tate approach and also provide clear guidance on best practices for monitoring and verifying emissions reductions for energy efficiency and renewable
energy programs.

Commenter s recommended the EPA provide guidelines for multi

- state plans and a CO 2 credit interstate and intrastate trading program, including mechanisms for trading between rate

- based and mass

- based programs.

Commenter s felt the lack of reliable information on potential costs of carbon reduction available in neighboring states or regions was an obstacle hindering states from considering opportunities for multi

- state cooperation. C ommenter s stated that states considering multi

- state plans need to undertake scenario modeling of power markets using such tools as the Integrated Planning Model. Com menters stated that t he scenarios released in the regulatory impact analysis (RIA) which accompanied the Section 111(d) proposed guidelines provided a useful set of conceptual bounding cases for initial consideration of the rule, but that the y believed the se would not be sufficient for considering a particular approach taken by a given jurisdiction, (whether mass based or rate

- based). Commenters stated that a lthough the RIA did identify states with high compliance costs that would potentially benefit from m ulti

- state cooperation, the generalized formulation of the initial bounding IPM scenarios does not lend itself to the kind of detailed consideration of alternatives needed by states to make practical decisions regarding implementation strategies. Commenter s noted that states do not know what would happen if states engaged in strategic behavior. For example, c ommenters wondered what regional carbon prices would be if only the relatively higher cost entities agreed to engage in multi

- state markets, while stat es with lower compliance costs developed individual state plans. Commenters also believed that states more than one ISO/RTO needed additional data on how the different carbon price signals within its jurisdiction would affect different implementation strat egies. Commenters stated that states considering multi

- state plans must have a realistic baseline against which to gauge the effect of their proposed actions.94 Commenter s supported multi

- state or regional approach because it better reflects the electric in frastructure and manner in which electricity is generated and transmitted. Commenters noted that a multi

- state or regional approach would be favored and may even be necessary in some areas. However, commenter s were concerned that the rule contains very lit tle guidance on the types of multi

- state or regional plans that the EPA will consider appropriate. Commenters stated that an understanding of the EPA's intent as to the content and structure of an approvable multi

state or regional approach is an important consideration for states in determining how to comment effectively and how to develop a Section 111(d) plan.

Commenter s encouraged the EPA to help states see the benefits of regional compliance plans. Other c ommenters also encouraged the EPA to support regional planning. Commenter s recommended the EPA develop guidance for states, offer technical assistance to states to help them develop regional and multi

- state plans, develop model regional and multi

- state agreements, and set minimum standards for multi

- state plan compliance. In addition, the commenter s recommended that the EPA regional offices hold stakeholder meetings to address implementation questions and assist states with implementation issues, such as interstate crediting.

Commenters said, the EPA should include in the final plan specific multi

- state arrangements that could be pre

- approved and provide model bi

- state agreements for coordinating specific plan elements, such as methods to allocate compliance credit for emission reductions from energy efficiency. Commenters said, providing States with off

- the

- shelf plan elements that are essentially pre

- approved would save States valuable time developing these measures, provide greater consistency in how the Clean Power Plan is implemented across the co untry, and make it more likely that States are able to attain the more cost

- effective emission reductions that may be achievable through multi

- state coordination.

Comment 24: Comments that the EPA should encourage states to implement multi

- state plans by providing support/incentives

.
Response 24: The EPA is not providing specific incentives for multi

- state plans. However, the final emission guidelines facilitate multi

- state approaches by providing a number of options for states, which allow states that face different circumstances to consider collaboration. The preamble to the final rule also explains a number of the benefits of multi

- state collaboration. In addition, the EP A is providing resources for states to consider in the course of the development of their state plans. These resources are available at the Clean Power Plan Toolbox for states, available at <http://www2.epa.gov/cleanpowerplantoolbox>.

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

Some commenters wanted the EPA to provide incentives for multi

- state compliance plans and recommended the EPA provide additional support for this option. C ommenter s recommended the EPA ensure avail able resources for reaching and maintaining compliance are allocated and distributed equitably. C ommenter s suggested the EPA consult with RGGI states for ideas on how best to encourage states to develop new or join existing multi

- state plans.95 Comment 25: Comments stating that m ulti

- state plans are beneficial for Kentucky

.
Response 25: The EPA acknowledges the comment. The final emission guidelines provide for multiple multi

- state plan approaches that states may take to meet the emission guidelines. See section VIII.C.5 of the preamble to the final rule for more details on multi

- state plans.

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

Commenters thought that multi

- state collaborations with other states would be beneficial for Kentucky, where coal

- fired plants have been almost the single source of electricity generation, because it woul d allow renewable energy to be implemented at a much faster rate.

Comment 26 : Comments suggesting that the EPA provide a mechanism for trading between
rate

- based and mass

- based multi

- state programs

.
Response 26 : The EPA did not propose, and is not finalizing, such an approach. The final emission guidelines provide for the interstate transfer of ERCs among state rate

- based emission trading programs and the interstate transfer of emission allowances among mass

- based emission budget trading programs. S ee section VIII.C.5 of the preamble to the final rule for more details on multi

- state plans.

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

Commenter s recommended that a mechanism for trading between rate

- based and mass

- based programs in multi

- state plans be included but did not provide any specific suggestions or recommendations.

Comment 27 : Comments suggesting m ulti

- state plans must use common speci fications/approach

.
Response 27 : The EPA did not propose, and is not finalizing, such an approach. The final emission guidelines provide for the interstate transfer of ERCs among state rate

- based emission trading programs and the interstate transfer of em ission allowances among mass

- based emission budget trading programs. See section VIII.C.5 of the preamble to the final rule for more details on multi

- state plans.

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

Commenter s recommended that states entering into multi

- state plans must use common specifications otherwise there exists the potential for unequal quantification or double counting96 within the emission reduction calculation. Commenters stated that the participating s tates should use the same goal units, rate

- based or mass

- based, to avoid inequalities.

Comment 28 : Comments on the method used to determine the emission goal under a multi

- state program

. Response 28 : For multi

- state rate

- based CO 2 goals, the EPA is finalizing the approach, discussed in the proposal, where a multi

- state CO 2 goal is calculated based on a weighted average of individual state rate

- based CO 2 goals, with the weighting based on 2012 electric generation from affected EGUs. For multi

- state mass

- based CO 2 goals, the EPA is finalizing the approach, discussed in the proposal, where a multi

- state mass

- based CO 2 goal is calculated by summing the individual state mass

- based CO 2 goals. The EPA has determined that specifying a metho d in the emission guidelines for calculating multi

- state CO 2 goals is necessary to ensure that the method for calculation of multi

- state CO 2 goals is consistent across states and that the calculated multi

- state goals are an equivalent aggregate representat ion of the individual state CO 2 goals established in the emission guidelines.

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

Commenters supported both options proposed by the EPA for determining the emission goal for

a multi

- state program and believed that states should be free to decide which approach works best for their region. Commenter s stated that the results of either approach will differ depending on the mix of generation in each multi

- state group. C ommenters als o thought states should be allowed to develop their own calculation method if appropriate. C ommenter s further argued that the EPA does not have a basis in section 111(d) for limiting state discretion over this matter.

Comment 29 : Comments that the EPA sho uld allow m odular p lans that i nclude m ulti

- s tate

a greements

. Response 29 : The final emission guidelines provide for multiple multi

- state plan approaches that states may take to meet the emission guidelines. This includes multi

- state plans with joint multi

- state rate

- or mass

- based goals, and the ability to collaborate with othe r states in the implementation of rate

- or mass

- based emission trading programs though a single

- state plan. These multi

- state approaches are described in detail in sections VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule.

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

Some commenters suggested the EPA allow states to cooperate on some measures without forming full multi

- state compliance plans because they believe this approach will benefit regional coordin ation. Commenter s noted that multi

- state agreements on discrete issues, such as the treatment of interstate renewable energy flows and related accounting and compliance issues can help reduce interstate conflict. Commenter s suggested that states be allowed to operate separate programs that are connected only through the mutual acceptance of each other's97 emissions reductions. Commenters recommended states be allowed to enter into agreements with other states without being required to have a joint multi

- state implementation plan.

Commenter s believe d that many states will seek a "modular" approach to regional planning that will allow for trading and reallocation between states operating under their own plans. Commenters stated that w hile the proposed rule allo ws states to work together in complying with their emission targets, they believe there are significant technical and political challenges that will make development and implementation of a single compliance plan for multiple states difficult. Commenters also stated that b ecause of the inherent challenges of multi

- state rulemaking, they believe development of multi

- state plans will take time and in some cases states may not be able to overcome some of these inherent difficulties. For these reasons, comment er s support allowing regional plans to be implemented in a modular fashion and allowing states to develop state

- specific plans that include some common plan elements, such as a common accounting system and compliance credits for renewable energy and/or ene rgy efficiency credits. Commenter s stated that the "module" for renewable energy and energy efficiency would contain enforceable commitments and tracking provisions, and be submitted by each state as a common plan element between two or more larger plans, which would ensure no double counting of carbon reductions. Commenters stated that states might participate in agreements concerning specific generating facilities or renewable resources. Commenters asked the EPA to allow these types of modular plans that include regional elements of this kind, as part of discrete state plans. Commenters also requested the EPA develop clear guidance on legal responsibilities, as well as common accounting and measurement systems between states in order to implement this type of regional planning.

Commenter s believe d that allowance systems will likely provide the most straightforward regional compliance design with state plans that can accept allowances from carbon markets in other states without requiring shared targets between the states. Commenters believe d that

re gional partnerships will be a useful compliance tool, particularly in the western United States where many long distance power transfers between states occur. Commenters stated that California is particularly interested in cooperating with other states. Co mmenters noted that under the California Cap

- and

- Trade Program first deliverers of imported power must hold sufficient compliance instruments for the emissions associated with these imports. Commenters said that i ncluding importing states in a regional mar ket program could reduce or eliminate the need for this requirement for first deliverers, could ensure emissions are properly credited to states and ratepayers responsible for emissions improvements, and could help avoid any double counting in a regional p rogram. Commenters asked the EPA to confirm that plans reallocating compliance credit for RE and EE programs between states are approvable.

Commenter s proposed states should be allowed to redispatch generation regionally without entering into a 111(d) mult i

- state compliance agreement in order to enable utilities with multi

state, regional assets to work with those states to accomplish a BSER. Commenters argued that reducing use of fossil fuel

- fired steam plants in one state and increasing capacity at NGCC f

acilities in another state would reduce emissions without negatively impacting either state and would keep costs to a minimum. Commenters stated that i f the EPA does not allow states to redispatch generation regionally without having to enter into a 111(d) multi

- state compliance agreement, , they believed the final rule would provide no compliance credit to states like Idaho for the redispatch to instate NGCC generation and reduction of out of state coal generation.98 Commenter s suggested a state may want to use a multi

- state approach for implementing Building Block 2, while the state would retain full state

- specific oversight and responsibility for the renewable energy and demand

- side energy efficiency building blocks through a state

commitment approach.

Com menter s believed that for some states, a regional budgeting approach would be better than using RECs and recommended that states be allowed to enter into multi

- state agreements that allow for emissions budgeting.

Commenter s believed that arrangements betw een two states, even with respect to a single facility or utility, may help to harmonize the implementation of the rule in a way that is both fair, cost effective, and efficient.

Commenter s argued that states should have maximum flexibility to determine w hat kinds of collaborations might work for them. Commenters noted that these could include submission of joint plans, standardized approaches to trading renewable or energy efficiency credits, or negotiated agreements on how to allocate avoided emissions o r generation from renewable energy and energy efficiency among states.

Commenters recommended that the EPA's final rule provide states and tribes with the flexibility necessary to work cooperatively to develop effective strategies for compliance. Commenters continued, stating, in addition to allowing for the blending of individual state and tribal goals int o a region, the EPA should also consider allowing strategies that allow for cooperation on specific elements without requiring the combination of goals. Commenters said this flexibility will allow for states and tribes to work more collaboratively without mandating the complexities of a full regional plan.

Comment 30 : Comments stating that m ulti

- state plans should cover all section 111(d) requirements

. Response 30 : Multi

- state plans, where multiple states submit a plan to meet a joint rate

- based or

mass

- ba sed CO 2 goal, must meet all of the same requirements as a single state plan to be approvable. State plan requirements are addressed at section VIII.D.2 of the preamble to the final rule. In particular, a state plan must describe the plan approach and geographic scope, as discussed in section VIII.D.2.a.(1) of the preamble to the final rule . In addition, states may collaborate in the implementation of single

- state rate

- based and mass

- based emission trading programs, through the interstate transfer of ER Cs and emission allowances, as discussed at section VIII.C.5.c of the preamble to the final rule. RECs may not be used as a compliance unit under a rate

- based emission standards plan type, as discussed at section VIII.K.2.f of the preamble to the final rul e. However, RECs could be used as a compliance instrument under a state measure, such as a state RPS, addressed in the supporting material for a state measures plan type.
The following are summaries of the specific public comments under this comment:99 Comme nter s stated that if two or more states join forces to submit a joint plan, it should cover the entire spectrum of responsibilities under the rule (i.e., states submitting multi

- state plans should not be permitted to choose to only join forces for a subset of 111(d) responsibilities)

. As an example, c ommenters stated that if State A submitted a plan with State B with respect to renewable energy generation and State A and State C submitted a separate plan with respect to

re

- dispatching of power to underutili zed natural gas capacity under building block two, then the benefit from a strong market signal would not be achieved. However, c ommenters disagreed that a multi

- state compliance plan should be a prerequisite for the interstate trading of RECs

. Commenters stated that unencumbered trading of RECs is critical to facilitating integration of existing state renewable portfolio standards into a tool to achieve the EPA's GHG reduction goals.

Comment 31 : Comments that states should be allowed to develop multiple state plans where different regions have different RTOs/ISOs

. Response 31 : Under a state plan, a state has discretion to apply different emission standards to different affected EGUs or groups of affected EGUs. These plan approaches are discussed at section VIII.C of the preamble to the final rule.

In response to comments, the E PA has also clarified that states could address different groups of affected EGUs in their state through different multi

- state plans. This would address the scenarios raised by the commenters where different groups of affected EGUs in some states are locat ed in different ISOs, RTOs, or balancing authorities. This approach is described in section VIII.C.5.d of the preamble to the final rule.

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

Some commenters were concerned that ma ny states have multiple balancing authorities in different parts of the state. C ommenters noted that the balancing authorities may be the RTOs, ISOs, or a multi

- state utility (e.g., Southern Company). Commenter s stated that Missouri utilities operate in MI SO, SPP and AECI and questioned how a regional approach would work in Missouri. C ommenters suggested that it may be more reasonable to allow states to develop multiple state plans applicable to meet the requirements of the different regions of the state. C ommenters believed this approach would enable states like Missouri to better align the responsibilities of reliability with the applicable market structure.

Commenter s recommended the EPA allow states to develop plans that :

• Contain two or more parts, base d on balancing authorities;

• Establish goals for each part, such that the parts together will meet the state standard (e.g., using an average of the standards for each part of the state weighted by the portion of the baseline EGU emissions located in each s ubpart);100 • Allow electric facilities in the state to participate in two or more different regional mass

- based compliance plans, and/or the ability for part of the state to comply through a regional mass compliance plan and the rest of the state not to do so;

• Allow states to submit separate compliance plans for each part of the
state.

Commenter s recommended the EPA provide clear and definitive guidance on what would be acceptable for states that need to split their state plans between different balancing autho rities.

Comment 32 : Comments requesting clarification on h ow states would incorporate RES into multiple state plans when different states have different renewable portfolio standards

Response 32 : States could include an RES as a state measure under a state measures plan type,

a s described in section VIII.C.3 of the preamble to the final rule. Such a plan could be multi

- state in nature and designed to achieve a multi

- state mass

- based CO 2 goal. The grouping by the EPA of states into regions, for purposes of building block 3 in the proposal, is not relevant for approvable emission standards in state plans, or state measures under a state measures plan type.

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

Commenter s asked how states would incorporate a RES into a multi

- state plan when different states have different renewable portfolio requirements. Since renewable generation is subject to metering, c ommenters stated that it should be easy to identify the source of generation and the EPA's pre

- defined grouping of states into regions would enhance the region’s ability to incorporate a RES across borders. However, c ommenters were concerned that dividing states int o regions may not be sufficient for Missouri where utilities operate in MISO, SPP and AECI and regional complianc e is further complicated by a 1 percent retail rate impact. Commenters suggested the EPA allow states like Missouri to develop multiple state p lans combining states in the same organizational participation structure into a region.

Comment 33 : Comments suggesting j urisdictions without affected EGUs should be allowed to join multi

- state plans

. Response 33 : States and other jurisdictions without affected EGUs are not subject to the emission guidelines. However, state plans that meet the emission guidelines may provide opportunities for implementation of emission trading programs that include emission sources that are located in jurisdictions in th e United States that are not subject to the emission guidelines

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

Commenters believed that section 111(d) allows jurisdictions without affected EGUs to voluntarily participate in multi

- state plans provided affected EGUs bear the full burden of the101 enforceable emission reduction obligations. Commenters noted that Vermont and other such jurisdictions that have no units are not subject to enforcement under section 111(d) and should not be forced to join any regional plan. Commenters recommended that i f a jurisdiction such as Vermont without affected EGUs wishes to participate in a regional plan, the EPA should permit it to do so, but should readjust the regional target to take into account the emission reductions that can be achieved from the regional fleet of EGUs as a result of the jurisdiction's entry into the
program. Commenters believed this "buy

- in" approach would quantify the emission reductions available in the non

- covered st ate by "applying" Blocks 2 through 4 to that state and imposing the actual emission reduction obligations on affected EGUs. Commenters said that the EPA would calculate the EE, RE, and other emission reduction opportunities that exist in Vermont and would adjust the target for affected EGUs in the region accordingly. Commenters noted that Vermont would not be subject to 111(d), but affected EGUs in other regional states would have more stringent targets as a result of Vermont's voluntary entry into the prog ram.

Commenter s stated that jurisdictions (such as DC) without fossil fuel generation units subject to the proposed emission guidelines should be authorized to participate in multi

- state and regional plans. Commenters noted that the EPA is soliciting comme nts on a supplemental proposal to authorize jurisdictions without EGUs subject to the proposed emissions guidelines to partner on developing implementation plans with other jurisdictions that do have EGUs subject to the guidelines. Commenters strongly supp orted the EPA authorizing these partnerships and providing guidance related to the enforceability of such multi

- jurisdictional plans. Commenters also supported the EPA's proposal to allow states to utilize trading programs to meet their emissions goals and urged the EPA to authorize and provide guidance for multi

- state trading programs to incorporate jurisdictions without affected EGUs.

Commenter s recommended the EPA permit jurisdictions without existing fossil fuel

- fired EGUs subject to the CPP guidelines to partner with jurisdictions that are subject to the CPP for purposes of developing a multi

- jurisdictional plan. Commenters stated t his provision would be appropriate, because of the interconnectivity of the U.S. electricity grid and the participation of

non

- affected jurisdictions in our regional markets. Commenters noted that while Vermont does not have any affected EGUs under the proposed CPP, Vermont does have two units that are subject to the RGGI program. Commenters stated that the Vermont EGUs are lo cated within the Independent Systems Operator (ISO) New England region and bordering the New York ISO region, which makes it logical to include the Vermont units. Commenters also stated that while generation and emissions produced in Vermont comprise only a small share of the overall emissions for the RGGI region, Vermont is in the process of developing and implementing an ambitious program to source 90% of all energy (not just electricity) from renewable sources by 2050. Commenters stated t his effort compl ements other initiatives in the neighboring states and contributes to the expansion of renewable energy generation within the region.

Comment 34 : Comments requesting clarification regarding multi

- state plans address ing complexities of importer/exporter st ates

Response 34 : One of the advantages of a multi

- state approach is that it would allow states in a shared electric grid region to partner in the development of a multi

- state plan designed to achieve102 a multi

- state rate

- based or mass

- based goal. By definition, such an approach would allow states to implicitly address net electricity flows across states. For more details on multi

- state approaches, see VIII.C.5.

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

Commenter s questioned whether multi

- state plans or mutual agreements between states could deal with the complexities of importer and exporter states.

Comment 35 : Comments stating that m ulti

- state plans are not practical for Alaska

. Response 35 : The EPA is not finalizing the CO 2 emission performance levels for affected EGUs, or state rate

- based or mass

- based CO 2 goals for affected EGUs, for Alaska, Hawaii, or the U.S. territories. The rationale for the EPA’s decision not to finalize emission guid elines requirements for these jurisdictions is discussed at section VII.F of this prea m ble

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

Commenter s noted that Alaska's power grid is not connected to the Lower

- 48 or Canada so working together with other states is not an option for Alaska.

Comment 36 : Commenters r ecommend ed that the EPA allow utility

- specific compliance plans without requiring states to join multi

- state plans

. Response 36 : Where a utility service territory does not cross a state line, a state could provide for a utility

- specific approach in its state plan. However, by definition, where a utility service territory crosses state lines, developing a utility

- specific approach wo uld require collaboration among states. The final emission guidelines provide for such collaboration, either in the form of

a multi

- state plan, or through coordinated implementation of individual plans, where states implement a rate

- based emission trading program or a mass

- based emission budget trading program. Under the later approach, states could provide for the interstate transfer of ERCs or emission allowances under rate

- based and mass

- based emission trading programs, respectively. These plan approache s are described in section VIII.C.5 of the preamble to the final rule.

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

Commenter s recommended states be given the option to develop utility specific compliance plans without th e need to join multi

- state plans.

Comment 37 : Comments requesting clarification on multi

- state plan goal calculations103 Response 37 : The final emission guidelines provide for the state plan scenarios suggested by th e commenter. Section VIII.C.5.b of the preamble to the final rule specifies how joint multi

- state rate

- based or mass

- based state CO 2 goals for affected EGUs would be calculated. Under the scenario provided by the commenter, two states could implement a multi

- state rate

- based emission tra ding program or linked individual rate

- based emission trading programs. Both approaches would provide for the interstate transfer of ERCs, and would facilitate shifting of generation among affected EGUs in the two states in order to comply with these rate

- based emission standards. State plan approaches involving rate

- based emission standards are discussed in sections VIII.C.2.a and VIII.K of the preamble to the final rule.

The commenter’s questions about a state’s incentives for entering into such plan approach are speculative.

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

Commenter s supported multi

- state plans but wondered how a multi

- state plan would be developed that only includes a single EGU in a nearby state or states? Commenters asked whether an agreement that only addresses re

- dispatch from a coal EGU in "State A" to a NGCC EGU in another "State B" would be allowed, particularly if th e same utility owns both facilities. Commenters asked whether both States A and B would submit their own individual state plans but also enter into a limited multi

- state plan agreement that addresses a common goal. Commenters wondered that i f a limited mul ti

- state plan is allowed, what incentives there would be for states to enter into such a plan. Commenters asked i f State B's NGCC capacity factor had been fixed at a value < 70% and could run at a higher capacity, what incentive there would be for a limite d multi

- state plan. If the NGCC and coal EGUs had been in the same state, c ommenters noted that the EPA would have already increased the capacity factor of the NGCC in State B and thus its baseline during the goal setting process. Commenters asked whether State B could increase its NGCC capacity factor through a limited multi

- state plan if its NGCC increased utilization was being used to take up dispatch from a coal plant in another state.

Commenter s asked h ow two state goals would be combined to have a jo int lb per MWhr goal. For a state with a lower than 900 lb CO 2 per MWhr goal (lower than the emission rate from a combined cycle gas unit), c ommenters asked whether a partnership with a high CO 2 per MWhr goal state provides an opportunity for new combined cycle units in the low goal state to provide credit for achieving the joint goal for the two states and asked how the credit would be calculated. Commenters wondered whether the credit would be possible if the low emitting state did not join with the high emitting state.

Comment 38 : Comments requesting clarification regarding the need for state legislation to implement a multi

- state plan

Response 38 : The EPA believes that some states could implement multi

- state plan approaches without new legislation, depending on the existing statutory authority in a state to regulate EGU air emissions. For example, a number of the participating RGGI states implemented that program104 under existing environmental statutory authori ty (some states sought new supplemental authority to allocate emission allowances through auction and disperse auction proceeds).

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

Commenter s asked whether there a re any multi

- state arrangements that the EPA believes would not require some implementing legislation by participating states.

Comment 39 : Comments requesting clarification regarding multi

- state plan submittals

Response 39 : In response to comments, the EPA is not finalizing an additional extension for the submission of a multi

- state plan. Instead, the EPA is providing three years for the submission of both final single

- state and multi

- state plans. The plan submission deadline s are discussed in section VIII.E.2 of the preamble to the final rule. The requirements for a multi

- state plan submittal are discussed in section VIII.D of the preamble to the final rule.

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

Commenter s asked how narrow could a multi

- state arrangement be to still qualify for the June 2018 deadline.

Comment 40 : Comments requesting clarification regarding RGGI states and multi

- state plans

Response 40 : The commenters’ request for clarification regarding the approvability in a state plan of the RGGI program generally and specific elements of the RGGI program are beyond the scope of this rulemaking. However, the general approach taken under the RGGI program is an acceptab le plan approach, and the EPA discusses in numerous places in the preamble the benefits of such a multi

- state emission trading program.

The RGGI program is implemented based on individual state statutory and regulatory authority. The " bylaws " referred to by a commenter are for RGGI, Inc., the non

- profit organization established and managed by the RGGI participating states to provide certain administrative infrastructure that supports state administration of their linked CO 2 Budget Trading Programs.

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

Commenter s noted that the RGGI's bylaws state that it "shall have no regulatory or enforcement authority

- and all such sovereign authority is reserved to each signatory state." Commen ters asked the EPA to describe the steps that RGGI states would need to take to satisfy the general criteria for section 111(d) plans.

Commenter s w ere concerned about the impact of Clean Power Plan on RGGI member states. Commenters were concerned that the RGGI Cost Containment Reserve allowances would have to be drawn from below the cap, rather than added to the cap as currently and noted that the105 mass

- based emissions targets in the EPA's technical support document are below the current RGGI cap. C ommenter s were also concerned about whether RGGl would be equivalent to the proposed guidelines and asked the following questions:

• Is a mass

- based system such as RGGl preferred rather than a rate

- base intensity?

• Would the RGGI cap be adjusted upwards to reflect the expansion of additional states that may seek to join RGGI as a means of complying with the EPA rule?

• Would the RGGI allowance budget (individual state portions of the RGGI cap) be equivalent to a state's interim and final goal? As noted above, the EPA's r ecently issued rate

- to

- mass based translation guidance suggests the RGGI cap would fall short of compliance with the CPP.

• Will the cost containment mechanism continue to place a ceiling on allowance prices?

• Will the offset provisions of RGGI need to be rem oved?

Commenter s recommended that any RGGI features, such as cost containment mechanisms, that are approved as part of a RGGI state plan should be allowed in any state plan.

Comment 41 : Comments requesting clarification regarding environmental dispatch protocol in a multi

- state plan.

Response 41 : The commenter’s question is beyond the scope of this rulemaking. However, the EPA notes that rate

- based or mass

- based emission trading programs would facilitate shifting the dispatch of affected EGUs ba sed in part on their CO 2 emission intensity. See also the response to comment number 15 in section 5.1.7 of this RTC document, which addresses such mechanisms that have been proposed by commenters.

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

Commenter s asked the EPA to explain how a multi

- state plan would lay out an environmental dispatch protocol for a regional transmission organization

.

Comment 42 : Comments requesting clarification regarding different rate structures between
states

Response 42 : In response to concerns raised by commenters, the final emission guidelines only allow for interstate rate

- based emission trading where states are implementing equivalent CO 2 emission standards; either emission standards equal t o the CO 2 emission performance levels in106 the emission guidelines, or under a multi

- state plan where states adopt a single CO 2 emission rate standard. Rate

- based multi

- state emission trading plan approaches are described in sections VIII.C.5 and VIII.K. 4 of the preamble to the final rule.

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

Commenter s asked whether different rate structures between states with multi

- state plans would result in arbitrage. Commenters recommended t hat t o avoid arbitrage opportunities between states with different rate structures, RTO dispatch formulas would need to be revised. C ommenter s also thought opportunities for arbitrage may also occur with individual state plans as a state could import low

- c ost renewable resources to replace high CO 2 emitting resources. Commenters suggested final rules be drafted to specifically discourage such arbitrage.

Comment 43 : Comments requesting clarification on non

- adjoining states in multi

- state plans

Response 43 : Multi

- state plans are not limited to adjoining states. In addition, where states collaborate in plan implementation through interstate ERC or emission allowance transfers, such states also do not need to be adjoining. Multi

- state plan approaches are addr essed in sections VIII.C.5, VIII.J.3, and VII.K. 4 of the preamble to the final rule.

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

Commenter s asked whether non

- adjoining states could enter into multi

- state plans. As with multi

- state plans among neighboring states, c ommenters stated support for multi

- state plans between non

- adjoining states because they would allow states to achieve the required emissions reductions at a lower cost than could be achieved with a single

- state plan. Commenters asked the EPA to clarify whether such arrangements would be approvable under the Proposed Rule. Commenter s asked the EPA to clarify whether partnering states must be adjacent to each other to be considered to be within the same region.

Comment 44 : Comments requesting clarification regarding how to include tribal RE projects in state plans

Response 44 : States would not have to enter into a multi

- jurisdictional plan with the tribe in order to include tribal renewable projects in their goal setting activities. Geographic eligibility for RE resources used to adjust the reported CO 2 emission rate of an affected EGU under a state plan is addressed in section VIII.K. 1

. a.(2)( c ) of the preamble to the final rule.

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

Commenter s asked whether states wishing to include tribal renewable projects within their goal setting activities would need to ent er into a multi

- jurisdictional plan with the tribe, in the same way a state would have to engage with another state or states in a regional plan.107 Comment 45 : Comments requesting clarification regarding affected units in multi

- state plans.

Response 45 : Some affected units can be included in a state plan while other affected units participate in a multi

- state plan. The ability to use this plan approach has been clarified in response to comments. This is approach is described in section VIII.C.5.d of the p reamble to the final rule.

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

C ommenter s asked whether some affected units can be included in a state plan while other affected units participate in a multi

- state plan, as long as the state can meet its compliance goal. C ommenter s recommended the EPA allow the states to use this option in their complia nce plans.

Comment 46 : Commenters recommended that all multi

- state plans must address several factors, including state inequities, comply with the Dormant Commerce Clause, hold states accountable for actions within their state, and address any other jurisdictional issues.

R esponse 46 : The EPA acknowledges the comment, which addresses issues related to state design of specific multi

- state plans. The preamble to the final rule addresses multi

- state plans in sections VIII.C.5, VIII.J.3, and VIII.K.4.

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

Commenter s stated that any multi

- state plan would need to:

• Avoid state

- to

- state inequities.

• Comply with Dormant Commerce Clause doctrine under the U.S. Constitution.

• Should ho ld states responsible only for actions taken within their own borders and jurisdictional authority.

• Credits and charges must accrue to the same state

- either the state of generation or the state of consumption. Commenters stated that there must be a cons istent and clear rule indicating how exported dirty and clean energy will be charged and credited to either the generating state or the state where it is consumed.

• Address regional scope of RTOs and a state's authority to regulate RTOs that cover multiple states.108 Comment 47 : Comments suggesting that m ulti

- state programs are an opportunity for cooperative federalism

. Response 47 : The EPA agrees with the commenter that the final rule will encourage cooperative approaches among federal, state, and local jurisdictions to address the environmental impact of the electric power sector. The EPA notes that such collaboration and dialogs have already increased in response to the proposed rule.

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

Commenter s believed the 111(d) rulemaking will help promote "cooperative federalism" by encouraging federal (e.g., the EPA, FERC), state and regional authorities (e.g., RTOs, ISOs) to work together on energy security, climate change, and environmental protection. Commenters believe d the EPA should actively encourage cooperative federalism. As an example of the ways the EPA could encourage cooperative federalism, c ommenters stated that the EPA could work with FERC and states to develop performance

- based rewards for utilities that reduce GHG emissions through modernization of the electric grid and energy efficiency programs, collaborate with the states on performance measures, or assist utilities with implementation costs (e.g., stranded investments or loss of revenue). Commenters believe that it would be best to continue the same regional approach w here a regional authority e xists (e.g., RTO or ISO)

.

Comment 48 : Comments suggesting an a djudication process is needed to resolve disputes between states

.
Response 48 : The EPA disagrees with the commenter that an adjudication approach is necessary in the emission guidelines. States already have multiple forums, legal and otherwise, to address potential interstate disputes related to utility assets and related investments. The preamble to the final rule addresses multi

- state plans in sections VIII.C.5, VIII.J.3, and VIII.K.4 of the preamble to the final rule

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

Commenter s recommended the EPA establish a default adjudication process to resolve interstate disputes with respect to credit for CO 2 reduction compliance measures and recognize utility resource investments. Commenters recommend ed the final rule provide more detailed guidance on how to develop multi

- state plans.

Commenters stated that EPA should establish a default adjudication process to resolve interstate disputes regarding GHG

- reduction credit that respects corporate portfolio investments. Commenters stated that since the CPP's proposed state performance goals has significant interstate implications because these are based on system

- w ide emission reductions from sources other than affected EGUs; these interstate issues are not adequately addressed in the CPP; and the EPA should not base its performance goals on measures that have an interstate character without providing clear ground r ules for allocating emission reduction credit among the relevant states for the purposes of their individual 111(d) state plans. Commenters stated that to avoid or109 minimize disputes among states, the EPA should outline the operative ground rules for alloca ting credit among states and develop a dispute resolution mechanism to ensure transparency of credit allocation and procedural efficiency, and the EPA should also address the need for states to respect corporate portfolio investments in multiple states to ensure the desired degree of large

scale private capital investment. Commenters explained that although the preamble acknowledges that the electricity system and markets are interstate in nature, the EPA offers no mechanism in the CPP to adjudicate dispute s that will arise

. Commenters offered an example where state A is a net importer of energy from neighboring states. State A invests heavily in a demand

- side management (DSM), program, and this will reduce emissions in surrounding states where its imported energy is generated. As a result, EGU emissions may decrease in neighboring state B, a net exporter of energy. Commenters ask, "In the absence of a multistate agreement, what happens when both states disagree as to which should receive credit for the reduc tion?" Commenters contended this is not a hypothetical problem: currently, many states with renewable portfolio standards (RPS) grant credits for renewable energy generated in other states, and this is important because a system that does not recognize the validity and tradability of out

- of state credits may unduly interfere with established state laws and private contracts.

Commenters remarked that for large, multistate energy companies with diverse portfolios, the problem is compounded because the most e fficient compliance strategy would be for such companies to prioritize investment in emissions reductions or renewable energy on a fleet

- wide basis

- investing where the greatest reductions can be achieved at the lowest cost and in the least time. Commente rs offered an example where a company may have a coal

- fired power plant in state C, and the opportunity to invest in wind generation development in state D. The company will be subject to emissions reductions rules in state C, but the most efficient way to reduce emissions may be for the company to invest in wind generation in state D. However, such an efficient portfolio investment strategy would not be recognized in state C in the absence of a multistate agreement, and even with an agreement, disputes may arise. Commenters believed that the CPP will only encou rage efficient, fleet

- wide investments if there are rules for transferring corporate portfolio credit from one state to another and if there is a mechanism to resolve interstate disputes over credit a ccounting. The commenters stated the EPA must propose and facilitate a comprehensive solution to interstate credit allocation and develop an efficient and fair procedure for resolving potential interstate disputes. The commenters noted that t here are a variety of potential components that the EPA may wish to consider as part of a dispute adjudication system. Commenters suggested the EPA develop a clearinghouse or multistate inventory for state and private entity registration of emission

- reduct ion actions for which they claim credit. Commenters also suggested that state plans should include a provision outlining the state's own dispute resolution procedure, which should conform to the federal framework. In addition to notice, transparent registr ation and uniform state and federal procedures, commenters recommended the program provide for a reasonable period of repose following adjudication to assure states and private parties a reasonable expectation for returns on their investments.

Comment 49 : Comments stating that the i nterconnected power grid in Western states (other than California) makes implementing regional plans more difficult than other regions110 Response 49 : The EPA agrees with the commenter that there are complexities in the structure of the electric power sector in the West. The EPA also agrees that plan design choices in one state can have impacts in another state. These interconnections and related impacts argue for state coordination in the development of individual state plans and underline the multiple benefits of a multi

- state plan approach, as the EPA points out in multiple places in the preamble to the final rule. The EPA notes that in the West signif icant dialogs have already begun between federal and state entities that participate in and/or regulate aspects of the electric power system and private and public market participants, as well as the relevant balancing authorities that manage operation of the bulk power system in the Western states.

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

Commenter s stated that any regulatory approach must recognize that Western states are served by an interconnected power grid through which power plants in one state often serve customers in another state

. Commenters stated that unlike other parts of the country, there is no RTO or ISO in the West outside of California and the Dakotas, and the 38 electricity balancing areas
respo nsible for managing the Western grid do not conform to state lines. Commenters stated that this means that 111(d) compliance approaches in one state can impact neighboring states. Commenters stated that this is particularly important in the West because ma ny of the less populous states generate electricity that is delivered to large population centers in other states. Commenters stated that in these cases, the policy decisions in the importing states can have a significant impact on the generation in the ex porting states. Commenters stated that likewise, decisions made in exporting states can have a significant impact on electricity rates in importing
states.

Commenters explained that there is substantial variation in how power is governed in the West. Commenters stated that more so than in other parts of the country, public power utilities in the West (i.e., rural electric cooperatives, municipal utilities, and public utility districts) often have large service territories, significant customer bases, o r both. Commenters stated that these public power companies are not generally regulated by state utilities commissions, which means that achieving cost

- effective solutions will require active collaboration and coordination among a range of companies and st ate authorities.

Commenters explained that many Western utilities own generation assets that deliver power across state lines, highlighting the complexities involved in implementing state and regional plans

. Commenters stated that these complexities will h ave to be addressed by utilities commissions, environmental regulators, and, in some cases, state legislatures.

Comment 50 : Commenters supported multi

- state plans and suggested that the EPA allow states with established and proven clean energy and efficie ncy programs to be able to build on those programs for compliance

. Response 50: The EPA appreciates the commenter’s support for the proposed rule, and agrees with the commenter that the final emission guidelines provide states with multiple approaches for meeting the emission guidelines. In addition, the EPA anticipates that states th at have already111 taken aggressive actions to reduce EGU CO2 emissions and accelerate the deployment of RE and demand

- side EE technologies will leverage those actions when developing plans to meet the emission guidelines.

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

Commenter s supported the EPA's efforts to utilize its authority under section 111(d) of the Clean Air Act to reduce carbon emissions from the power sector. Commenters stated that by developing the building block framework as described in the Clean Power Plan proposal, the EPA provides states with multiple strategies for demonstrating the "best system of emission reduction." Commenters supported the flexibility the EPA has provided by the proposal's acceptance of multi

- state and mass

- based programs as a means of compliance with the emission guidelines. Commenters noted that Delaware and the RGGI states have successfully demonstrated the ability to coordinate across state agencies, work with independent system operators/regional transmission organizations as well as solicit input from stakeholders in order to reduce carbon emissions from their power plants cost effectively. Commenters stated that they have collectively red uced their power plant emissions by over 40% since the program began in 2009. Commenters stated that Delaware along with the RGGI states continue to demonstrate that a regional mass

- based approach is a cost effective way to achieve substantial CO 2 emission reductions, and it is important for states with established and proven clean energy and efficiency programs to be able to build on those programs for compliance

.

Comment 5 1 : Comments stating that m ulti

- state plans should include incentives for RE and EE
programs Response 5 1 : States have discretion to provide incentives for RE and EE through the design of their state plan, including incentives for early action, and the EPA has taken steps to facilitate such approaches. In particular, the EPA is establishi ng the Clean Energy Incentive Program (CEIP) mechanism as part of the final emission guidelines, to provide incentives for early investment in RE and demand

- side EE before the beginning of the plan performance period in 2022. The Clean Energy Incentive Pro gram (CEIP) is addressed in section VIII.B.2 of the preamble to the final rule.

Commenters also highlight the importance of increasing low

- income communities’ ability to access EE/RE and financial assistance programs. The EPA addresses these comments in se ction XI.C of the final rule preamble in which the EPA encourages states to take steps to make sure that low

- income communities get more access to EE/RE benefits. In section IX.C of the preamble to the final rule , the EPA provides some examples of state pr ograms including those conducted by Maryland, New York, and Colorado that assist communities in increasing their ability to access RE/EE and financial assistance programs. The EPA encourages states in the writing of their plans to use these and other model s to address issues around increasing access to EE/RE and financial assistance programs for communities . Additionally, as stated in sections IX.C and IX. D of the preamble to the final rule , the EPA in the coming months, will continue to provide information resources for communities and states on existing federal, state, local, and other financial assistance programs to encourage EE/RE that are already available to low

- income communities. Th e EPA will also provide a catalog of current or recent state and local programs112 that have successfully helped low

- income communities adopt EE/RE measures. The goal in providing these resources is to help communities gain the benefits of this rulemaking by encouraging that states use these types of tools in their state plans. The commenters also reference potential incentive programs that could be conducted as a result of this rulemaking.

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

Commenters noted that multi

- state plans should include incentives for increasing renewable energy and energy efficiency, which can help lower the costs of reducing emissions. Commenters suggested where possible, these incentives should be target ed to EJ communities and communities where there is a need to diversify employment opportunities. Commenters suggested that multi

- state plans should also include incentives for reducing emissions as quickly as possible on a multi

- state basis. Commenters no ted that the EPA's guidance for multi

- state compliance plans should also include incentives for early action to encourage investments in renewables and energy efficiency and a shift away from fossil

- fired generation after a state compliance plan has been a pproved by the EPA, as long as these incentives do not undermine the overall level of emissions reductions achieved by the CPP.

Comment 52 : Comments supporting the proposed approach for cooperative agreements; states should be able to develop a variety of agreements on discrete issues (e.g. renewable energy); cooperative agreements could lead to regional credit markets; the EPA should encourage development of multi

- state agreements to reduce compliance costs; the EPA should provide a pathway for states to form/join multi

- state agreements; only states that fail to meet multi

- state compliance agreements should be penalized

. Response 52 : The final rule allows for multi

- state coordination through a joint emission goal and among states retaining individual state goals as well as multi

- state plans that address a subset of EGUs in a state. For more information, see s ection VIII.C.5 of the preamble to the final rule

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

Several commenters supported the proposed approach to allow multiple states to come to cooperative agreements as to how they will distribute avoided carbon emissions across their respective EGU fleets. Commenters noted that this gives flexibility to the states to choose from a variety of pathways to credit emission reductions in a manner that best addresses how they want to distribute credits and likely will encourage multi

- state or regional compliance approaches. Commenters noted that a regional/multi

- state approach would pr ovide greater flexibility for compliance entities, better align with energy markets, and lower net costs for compliance. Commenters stated that regional planning is required in order to support integrated carbon reductions across grid regions, and noted th at the final rule should recognize energy import and export relationships between states as they work together to ensure proper crediting of emissions reductions, encourage increased use of renewable energy and energy efficiency, and lay the groundwork for multi

- state partnerships. Commenters believed that states should be allowed to enter into multi

- state agreements that allow for emissions budgeting so long as the emission reductions are real, verifiable, and are not being claimed by another entity or sta te. Commenters113 asserted that a regional budgeting approach would make more sense than using RECs for compliance. Commenters noted that in the case of renewable energy, the geographic location of the resources may not be well matched to the states with comp liance needs; commenters stated that variable RE resources from different regions are more effective in combination than as standalone resources. Commenters emphasized that this would allow states to choose from a variety of options to credit emissions red uctions that best address the credits. Commenters urged that states should be allowed to distribute carbon emissions reductions in a multi

- state area provided that the total carbon emission reductions claimed are equal to the sum of each state's in

state e missions reductions. Commenters also stated that states should be able to jointly demonstrate carbon emissions performance by affected EGUs in a multi

- state plan for a coterminous electric grid region, without the need to attribute emissions reductions fro m renewable energy among individual states. Commenters stated that such cooperative agreements could result in a regional credit market where accounting for interstate effects would be based on prices in the credit market. Commenters stated they support m ulti

- state compliance programs that establish a price on carbon, and noted that assets already participating in regional energy markets (e.g., PJM and ISO

- NE) already have vast experience with market

- based environmental programs. Commenters stated that a s imilar compliance program included in a state plan would be consistent with EPA's proposed framework offering states the opportunity to coordinate their state plans and to engage in trading of emissions credits among regulated entities. In addition,

commen ters stressed that all sources of electricity regardless of size and capacity factor must be included, as well as new and existing fossil fuel

- fired EGUs.

Commenters requested that the EPA clarify that states may develop a variety of multi

- state agreements. Specifically, commenters urged the EPA to emphasize to states that in addition to full multi

- state compliance plans, states may choose to develop multi

- state agreements on discrete issues such as treatment of renewable energy. Commenters urged that the EPA should take every reasonable measure to incentivize interstate collaboration. Commenters urged the EPA to emphasize that issue

- specific multi

- state agreements could simplify compliance obligations, increase market transparency and competition, and lower implementation costs. Commenters asked that the EPA provide a pathway for states to form and join multi

- state compliance plans over time, such as part of the Section 111(d) review cycle. Commenters noted that only the state that fails to meet it s obligation should be penalized under a multi

- state approach.

Commenters believed that s tates will have enter into multi

- state plans or coordination agreements to ensure that there is no double counting of the interstate emission effects of implementation of the p lan. Commenters also believed that coordination by the s tates be necessary where neighboring s tates in an electrically integrated system implement a mix of rate

based and mass

- based state plans.

Comment 53 : The EPA should clarify details of appr ovable collaborative agreements; recommends options to consider
Response 53 : The final rule allows for multi

- state coordination through a joint emission goal and among states retaining individual state goals, including via trading programs, as well as multi

-114 state plans that address a subset of EGUs in a state. For more information, see s ection VIII.C.5 of the preamble to the final rule

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

Commenters requested that EPA provide guidance clarifying the degree of formality that is required for EPA to recognize and approve of a multistate agreement or arrangement, as well as the parameters that must be included in a multistate memorandum of understanding (MOU) or other agreement. Commenters noted that the TSD was unclear on several issues, including the level of detail required for the agreement. Commenters made several recommendations including :

• Collaborating states should not be required to submit joint CPP compliance plans but each state's plan should list the collaborating states and describe the nat ure, mode and mechanisms of their agreement.

• States should be able to apply a range of multistate arrangements and not be required to meet RGGI

- level formality.

• States that opt for the same target basis (rate or mass) using compatible EMV should be able t o trade or average their emissions or emissions rates based on MOU.

• When agreeing states use rate

- bases, their averaging or trading should be based on joint or blended (covered

- ) generation

- weighted rate targets.

• EPA should allow trading among non

- adjace nt states.

• EPA should provide guidance on how credit trading programs among states participating in a regional program might include credits from EE, renewable energy and other approaches.

5.1. 7 Other

This section contains comments on alternative plan and implementation approaches that were not included the E PA’s proposal. These alternative approaches include: carbon taxes, investment in new technologies (with funds raised through carbon taxes or through other means (e.g., financial instruments suc h as bonds or certificate of deposit purchased by electricity producers) ) , dispatch

fee mechanisms that impose a fee on CO 2 emissions based on the CO 2 emission rate of each EGU , company

- level carbon limits, carbon reduction credit programs where an EGU ear ns credits when it operates below the state emission rate and purchases credits when it operate s above the state emission rate, and an alternative compliance payment plan where EGUs that cannot comply with their emission limit are allowed to pay a fee. Als o covered in this section are115 comments recommending that the EPA allow states the maximum flexibility in the design and implementation of state plans

. Commenters have raised a number of issues related to this subsection which are organized by topics (comme nts) below. Responses are provided for these topics

.

Comment 1: Numerous commenters supported a carbon tax as a compliance approach

. Response 1: Should a state choose, it could apply a fee or tax for CO 2 emissions from affected EGUs , or rel ated excise tax that directly or indirectly address es CO 2 emissions from affected EGUs

, as a state measure under a state measures type plan . Where a state applies a fee for CO 2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows a n affected EGU to emit a ton of CO 2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21 (f) . The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO)

, or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA

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

Several commenters stated that support a tax or fee on carbon emissions and believe this option should be explicitly included in the final rule. Commenters supported a carbon tax approach for the following reasons :

• Effective/efficient method for reducing CO 2 emissions.

• Cost effective method.

• Discourages each fuel's use in exact proportion to its damage to the climate. Th is changes the relative prices of different fuels and encourages all pollution reductions that cost less than the tax.

• Incentivizes changes at power plants (for example, more efficient boilers and lower

- carbon fuels) and greater energy efficiency by consu mers.

• Discourages use of older, more polluting EGUs and encourage construction of new, less polluting EGU plants

.

• It promotes all of the activities in the EPA's four building blocks to the extent that they are cost effective.

• It is flexible enough to be compatible with existing fuel mixes.

• It accommodates the "remaining useful life" of equipment.116 • Does not undermine electricity reliability.

• It is broadly consistent with a wide variety of electricity market designs.

• Encourages development of new technolo gies, efficiency programs, and/or RE.

• Easy to administer/implement.

• States can use the revenue raised by a carbon excise tax for other purposes (e.g., they could lower inefficient taxes to promote growth, offset some of the impacts on low

- income resident s, etc.).

• Could incorporate future stationary source regulations that the EPA promulgates under section 111(d).

• Compatible with regional approaches to 111(d) compliance because coordination of tax rates is both straightforward and ensures that efficient o peration of wholesale electricity markets is unimpaired.

• Reduces emissions of other pollutants, including particulates, mercury, NOx, and SOx.

• Would improve public health by reducing emissions.

• Would provide economic benefits/promote economic growth.

• Prov ides a stable and predictable carbon price, which reduces uncertainty, making decisions about emissions

- reducing investments simpler.

• Avoids potential for market manipulation that may occur with trading
programs.

• Meets all the proposed state plan criteria at 40 CFR 60.5780(a) because it is "quantifiable, verifiable, non

- duplicative, permanent, and enforceable".

• Could provide uniform and simplified rules for companies if implemented on a national level

.

• Avoids overly burdensome regulations, reduces adminis trative burden, and doesn't bloat bureaucracy

. Commenters support a revenue neutral carbon tax as one of the options for state compliance. Commenters believe that a carbon tax represents the best approach to addressing carbon pollution because it is economically simple and would have bipartisan support

.117 Several commenters noted that British Columbia implemented a carbon tax program in 2008 that shows a revenue

- neutral carbon tax can reduce emissions while strengthening the economy. Commenters noted that the British Columbia programs is gradually increasing the revenue neutral carbon tax and has significantly reduced CO 2 emissions. Commenter s noted that the British Columbia program shows that carbon taxes can be successfully implemented on a regional basis. To support this assertion, commenter s noted that British Columbia implemented the tax on a broad range of fossil fuels (gasoline, diesel, natural gas, heating oil, propane and coal) beginning in 2008 at C$10/ton, and increased it C$5 annually until it reached C$30/ton in 2012. Commenters stated that in 2011 GHG emissions had declined by 10 percent in British Columbia, compared to a 1 percent decline for the rest of Canada. In 2012, c ommenters noted that while per capita consumption of petroleum fuels increased by 3 percent in the rest of Canada, they declined by more than 16 percent in British Columbia. C ommenters believe d the carbon tax did not adversely affect British Columbia's economy since GDP per capita for British Columbia increased during this period more than in the rest of Canada.

Commenter s noted that Australia's carbon tax of A$23/ton tax has successfully reduced EGU CO 2 emissions. Commenters noted that w ithin nine months, the carbon tax has reduced demand for power by 2.2 percent and reduced the carbon intensity of power on the national grid by about 5 percent, from 1,840 lbs CO 2 /MWh to 1,740 lbs CO 2 /MWh. Commenters noted that power sector emissions in Australia have been decreasing since the carbon tax was implemented in 2012 (decreasing by 6.3 percent for 2012

- 2013 (193.5 MMT in the year ending June 30, 2012 compared to 181.3 MMT in the year ending June 30, 2013), and by 9 percent 2012

- 2014 (176 MMT in 2014).

Some commenters recommend ed the revenues from a carbon tax be returned to the public in the form of a dividend to protect households from rising energy costs and to stimulate the economy. Commenter s believe d that carbon tax revenues would enable s tates to fully compensate lower

income households for these regressive effects and quoted a study that estimated that 11 percent of the carbon tax revenues would protect the bottom two deciles of households; 18 percent the bottom three deciles ; and 35 perc ent would be sufficient to cover the entire bottom half of households. Commenter s thought the revenue raised by a carbon tax should be used by states to overhaul and improve their exiting tax system and that such changes could potentially provide a
pro

- gro wth state tax system. Commenters thought that incentives could be provided for states that adopted a broad

- based carbon tax. Commenters stated that large emitters could get less stringent restrictions in exchange for adopting a broader based carbon tax.

So me commenters referenced a recent report titled "The Economic, Climate, Fiscal, Power, and Demographic Impact of National Fee and Dividend Carbon Tax" prepared by Regional Economic Model, Inc. (REMI) and Synapse Energy Economics for the Citizen's Climate L obby (CCL), which reviews the carbon tax approach to reducing greenhouse gas emissions. These commenters highlighted some or all of the following findings from this study:

• CO 2 emissions decline 33 percent after only 10 years, an d 52 percent after 20 relati ve to baseline.

• National employment increases by 2.1 million jobs after 10 years, and 2.8 million after 20 years.118 • 13,000 lives are saved annually after 10 years, with a cumulative 227,000 American lives saved over 20 years.

• $70

- $85 billion increase in GDP from 2020 on, with a cumulative increase in national GDP due to F unds A vailable for D istribution (FAD) of $1.375 trillion.

• Size of monthly dividend for a family of 4 with two adults in 2025 = $288, and in 2035 = $396. Annually, this is $3,456 per famil y of 4 in 2025 ($1152 per capita

-- children get

- dividend).

• Electricity prices peak in 2026 and then start to decrease.

• Maximum cost

- of

- living increase by 2035 is 1.7

- 2.5 percent , depending on region.

• Real incomes increase by more than $500 per person in 2 025. This increase accounts for cost of living increases.

• Electricity generation from coal is phased

- out by 2025.

• E mployment gains in healthcare, retail, and other services (excluding public administration) because people have more money available and these industries are boosted by increases in consumer spending.

• Regional Gross Product is steady or rising in 8 of 9 regions.

Commenter s stated that several modeling studies have shown that a carbon tax could be used to successfully reduce CO2 emissions fr om the power sector. C ommenter s specifically noted the following reported results from several different studies :

• MIT's Emissions Prediction and Policy Analysis ("EPPA") model has shown that a $15/ton tax would reduce coal

- fired EGU CO 2 emissions by almos t 15 percent within five years (Commenter s also cited this study as supporting their recommendation to adopt a carbon tax approach).

• EIA's National Energy Modeling System ("NEMS") model demonstrates that a national carbon tax starting at $14/ton in 2010 wo uld reduce coal

fired EGU CO 2 emissions by 50 percent from the 2030 BAU projections.

• U.S. Regional Energy Policy Model ("REPM") demonstrates that a national carbon tax starting at $20/ton in 2013 would reduce CO 2 emissions by 14 percent from 2006 levels b y 2020.119 • Stanford

- NEMS model shows that implementing a $20/ton emissions tax in 2014 would, by 2020, reduce EGU CO 2 emissions by 17 percent from 2005 levels.

• Another study by Linn et al shows that a carbon tax would be the most effective and cost

- efficient way to decrease their heat rate. Commenter s noted that previous reports considering a carbon tax have not modeled a

revenue

- neutral carbon tax with an aggressive rate of increase and a 100% dividend. Commenters stated w here a revenue

- neutral tax was modeled, studies found that carbon emissions were reduced and economic output grew. Commenter s also noted that the May 2013 study by the Congressional Budget Office (CBO), shows that a carbon tax without revenue recycling is a completely different policy from a carbon tax that does recycle revenue. Commenters stated that t he two policies,

revenue

- neutral carbon tax and a carbon tax without revenue returned have a different impact on the economy. Commenters further noted that by failing to consider a rapid rate of increase in the carbon tax previous studies have failed to realize the magnitude of emissions reductions and scale of economic benefits that could be achieved. Commenters also stated that the REMI study is largely consistent with previous s tudies in
terms of a benefit to the economy, industry effects, and emissions reductions. Commenters noted as an example the May 2013 CBO study, which stated that a well

- designed carbon tax could increase economic output and that a $20 per ton carbon tax wo uld result in an 8% reduction in emissions.

Commenter s mentioned a REMI study that showed a revenue

- neutral carbon tax could be constructed for Massachusetts that would reduce emissions while also not impacting GDP. C ommenter s stated that if Massachusetts were to implement at $45 per metric ton tax on CO 2 emissions by 2024, state GDP would increase by $450 million a year, 11,000 jobs would be added, and emissions would be reduced by 82 percent of 1990 levels.

Commenter s referenced "Recommendations to Allo w States to Adopt Excise Taxes to Meet EPA's 111(d) Emissions Guidelines" written by M. Wara (a Standford law professor) and J. Minor (an economist at the Brookings Institute).

Commenter s noted that industry may support a national carbon tax if states begi n to consider
state

- level carbon taxes so that they do not have to manage differences in carbon taxes between
states.
Commenters believed a carbon tax approach would be a better approach than a cap

- and

- trade approach because a carbon tax would be easier to administer. Commenter s noted that states would not have to allocate allowances, administer auctions, create an allowance registry, monitor trades, enforce a price floors, or require any complex coordination with other regulatory bodies. C ommenter s noted t hat states could monitor fuel use to determine the amount of tax to levee. Commenter s stated that coordinating carbon tax rates across states is simpler than setting up a multi

- state trading system. Commenter s suggested that states would harmonize their ca rbon tax120 programs using modeling to show that a particular tax trajectory adopted by a group of states would allow them to meet their emission targets. Commenters argued that b y adopting a common carbon tax states could enter into a multi

- state compliance plan that avoids interstate transfers and requirements for tracking cross

- state allowance trades, while also allowing abatement to occur where it is least costly.

Commenter s noted that a carbon tax is "economically analogous to a cap

- and

- trade system" bec ause both approaches encourage regulated entities to change their production processes to reduce emissions to avoid paying the emissions

- based fee. Commenters asserted that b y raising these costs a carbon tax would reduce the incentive to burn fossil fuels in exactly the same way that cap and trade does.

Commenter s believed there is now widespread public support for a carbon tax approach. Commenters cited a recent PPIC study that found 51 percent of Californians support a carbon tax and many newspaper articles have been published that support a carbon tax. Commenters also noted that Exxon Mobile and Shell say on their websites that they also support a carbon tax approach.

Commenter s recommended state plans based on a carbon tax be self

- correct ing with automatic increases in the tax rate when an annual emissions target is missed by more than a threshold
amount.

Comment 2: Commenters requested that the EPA provide guidance for a carbon tax approach

. Response 2: Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state appli es a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO ), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

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

Commenters recommended the EPA include guidance in the rule addressing administration, implementation, tax rates, and escalation rates for a carbon tax approach. Some
commenters recommended the EPA clarify in the final rule that states are allowed to implement a carb on tax as a compliance option.

Comment 3 : Commenters suggested that f or a c arbon t ax , states s hould use modeling to ensure they are achieving the same level of emission reduction as the rate

- based approach

.121 Response 3 : Should a state choose, it could apply a fee or tax for CO 2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO 2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO 2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO 2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

As with any state plan where the plan does not ensure that the CO 2 emission performance levels
or state rate

- based or mass

- based CO 2 goal is achieved based on affected EGU compliance with an emission standard (under either an emission standards state plan type or a state measures state plan type), the plan submittal must demonstrate that the plan will result in achievement of the CO 2 emission performance levels or the state CO 2 goal. This requirement is addressed at section VIII.D .3 of the pream ble to the final rule.

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

Commenter s were concerned that the carbon

- tax be set correctly to ensure state plans based on carbon taxes provide the same level of emissions reduction as the rate

- based goals. C ommenter s stated that the carbon tax can be set using modeling, but recommend ed the EPA eithe r does modeling itself or provides clear standards for how the modeling should completed.

Commenters acknowledge d that states adopting the carbon tax approach would need to use modeling to demonstrate their plans would meet the state goals, but stated that the modeling would be a relatively simple process, that requires calculating the effect of an EGU carbon tax on electricity prices, and then modeling the effect of that price increase on generation mix, electricity demand and resulting CO 2 reductions. Com menters stated that e lectricity pricing and generation demand models are readily available. C ommenters noted that the EPA used the Integrated Planning Model for estimating the costs of the BSER redispatch from coal

- fired to natural gas combined cycle power plants.

Comment 4 : Comments suggesting that modeling of a carbon tax approach should take into account other state polices to ensure those other polices do not undermine the effectiveness of the carbon tax

. Response 4 : Should a state choose, it could apply a fee or tax for CO 2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO 2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state appli es a fee for CO 2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO 2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such122 as an ISO or RTO ), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

As with any state plan where the plan does not ensure that the CO 2 emission performance lev els
or state rate

- based or mass

- based CO 2 goal is achieved based on affected EGU compliance with an emission standard (under either an emission standards state plan type or a state measures state plan type), the plan submittal must demonstrate that the pla n will result in achievement of the CO 2 emission performance levels or the state CO 2 goal. This requirement is addressed at section VIII.D .3 of the preamble to the final rule.

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

Commenter s were concerned that a state that doesn't want to regulate carbon could take actions to undermine the effectiveness of a carbon tax

- based program. For example, c ommenters stated that a state carbon tax

- based program could undermine their program by using the revenue to subsidize fossil fuels or provide some other form of "fiscal cushioning" that undermines the effectiveness of the carbon tax. Commenters recommended that t o prevent this from happening, the modeling used to determine the tax

- rate ta rget must account for any other state policies that have a substantial effect on carbon emissions, and the modeling and carbon tax would need to be updated when other policies affecting the impact of the carbon tax

- based program change.

Comment 5 : Comment ers requested changes to the proposed rule to allow states to incorporate carbon tax into state plans

. Response 5 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fe e paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the desig n elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a sta te chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA. In the final emission guidelines, the EPA is not finalizing the proposed revised definition of " emission standard " . This proposed revised definition w as related to the proposed portfolio approach which is not being finalized.

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

Commenter s believe d the proposed definition of "emission standard" would preclude states from imposing a carbon tax as part of section 111(d) plans. Commenters believed the proposed definition of "emission standard" would allow states to tax only entities upstream or downstr eam from the regulated sources. Commenter s believed the existing rules and the EPA proposal provides a legal basis for a carbon tax approach because 40 CFR 60.21 allows states to establish123 an allowance system. Commenters noted that an allowance system in w hich allowances or permits are sold to emitters at a pre

- determined price would be equivalent to a carbon tax. However, Commenters were also concerned that such an approach based on this interpretation could be subject to legal challenge and recommended th e EPA make amendments to the rule to specifically allow a carbon tax approach to be adopted by states

.

C ommenters recommended the EPA either change the section 111(d) implementing regulations to clarify that any measure that is enforceable and reduces emi ssions can be an "emission standard" or revise the definition of "emission standard" to allow reductions in emissions caused by regulation of any affected entity, including EGUs themselves. C ommenters favor the first approach because they believe it would also apply to other source categories in future emissions guidelines

.

Commenter s believed that precedent exists for amendments to be made to 40 CFR part 60 and noted that the EPA has amended 40 CFR 60.21 and 60.24(b)(1) multiple times, including in a 2005 rulemaking in which the EPA expanded the definition of "emission standards" to include
cap

- and

- trade programs for the Clean Air Mercury Rule

.
Some commenters suggested that i f the EPA prefers not to modify 40 CFR 60.21 and 60.24(b)(1), the n the EPA could instead modify the definition of "emission standard" in section 60.5820. C ommenter s recommended section 60.5820 to read "Emission standard means in addition to the definition in section 60.21, any requirement applicable to any affected entity that has the effect of reducing emissions of one or more affected sources, including, for example, renewable energy and demand

- side energy efficiency requirements." C ommenters stated that this amended language would allow states to impose a tax liability on regulated sources instead of upstream or downstream entities and replaces "reducing utilization" with "reducing emissions" of affected sources, keeping the emphasis on the objective of the rule and the EPA's role in setting the emissions guideline. C ommenter s recommended the EPA delete the phrase "other than an affected source" from the definition in 40 CFR 60.5820 to enable to states to include a carbon tax as part of their state plans

.

Comment 6 : Comments suggested that the EPA should include b ackstop requirements to ensur e carbon tax

- based plans meet state goals

. Response 6 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fe e paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the desig n elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a sta te chooses to apply a124 fee or tax, with respect to state or federal statutes outside the scope of the CAA. . A state measures type plan must include a backstop of federally enforceable emission standards for affected EGUs. This is discussed in section VIII.C

. 3 of the preamble to the final rule.

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

Commenter s recommended that state plans that use a carbon tax approach should include additional requirements that would be implemented if the carbon tax fails to produce the required emissions reduction. C ommenter s suggested the tax rate would increase by a specifi c amount, with the rate increase determined by a formula based on the amount of the emission performance shortfall. Commenters believe d this approach would allow for planning certainty among the affected EGUs and provide minimum disruption in implementing the remedial measure. As a backstop, c ommenters also recommended the rules require the plan include specific remedial regulatory mandates adequate to ensure achievement of the target level of reductions, such as required emissions reductions from covered E GUs. Commenters recommended the backstop requirements automatically take effect if an automatic tax increase mechanism failed to meet the state target. Commenters believe d the automatic backstop requirements of an increase in the tax rate and other regulat ory mandates would remove the possibility of any individual reductions being reversed

.

Comment 7 : Commenters stated that c itizen e nforcement of c arbon tax

- based plans is allowed under the CAA

. Response 7 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA. Under a state measures type plan, state measures, which if a state chose might include a tax for CO2 emissions from affected EGUs, would be state

- enforceable rather than federally enforceable. As a result, such measures would not be subject to citizen suit enforcement provisions under CAA section 304.

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

Commenter s noted that the Clean Air Act would permit citizen enforcement of a carbon tax because 42 U.S.C. section 76 04(a) allows citizens to sue for violation of "an emission standard or limitation under this chapter" and 42 U.S.C section 7604(f)(3) and (4) defines "[e]mission standard or limitation under this chapter" to include "any requirement under section [111] or125 [112] of this title (without regard to whether such requirement is expressed as an emission standard or otherwise)" and "any other standard, limitation, or schedule established under . . . any applicable State implementation plan" . Commenters argued that because the carbon tax itself and the reductions in emissions it would apply to have fixed numerical values, the courts would be able to enforce a SIP carbon tax. Commenters cited the case of Bayview Hunters Point v. Metro. Trans. Comm'n, 366 F.3d 692, 701 (9th Cir. 2004), which discusses " the well

- established rule that courts may only enforce specific SIP strategies, and may not enforce a SIP's overall objectives or aspirational goals ."

Comment 8 : Comments stating that the EPA does not have authority to impose a carbon tax because Congress has not provided the authority

.
Response 8 : The EPA did not propose a carbon tax, nor do the final emission guidelines impose a carbon tax. If a state choose, it could include a tax for CO2 emissions from affected EGUs as a state measure under a state measures type plan. These state measures would be state

- enforceable rather than federally enforceable, and would not be codified as part of the federally enforceable state plan under CAA sectio n 111(d)

.
The EPA disagrees with the commenter’s assertion that the RGGI emission budget trading program imposes a carbon tax. The states participating in the RGGI program impose a limit on CO2 emissions for power plants and allocate emission allowances th rough auction and other mechanisms

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

Commenter s opposed to carbon taxes and noted that Congress has not provided the authority to the EPA to tax CO2 emissions and the EPA cannot force states to tax CO2 emissions. Commenters believed that RGGI imposes a CO2 emissions tax and stated that the EPA should not use the RGGI approach as an example program since the RGGI " relies on voluntary carbon taxes that cannot be legally forced upon a state. "

Comment 9 : Comments supporting an o utput

- c ompensated c arbon t ax

. Response 9 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fe e paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the desig n elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such126 as an ISO or RTO), or any legal issues that might arise, based on how a sta te chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

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

Commenter s recommended a carbon tax system in which EGUs would pay a t ax on carbon emissions into a fund. Commenters explained that EGUs with relatively high carbon emissions would be net payers into the fund, while those with relatively low carbon emissions would be net recipients. Commenters noted that this tax/subsidy sys tem has been used to manage conventional NOx emissions from EGUs and other large point sources in Sweden. Commenters stated that one of the benefits of this approach is that it mitigates "the damage to the nation's competitiveness that otherwise would have been incurred as a result of an emissions tax" and creates incentives to substitute energy generation with lower emitting sources. Commenters stated that this approach would not change consumers' lifestyles and hence reduction in emissions would likely be less than would occur under a n uncompensated carbon tax approach

.

Comment 10 : Comments stating that state plans based on rebated carbon taxes could increase emissions

. Response 10 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fe e paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the desig n elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a sta te chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

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

Commenter s were concerned that rebates from an income

- compensated carb on tax cannot be easily targeted to the consumers who are bearing the impacts of the carbon tax and stated that "dramatic changes in tax policy have uncertain outcomes." C ommenter s believed that an income

compensated carbon tax would eliminate the small co nsumer income effect on carbon emissions so that emissions would be slightly higher than they would be under an uncompensated carbon
tax.

Comment 11 : Comments stating that the EPA should allow s tate

- level

, economy

- wide carbon
tax or other pricing mechanisms as an alternative to the proposed state plan approaches

.127 Response 11 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

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

Commenter s supported a state

- level economy

- wide excise tax or other pricing mechanism on carbon emissions as an alternative to a state plan using the basic architecture of the four

building

- blocks approach. Commenters believed that this approach would address the GH G emissions from the transportation sector and were concerned that focusing only on the electric sector would lead to inefficient, ineffective and distorted outcomes. As an example, c ommenters noted that the CPP could increase electricity costs and thereby create a disincentive for the use of low

- carbon electricity as a transportation fuel. Commenters believed that in the Pacific Northwest the most cost

- effective GHG emission reduction measures on a dollar per ton basis would be in the transportation and ot her sectors of the economy.

Comment 12 : Comments suggest ing that states should adopt programs reinvested revenues in emission reduction programs because this approach is more cost effective and would result in more emission reductions

. Response 12 : Such an approach could be taken by a state, depending on the programs or mechanisms implemented, under either an emission standards plan type or a state measures plan type. For more details on these state

- plan approaches, see section VIII.C of the preamble to the final rule.

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

Commenter s believed that any market approach that reinvests the revenues raised in emission reduction programs would be more cost effective and would result in greater reductions in GHG emissions. Commenters mentioned three types of approaches they believed states should consider including their state plans: (1) carbon tax programs where the revenue is reinvested in emission reduction program s; (2) cap

- and

- trade programs where revenue raised through allowance auctions is invested in emission reduction programs; and ( 3 ) emission targets that require the emitter to either achieve the emission reductions or buy offsets for every ton of carbon emi tted.128 Comment 13 : Comments suggesting that carbon taxes would be unsuccessful due to market barriers

. Response 13 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fe e paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the desig n elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a sta te chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA.

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

Commenter s believed that imposing a substantial tax on carbon would be unlikely to be successful because of several "significant barriers and imperfections" in the market. Specifically,

c ommenters provided the following reasons for believing carbon taxes would be an ineffective mechanism: (1) the technologies needed to turn fossil fuels into power are comparatively simple and relatively inexpensive compared with lower intensity resources that require more capital investment to extract useful power and higher intensity resources that require much higher levels of capital inves tment to control the release of power; (2) fossil fuels are readily available and relatively easy to exploit; (3) any attempt to phase

- out the use of fossil fuels is a dramatic change, compared to previous policies, that will have a larger impact on the co st of fossil fuels; (4) the supremacy of fossil fuels has been reinforced by investment in infrastructure to support fossil

- fired power plants; (5) green innovations require large investments, involve a large component of basic research, and have highly un certain outcomes; (6) the power sector has an "immense amount of political clout" and has used this power to gain "explicit and implicit subsidies to further reinforce their economic position;" (7) entry into the power sector is risky and expensive, market organization is more likely to be oligopolistic than perfectly competitive, and information is strategically held and difficult to obtain; (8) existing companies in energy

related industries (i.e., those that produce energy, those that manufacture the equ ipment that produces, converts and uses energy, and those that distribute energy) have substantial incentives to delay the introduction of new technologies if their current technologies are more profitable than the new ones and if infrastructure for the ex isting technology required large investments that have already been incurred, and (9) demand

- side technologies may not be adopted because of poor or asymmetric information available to purchasers, limits on an individual's ability to make rational decision s because of time or skill constraints, principal

- agent incongruities between building owners and building residents, and lack of financing opportunities.

Commenters w ere concerned that underinvestment in alternative sources of electricity, combined with t he ability of dominant incumbents to implement practices and promote policies that favor fossil fuel

- fired generators, results in significant barriers to entry for alternative energy sources. As an example, c ommenters stated that existing power producers c ontrol access to the grid or dispatch

. Commenters believed that "just raising the cost of the dominant fuels does not overcome the inertia and actually allows the gap between the incumbent and alternative129 technologies to persist or even grow as the entrenched interests use their resource advantage and
po litical power to protect their incumbency." Commenters quoted from several authors including Ryan Avent of the Economist (quoting from "Creating the Clean Economy," The Economist, June 11, 2011), David Leonhardt of the New York Times (quoting from "There's Still Hope for the Planet," New York Times, July 21, 2012), Roger Noll (quoting from "Comment," Energy Economics, 33, 2011), William Nordhaus (quoting from "Designing a Friendly Space for Technological Change to Slow Global Warming," Energy Economics, 33, 2011), and Jon Weyant ("Accelerating the Development and Diffusion of New Energy Technologies: Beyond the Valley of Death," Energy Economics, 33, 2011), as well as studies by Resources for the Future (see Gillingham, Kenneth, Richard G. Newell and Karen P almer, "Retrospective Examination of Demand

- side Energy Efficiency Policies," Resources for the Future, September 2004) and Oak Ridge National Laboratory (see Brown, Marylyn et. al, "Carbon Lock

- In: Barriers to Deploying Climate Mitigation Technologies," O ak Ridge National Laboratory, January 2008)

. Commenters stated t hese authors wrote about the types of barriers that exist in the electricity sector and how carbon taxes alone may not be able to overcome those barriers to change

. Commenters also discuss ed t he difficulties in pricing carbon correctly to promote changes in the industry and stimulate innovation in alternative electricity generation

.

Comment 14 : Comments suggesting that carbon t axes would impact electricity prices a nd make states less competitive.

Response 14 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a mechanism would meet the definition of an emission standard in the EPA’s implem enting regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the sta te, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA. The final emission guidelines provide states with flexibility to a ssess and implement the best strategy to meet the emission guidelines, considering their unique circumstances and policy goals.

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

Commenter s believed that a carbon tax would cause an increase in the price of electricity and reduce the competitiveness of any state that adopted the tax. Commenters argued that a tax on carbon emissions from EGUs would effectively translate into a tax on electrici ty, which would likely to be very unpopular and would render a state much less competitive in attracting businesses that use electricity, and would drive electricity

- using businesses to other jurisdictions thereby defeating the purpose of the tax. For this reason, c ommenters believed a carbon tax is

" ill

- suited for use at the state level ."130 Commenters stated that a carbon tax has three effects on the market: (1) a technical substitution effect, as electricity producers substitute lower carbon

- intensity tech nologies for higher ones; (2) a consumer substitution effect by raising the price of electricity, thereby inducing consumers to buy more of other goods and less of electricity; and (3) a consumer income effect, as consumers find that higher electricity pri ces have left them less able to afford everything, including electricity. Commenters noted that the last two effects would result in lower output of electricity and hence lower emissions but the technical substitution effect would dominate and the income

e ffect would likely have only a small impact on carbon emissions

.

Comment 15 : Comments stating that the EPA should allow a d ispatch f ee m echanism administered by the RTO or ISO that imposes a carbon fee on electricity generated by plants that emit more CO2

. Response 15 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA

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

C ommenters supported a dispatch fee mechanism in which the fee would be set through bids in the competitive wholesale electricity market. C ommenters believed that t he fee could be administered by the RTO or ISO

, or in vertically

- integrated states, through a carbon fee added to the state's existing least

- cost dispatch regime. C ommenters believed the benefits of a carbon fee approach, include :

• Greater degree of certainty as to the cost of compliance.

• Simple and efficient way for states to comply with the Clean Power Plan.

• Can be structured as a voluntary safe harbor for the interim years of the
program.

• Ensures effective deployment of capital in coal units by allowing existing units with limited remaining operational lives to be fully utilized without additional costly retrofits

.131 • Provides appropriate price signals to maintain and expand clean energy and natural gas utilization

.

• Guarantees electric reliability a t both the state and regional level by linking greenhouse gas abatement to reliability dispatch

.

• Achieves significant greenhouse gas reductions at lowest cost

.

• Collected fees can be utilized to significantly offset customer costs or to achieve other public policy objectives at the states' discretion

.

• Allows states to achieve the benefits of coordinated regional action without negotiating comprehensive interstate compliance agreements

- a complex process that might take years to complete

.

• Provides states and industry with a longer compliance runway, allowing for improved planning and regulatory certainty.

• Provides states and customers with a viable voluntary approach to compliance

.

• Resolves, in part, the compliance questions surrounding the reasonableness and viability of the EPA's building blocks by providing another pathway to compliance during the safe harbor period

.
Commenter s suggested the regulated fossil fuel

- fired generator pay a fee based on their emissions over a given period of time. Commenters stat ed that such an approach would include normal reporting, compliance, and enforcement provisions, as well as backstop requirement to track and regularly adjust fees annually if emissions rise above levels allowed by the state standard of performance.

C omm enter s stated that the dispatch

- fee concept could be applied outside organized markets if the single utility dispatching multiple generation sources agrees to reflect a CO2 fee in the dispatch cost of its fossil generation, much like the RTO would. Comment ers noted that the utility would then determine least

- cost dispatch, including the CO2 fee and customers would pay rates based on the increased average fuel cost associated with the units dispatched.

Commenter s recommended the EPA allow states to comply wi th the interim goals by choosing to participate in a program called "Smart System Dispatch" that uses the existing reliability

- driven least

- cost dispatch combined with a carbon fee to shift generation to lower emitting sources of electricity generation. Co mmenters stated that u nder this approach, the EPA would determine a uniform per

- ton fee on CO2 emissions from power plants that would result in emissions reductions commensurate with the interim goals. Commenters stated that carbon

- emitting generators in a state that opts into this program would include that carbon fee as a cost of operating. Commenters argued that efficient, low

- emitter EGUs (e.g., NGCC plants, single

- cycle gas turbines, and natural gas

- fired ste am plants) operate less frequently than higher

- emitting coal plants because they have higher operating costs. Commenters believed that b including a carbon132 fee in the bid price, lower

- emitting units would be relatively less expensive than higher

- emitting

u nits and this price differential would result in lower

- emitting units operating more than their higher

- emitting counterparts. Commenters also noted that higher

- emitting units would not be precluded from operating when they are economic, which would keep ma ny of these plants available when needed to maintain reliability. Commenters noted that coal plants with lower CO2 emissions could be rewarded with lower carbon fees per megawatt

- hour. Commenters believe d a carbon fee of about $15 to $20 per ton would be s ufficient to produce emission reductions adequate to achieve the interim goals, based on recent modeling conducted by PJM (see PJM Interconnection, Inc., "EPA's Clean Power Plan Proposal, Review of PJM Analyses Preliminary Results" (Nov. 17, 2014), availab le at http://www.pjm.com/~/media/committees

groups/committees/mc/20141117

- webinar/20141117

- item

- 03

- carbon

- rule

- analysis

presentation.ashx). Commenters stated that t his same study shows that the interim goals can be achieved without threatening reliability and with costs comparable to the cost of other measures that the EPA determined to be cost

- effective. Commenter s noted that some states may be able to achieve the interim goals at a carbon fee lower than the uniform carbon fee determined by the EPA, which would be a disincentive to participate in a carbon fee based system. To promote regional approaches, commenter s recommended the EPA to allow states to participate in the program at a lower carbon fee provided they demonstrate that the EPA's uniform carbon fee would reduce emissions more than 10 percent (or some other margin) below the state's emission goals.

Commenter s noted that the carbon fees collected by this type of program could be redistributed to the load

- serving entities that purchase electricity on the wholesale market and could then be used for retail bill relief, to support investment in energy efficiency or clean demand response programs, or for some other mechanism to reduce total costs for consumers. Commenters stated that this approach could be employed by ISOs, RTOs, and vertically

- integrated utilities. Commenters stated that "Smart System Dispatch" would have the following benefits:

• Achieve emissions reductions in the most cost

- effective manner.

• Provide cost

- containment for states by placi ng a ceiling on compliance costs and protecting consumers from large, rapid rate increases due to the Clean Power Plan.

• Allow states to participate in coordinated regional action without negotiating comprehensive interstate compliance agreements.

• Minimal disruption to the existing grid management system and electric reliability because the system relies on existing resources and existing market structures to reduce emissions during the interim compliance period.

• Would spur investment in new clean generati on resources and retain existing clean resources by providing the right market signals.

• Avoids setting operating hour limits for high emitting EGUs.133 • Would help mitigate the economic pressures on existing nuclear and hydroelectric plants, and thereby help t o prevent the early retirement of those plants, by ensuring the cost of carbon emissions is appropriately reflected in market signals.

• Would make investment in nuclear upgrades, additional renewable generation, and energy efficiency more profitable.

• Woul d incentivize heat rate improvements.

• Would drive long

- term investment in carbon capture and sequestration (CCS).

• Reduces the potential for "leakage" from states that participate in existing cap and trade programs.

Commenters also recommended the EPA pro vide a "safe harbor" for states by recognizing that state participation in this type of program provides automatic compliance with the state interim goals. C ommenters believed the "safe harbor" would relieve states of the risk that short

- term actions might produce unexpected adverse consequences for reliability or compliance, and would allow them to focus on developing their long

- term plans to achieve the final emission goals by 2030.

Commenter s suggested an ISO

- administered adjustable carbon fee whereby t he electricity from affected EGUs would be priced according to the emission rate of each affected EGU and the affected EGUs would pay for the added carbon cost. Commenters explained that the system would work as follows:

• States in a region translate their emission performance goals into targets for the relevant regional power market;

• An independent party facilitates the states that participate in the approach to translate the emissions target into a regional carbon fee;

• The ISO administers the wholesale electricity market with the added carbon fee;

• Affected EGUs pay the fee according to their dispatch and their emissions rate;

• The ISO collects the fees from the affected EGUs; and,

• The ISO refunds the fees to load

- serving entities ("LSEs") based on load

s hare ratios or a similar approach.

C ommenter s further explained that the EPA would approve state and regional plans if they demonstrate the carbon fee is sufficiently stringent to achieve the state or regional emission134 performance goal and noted that states should be able to use modeling to predict w ith a high degree of accuracy the carbon fee level that is necessary. Commenters believed the carbon dispatch fee approach would provide a greater degree of certainty to affected EGUs and the market as a whole regarding the cost of compliance than other co mpliance options because the price would be pre

- established, with upward adjustments triggered only when the affected EGUs fail to achieve the emissions performance goals.

Comment 16 : Comments suggesting that the EPA should not allow ISO/RTO administered dispatch fee mechanisms

. Response 16 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA

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

Commenters believed that RTOs/ISOs should not be given any market

- related role in implementing the Final Rule. Commenters believed that i f a carbon fee program is implemented in an RTO region, it will face challenges in achieving its goals and will likely increase the costs to consumers. Commenter s recommended states proposing a carbon fee approach should establish a non

- RTO regional entity to manage its implementat ion. Commenter s also discussed four recent studies regarding the use of ISO/RTO market

- based fees to reduce CO2 emissions from power plants: (1) a detailed report by the Brattle Group; (2) a study by the ISO/RTO Council; and (3) a study by the Clean Air Ta sk Force that includes the results of an analysis conducted by the NorthBridge Group that looks at the potential CO2 emissions reductions by 2020. Commenter s provided the following reasons for not supporting a RTO/ISO market

- based approach :

• The bid marke ts are not truly competitive markets. Commenters noted that EGU owners sometimes offer prices above or below the actual costs of production. Commenters gave the example of an owner of a fleet of plants who offers a marginal plant at a higher price to drive up the clearing price and thus the earnings for its other plants, even if it means that one plant is less likely to be dispatched (known as economic withholding).135 • RTO tariffs and market rules are in flux, which creates uncertainty about future market desi gn. C ommente r s noted that there are three open administrative dockets at FERC that raise fundamental questions about the capacity, energy, and ancillary services markets that could pave the way for potentially broad changes within these markets.

• Bid marke ts are opaque and have limited data transparency. Commenters noted that offers to sell electricity are published with a three or four month time lag and then are only posted with the identity of the bidders masked. Commenters believed that s uch limited dat a makes it difficult for market participants and observers to determine the extent of deviations in market behavior from a competitive market.

• The governance structure of the RTOs does not ensure adequate representation of the views of all entities affect ed by RTO policies, including the states that would be charged with implementing such programs. Were an RTO to manage a CO 2 emissions reduction program for a state or group of states, c ommenters believe it would be difficult to ensure that state goals would be achieved or that that the public would be adequately protected.

• Several states are split by RTO boundaries and some individual utilities must operate in more than one RTO. Commenters argued that these states would have to draft plans that comply with requirements of more than one RTO and would make some utilities operate with differing RTO requirements that could be incompatible.

• The EPA's legal authority may not allow a direct fee or tax on merchant generators to be included in the CO 2 emission reduction guidelines.

• Difficult to determine an optimal carbon price that achieves emissions reductions while not causing a level of retirements that threatens reliability.

• It may be difficult to determining the appropriate price to pay generators or cha rge load from non

- participating states located within the RTO.

• Should new generators complying with the NSPS be subject to the same pricing rules as existing generators?

• How should generators with legacy long

- term contracts that are priced outside of the RTO markets be handled?

Commenter s stated that the EPA has no jurisdiction over RTOs and therefore cannot force RTOs to alter operations to comply with state plans. C ommenter s also argued that RTO expertise is in running electricity markets and maintaini ng the reliability of the grid and that RTOs have no136 experience in monitoring or controlling emissions. Commenters believed that RTOs should remain focused on grid reliability and the efficient functioning of the market.

Commenter s also provided several d etailed hypothetical scenarios to show the complexities of RTO markets and how the outcome of RTO

- operated markets could be unpredictable and may not result in emissions reductions. Commenters noted that there are additional factors besides economic withho lding or other forms of strategic bidding that may cause a carbon fee, working in conjunction with the RTO market prices, to not necessarily be the least

- cost means of compliance for the Proposed Rule's environmental redispatch building block. Commenters s tated that financial entities can play a significant role in the energy markets and price formation. Commenters stated that there are tools available in the RTO markets, such as virtual bids, that allow financial entities that do not own resources to "buy" and "sell" electricity, arbitraging prices between the real

- time and day

- ahead market or between two different sets of pricing points (such as through Up

- to

- Congestion transactions

, referring to transmission congestion that can cause price differentials i n the RTO energy markets). Commenters noted that because these sales and purchases do not involve actual generation, they can influence energy prices separately from any carbon pricing.

Commenter s stated there are several scenarios where a generator may r un even if its offer price is above the clearing price (also known as "out

- of

- merit" dispatch) because they are compensated for the difference between their offer and the clearing price through what are known as "uplift" payments. Commenters noted that thi s can occur when system operations are not accurately modeled, requiring the use of generating units that are manually dispatched in real time to ensure reliability, even if their offers exceeded the clearing price, while units that did clear could be

manu ally curtailed. Another scenario discussed by the commenter s occurs where a unit committed in the day

- ahead market does not clear the real

- time market, but must continue to run because of minimum run times or an inability to ramp down quickly. Commenters noted that such units would also receive uplift payments. Commenters stated t hese scenarios could result in the operation of higher CO 2 emitting units than anticipated by the environmental dispatch
program.

Commenter s also question ed whether RTO

- operated markets would shift dispatch between existing coal and natural gas plants. Commenters noted such a shift could be difficult to achieve in practice because (1) a portion of natural gas plants are best used as peaker plants because of their ramping capabili ties and with an increase in variable, renewable energy penetration, a good portion of the gas

- fired capacity is going to need to be used as flexible ramping capacity; (2) a lack of access to natural gas, due to limits on pipeline and storage capacity, can impede the ability to increase the dispatch of natural gas

- fired units; and (3) the fee assessed on CO 2 emissions to achieve an increase in dispatch of natural gas

- fired units could be significant. Although RTOs dispatch units with the lower price offers first, c ommenters asserted that RTOs do not reduce the total costs paid for electricity. Commenters stated that if the compliance measures undertaken increase the costs of a marginal unit and that cost is reflected in the offer, then those costs would appl y to all kilowatt

- hours consumed within a given hour. Commenters stated a single

- clearing price approach is inherently more expensive than a regime where cost is recovered only for the electricity generated by an individual plant. Commenters noted generato rs do not necessarily bid their actual costs and may decide to bid substantially above their costs.137 Commenter s also disputed statements in the proposal that "operators of EGUs subject to CO 2 emissions limits in RGGI now include the cost of RGGI CO 2 allowa nces in those EGU's variable costs." C ommenter s argue d that the extent to which the RGGI emission allowance prices have been reflected in generators' offers and therefore affect RTO dispatch does not appear to have been studied. Commenters noted that s tudi es by The Analysis Group only modeled the dispatch in the RTO markets and did not observe actual behavior. Commenters noted that the PJM market monitor publishes estimates of the cost components of the marginal unit by multiplying the carbon emission allowance price by the emissions of that unit's technology type, and is not an analysis of how actual offers or the dispat ch itself was affected by the carbon allowance prices. Commenters noted that i n 2013, the CO 2 emission allowance accounted for 0.3 percent of the LMP while the mark

- up (or the difference between costs and price offers) was a negative two percent of the LMP

. Commenters also noted that f or the first half of 2014, the CO 2 emission allowance was the same percentage while the mark

- up was 2.5 percent. Commenters argued t he markup added or subtracted from the generators' actual costs was much more of a driver of t he offers than the emission allowance cost. Commenters believe d this illustrates the complexity of how offers are formed and how the emission allowances affect offers.

Commenter s stated they believe that a carbon tax approach offers advantages over the approach suggested by Great River Energy and Brattle Group which have Integrated System Operators (ISO) impose a carbon price on affected sources via a bid mechanism. Commenters also believed th at a lthough using the ISO in this way would incentivize dispatch in an economically efficient manner, this approach has the following four limitations :

• Would not necessarily produce retail electricity prices that reflect the full carbon price, which could potentially offset the incentive to reduce electricity use.

• Could result in substantial transfers from ratepayers in one state to entities in another state, introducing potential political challenges, whereas a state excise tax ensures that carbon charges collected in a state remain in that state.

• Many states are not completely covered by a single ISO and some states have more than one ISO and/or have areas in which no ISO operates. Commenters noted that each of these areas would require separate
treatmen t in a state compliance plan.

• Would create no administrative structure that could be used to regulate emissions from other stationary source categories, thereby making states develop compliance approaches from scratch for any future 111(d) rules. Commente rs argue that states could easily extend an excise tax policy from power plants to other sources to meet other section 111(d) rules.138 Comment 17 : Comments suggesting that generation shift that includes a fee mechanism would face legal challenges

. Response 17 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA

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

Commenter s believed that re

- dispatch approaches with fee mechanisms would likely face legal challenges. Commenters gave the example of a state that implements a re

- dispatch plan that includes a CO 2 tax on electricity generation in an effort to decrease the economic dispatch of that generation. Commenters believed that resources in the State affected by the tax, particularly those whose output is sold outside the stat e, would have a basis for a Commerce Clause challenge because the state is harming interstate commerce. Commenters stated that even if such a Commerce Clause challenge was unsuccessful, there may be a successful pre

- emption challenge because by implementin g a CO 2 tax with the intent of affecting wholesale prices in the FERC

- jurisdictional MISO market, for the purposes of changing the dispatch order of resources in that FERC

- jurisdictional MISO market, the state could be found to have interfered with FERC's exclusive jurisdiction over those prices.

Commenter s also noted that states could make changes to the MISO tariff as a means of implementing an environmental dispatch, but such tariff changes would have to be negotiated through the MISO stakeholder proces s, approved by the MISO board, approved by FERC, and ratified by the courts. Commenters stated that the state would have to obtain consensus among the 12 states served by MISO, the state

- regulated utilities served by MISO, the independent power producers a nd the transmission owners and operators. Commenters noted that these entities have different interests and many utility owners, consumer advocates, and other states would likely oppose such changes. Even if a tariff change was agreed to by all parties,

c ommenters believed that FERC would have to decide whether its responsibility to ensure that rates are just and reasonable and not unduly discriminatory would permit it to approve an environmental re

- dispatch tariff that increases rates. Commenters argued t hat if FERC approved a tariff that discriminates against certain resources based on their emissions of CO 2 , it would likely be challenged in a court of appeals. Commenters concluded by saying that implementing a fee

- based tariff mechanism as part of an env ironmental re

- dispatch system would be a very slow process that creates significant uncertainty for the industry.139 Comment 18 : Comments stating that the EPA should allow financial instruments (e.g., term bonds and certificate of deposit) as a compliance o ption

. Response 18 : Should a state choose, it could apply a fee or tax for CO2 emissions from affected EGUs, or related excise tax that directly or indirectly addresses CO2 emissions from affected EGUs, as a state measure under a state measures type plan. Where a state applies a fee for CO2 emissions from an affected EGU, and the fee paid is for an emission allowance that allows an affected EGU to emit a ton of CO2 , such a m echanism would meet the definition of an emission standard in the EPA’s implementing regulations at 40 CFR 60.21(f). The EPA does not have a position on the design elements of a carbon fee or tax, including the entity to which a fee or tax is applied, the entity administering the fee or tax (the state directly or an agent of the state, such as an ISO or RTO), or any legal issues that might arise, based on how a state chooses to apply a fee or tax, with respect to state or federal statutes outside the scope of the CAA

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

Commenter s recommended using financial instruments such as term bonds or certificate of deposit as a means to reducing CO 2 emissions from existing utility boilers

. Commenters explained that the bond or CD would have a fixed unit price (example $25 per ton) and EGUs and other industries would buy these bonds or CDs from a financial institution in the amount equivalent to their emissions. Commenters stated that the mon ey paid for the bonds or CDs would then be pooled and used to finance energy efficiency and renewable energy programs. Commenters explained t his approach differs from other cap

- and

- trade programs because a t the end of the term, the money paid for the bond or CD would be returned to the emitter with interest. Commenters believe d this system would work well for reducing emissions since it allows both the EGU and their customers to share the responsibility for carbon emissions. Commenters further stated that c ustomers would either buy the bonds individually or the bonds could be automatically purchased as part of their electricity billing. Commenters believe d this approach is better than a cap

- and

- trade program because (1) the price of carbon pollution is stabl e; (2) the system does not need any complex trading structure; (3) promotes investment in energy efficiency and renewable energy programs; and (4) makes it easier for utilities to stay competitive.

Commenter s also suggested utilities could sell revenue bon ds for the purpose of raising revenue for renewable energy, energy efficiency, storage, smart grids, and other greenhouse gas reduction projects.

Comment 19 : Commenters stated that the EPA and states should invest in efficiency improvements, support research and development of new technologies (e.g., carbon capture and storage) instead of imposing emission limits on power plants

. Response 19 : CAA section 111(d) requires states to establish standards of performance for affected sources that are consistent with emission guidelines established by the EPA

. The following are summaries of the specific public comments under this comment :140 Commenter s believe d investing in efficiency improvements, deploying advanced super critical coal plants and supporti ng greater research and development towards next generation technologies (including carbon capture and storage) would be a better approach to reducing greenhouse gas emissions from power plants

. Commenter s recommend ed that state plans be dynamic to account for innovation, changes in public will, and changes in government

.

Comment 20 : Comments suggesting that the EPA should not limit states authority

, flexibility , or discretion to design a plan that meets the individual state needs

. Response 20 : In the final emission guidelines, the EPA has provided states with a range of plan approaches that could be used to meet the emission guidelines. Under each approach, a state also has si gnificant discretion in the types and levels of emission standards it applies to individual affected EGUs or groups of affected EGUs in a state plan, or the types of state measures used under a state measures plan type. This range of approaches and discret ion in applying individual emission standards or state measures is discussed in section VIII.C of the preamble to the final rule

. The following are summaries of the specific public comments under this comment : Commenters supported the flexibility for states to design their plans using a variety of different plan structures. Commenter s believe the EPA guidelines should not limit the states' authority, flexibility, or discretion in the development of a state plan and should allow states to develop plans beyond the four proposed pathways. Commenter s stated the EPA should not disapprove section 111(d) plans that do not conform to the plan types identified in the proposal because section 111(d) gives states the primar y responsibility for designing their own state plans.

Similarly, commenter s requested the EPA not limit the available compliance options because Montana needs all of the available options to design a plan that meets the proposed rule in the required timef rame.

Commenter s believed that states should take the lead role in designing state implementation plans under section 111(d) and that the final rule should provide broad flexibility for each state to choose the approach that is most cost

- effective, and tha t works best for each state and its stakeholders.

Commenter s believed the CPP should allow states the flexibility to use a variety of approaches to reduce CO 2 emissions, including rate

- based limits, mass

- based limits, a portfolio of other approaches such as RE, EE, re

- powering, and coal plant retirements, or cap

- and

- trade programs. C ommenter s noted that their company has employed renewable energy, energy efficiency and conservation

, and coal plant retirements and repowering to comply with measures in Minnesota, Colorado and other states. C ommenter s argued that states should have the authority to employ any strategies they believe will be effective and appropriate using their understa nding of the technical and economic intricacies of the electric systems in their states. Commenters believed that only states will have the expertise and capabilities necessary to develop many of these141 programs and noted that many states have already made significant investments in reducing their emissions.

Commenter s stated the EPA appropriately recognizes that states have the authority to include

non

- BSER measures in compliance plans. Commenter s stated the final guidelines should affirm the ability of st ates to include a wide range of non

- BSER measures, both those identified by the EPA in the guidelines and those not specifically included, in an approvable state compliance plan.

Commenter s stated that a reliable and affordable energy supply is vital to a ny state's economic growth, jobs, and the overall interests of its citizens, and urged the EPA to recognize state authority by relying on state regulators to develop standards that take into account the unique policies and circumstances of each s t ate.

Comm enters stated that Austin Energy's ability to consider both demand

- side and supply

- side resources in an integrated way allows for the use of renewables and DSM to meet customers' needs while avoiding CO 2 emissions and lowering the system

- average CO 2 emissions rate. Commenters said that Austin Energy's ratepayers continue to invest in these actions, which in effect help reduce the statewide average CO 2 emission rate. Commenters said that Austin Energy operates as part of the electricity grid and marke t overseen by the Electric Reliability Council of Texas (ERCOT). Commenters said that many other generators in ERCOT do not serve retail customers and have not had the incentive to reduce CO 2 emissions beyond

- the

- fence. Commenters said compliance flexibili ty at the generator level within a state will be necessary to ensure all generators reduce their fair share of emissions using compliance strategies available to their parent company. Commenters said that Austin Energy recommends that state plans include b eyond

- the

- fence strategies as part of a menu of compliance options, and not limit compliance options to only those that are accessible to all generators.

Comment 21 : Comments suggesting that the EPA should a llow states to establish special requirements fo r utilities that have a disproportionate level of implementation costs

. Response 21 : The EPA disagrees with the commenter s that such special requirements are necessary to address the concerns raised by the commenter. In the final emission guidelines, the EPA has provided states with a range of plan approaches that could be used to meet the emission guidelines. Under each appr oach, a state also has significant discretion in the types and levels of emission standards it applies to individual affected EGUs or groups of affected EGUs in a state plan, or the types of state measures used under a state measures plan type. This range of approaches and discretion in applying individual emission standards or state measures is discussed in section VIII.C of the preamble to the final rule

. This range of plan approaches, and state discretion in applying emission standards for affected EGUs or state measures, provides states with significant discretion to address the types of concerns described by the commenter s through the design of a state plan

. The following are summaries of the specific public comments under this comment:142 Commenter s stated that the EPA should allow states to set up alternative compliance systems, subcategories, and alternative regulatory systems for public power utilities that would face a disproportionate stranded cost or debt to the local community, but the states should be able to determine how best to design, manage, and implement these systems

.

Commenter s noted that many of 103 gen eration and transmission coops operate across state lines and recommended state plans be develop ed specific to the special needs of t hese generators

. Commenters argued that many coops have recently incurred substantial debt for pollution upgrades for their coal plants and oppose the proposed guidelines. Commenters believed that coops would support the rulemaking if special rules were de veloped by the EPA and the USDA that would promote investment in RE and EE by coops. Commenters recommended that the EPA and USDA develop program s that would allow coops to swap coal

- debt for renewable resources

debt. Commenters also recommended that coops be allowed to sell renewable energy to other coops with fewer renewable resources. Commenters noted that one third of coops already have good RE/EE programs, one third have public information programs only, and one third have no programs at all. Commenter s also noted that Agriculture Secretary Tom Vilsack has create d a new loan program to fund efficiency and renewable energy investments by coops and believe d there is significant potential to reduce energy consumption using energy efficiency retrofitting

.

Comment 22 : Commenters suggest that EPA allow state plans to apportion the state goal (either
rate

- based or mass

- based) to energy generating utilities within the state at the company level and set accounting rules for RE, EE, HRI, fuel

- switching or co

- fi ring, transmission line efficiency improvements, distributed solar, etc

. Response 22 : In the final emission guidelines, the EPA has provided states with a range of plan approaches that could be used to meet the emission guidelines. Under each approach, a state also has significant discretion in the types and levels of emission standards it applies to individual affected EGUs or groups of affected EGUs in a state plan, or the types of state measures used under a state measures plan type. This range of appro aches and discretion in applying individual emission standards or state measures is discussed in section VIII.C of the preamble to the final rule

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

Commenter s recommended an alternative implementation approach in which the state environmental agency could apportion the state goal (rate

- based or mass

- based) to energy generating utilities in the state (at the company level) and a set of accounting rules would
esta blish how to credit RE, EE, HRI, fuel

- switching or co

- firing, transmission line efficiency improvements, distributed solar, etc. and to which entity they would accrue. Commenters stated that utilities would decide what mix of actions would be most cost

- eff ective for meeting the requirements while maintaining grid reliability, but intrastate trading of credits would be allowed. Commenters stated that the state would track and report progress along an established glide path and each utility would have a clear compliance target to meet by 2030.143 Commenter s supported company

- based multi

- state plans as the best approach because it would provide flexibility to companies that operate in more than one state.

Comment 23 : Commenters requested EPA develop model rules and/or provide more guidance

. Response 23 : In response to comments, the EPA is proposing model rules for rate

- based and

mass

- based emission trading programs that could be included in a state plan. More details are available in the preamble to the proposed Federal Plan. These model rules, when finalized, would constitute presumptively approvable elements of a state plan. In that action, the EPA is also proposing rules for a rate

- based and mass

- based federal plan.

The EPA also notes that in the preamble to the final rule it has provided a significant level of detail about the approvable state plan approaches and treatment of emission reduction measures in state plans. These detailed descriptions of pla n approaches and requirements are provided at sections VIII.C, VIII.D, VIII.I, VIII.J, and VIII.K of the preamble to the final rule.

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

Some commenters recommended the EPA provide more guidance and support to states to assist them in developing and implement ing state plans. Commenters would like the EPA develop a set of detailed planning models and assumptions for states to use in developing their state plans. Commenters believe d t he EPA should develop a federal plan or set of plans for states to follow if they choose. Commenter s suggested that a set of models would be the best way to allow states to calculate impacts of particular strategies and explore alternatives in a thorough m anner. Commenter s believe d that by providing assistance to states, the EPA will avoid having to consider implementing a Federal Plan

.

Commenter s stated that the proposal leaves states in a difficult position by providing states with only "a bare bones desc ription of how states might develop satisfactory plans." C ommenter s believe d the EPA has provided insufficient guidance on how to develop and implement a state plan.

Commenters suggested the EPA develop detailed guidance on state and regional policy approaches and develop a rate

- based and a mass

- based approach that can become the federal plan(s) if a state fails to develop a compliant state plan. Commenters stated the EPA should release these model plans or guidance around the same time as the guideli nes are finalized.

Commenter s suggested the EPA provide more guidance and examples of how states would implement rate

- based or mass

- based plans.

Comment 24 : Commenters requested that EPA develop and implement national plan to limit carbon emissions, pro mote reforestation programs, and reduce atmospheric carbon concentrations to 350 ppm by 2100

.144 Response 24 : The EPA acknowledges the comment, but notes that the authority for the EPA to implement such requirements is outside the scope of CAA section 111(d)

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

Commenter s recommended the EPA immediately develop and implement a National Climate Recovery Plan based on the best available science to limit carbon emissions and promote ref orestation programs to lower atmospheric carbon concentrations to 350 ppm by 2100. Commenters stated that delays in implementing such a plan will make it more difficult to administer the program and achieve necessary emissions reductions. Commenters noted that the plan would need to reduce national emissions by at least 7 percent per year or by 15 percent per year if the plan is not implemented until 2020. Commenters also provided copies of seven legal briefs, which the commenter s stated support the need for the EPA to develop and implement a National Climate Recovery Plan

.

Comment 25 : Comments suggesting states should be able to use both rate

- and mass

- based targets in their state plans

. Response 25 : In the final emission guidelines, states have discretion to implement rate

- based and mass

- based emission standards, or state measures, in a state plan, and a plan may include a mix of different rate

- based or mass

- based emission standards for different individual affected EGUs o r groups of affected EGUs. This flexibility to apply emission standards to affected EGUs in different rate or mass forms under a state plan is distinct from the rate

- based or mass

- based emission performance metric for affected EGUs that a state plan must m eet. A state plan must meet either a rate

- based or mass

- based emission performance metric that applies to all affected EGUs in a state. Clarification of these issue s is provided in section VIII.C of the preamble to the final rule

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

Commenters recommended the EPA allow states to use both rate

- and mass

- based targets in their state 111(d) plans. C ommenters stated they would like the EPA to include an option for states to be able to allow affected EGUs to meet the emission limits through either a rate

- or mass

- based standard, depending on the unique status of the affected EGU. C ommenters argued that this approach is nece ssary for EGUs within a given state will be differently situated with respect to the types of strategies that make the most technical and economic sense to employ. C ommenters noted that a small municipal utility with a single coal

- based power plant may fin d it difficult to reduce its average emission rate through the acquisition of new renewable resources but could economically shut down one of the units at the facility to meet the equivalent mass

- based goal, while a large multi

- state generation and transmi ssion company operating within the same state could readily reduce its emission rate by increasing its utilization of existing low

- emitting gas resources, but could not sufficiently curtail generation to meet a mass based limit. Commenters suggested that r ather than having to choose between these competing concerns

, the EPA allow states to use a hybrid approach to best tailor their plans to the existing circumstances of each affected EGU within the state. Commenter s stated that it should not matter whether different145 approaches are applied to utilities in the same state as long as states can demonstrate that the emissions achieved by their state plans are equal to or less than a rate

- based or mass

- based approach.

Commenter s believed that requiring each state to choose between rate and mass

- based approaches may result in conflict between the large utilities in Colorado and Tri

- State Generation and Transmission (G&T) utility , which severs Colorado's 22 rural electric companies. C ommenter s believe d that the large r utilities will favor the rate

- based approach, while the smaller utilities may prefer the mass

- based approach because of their greater reliance on coal. Commenters noted that the larger u tilities have already invested in renewable energy and begun convert ing from coal to natural gas. Commenters recommend ed that t o avoid this conflict, the EPA allow each utility within a state to choose the most cost

- effective approach as long as the overall statewide goal is met

. Commenters recommended each generation and transmission utility be given the flexibility to choose a mass

- based, a rate

- based, or a hybrid approach.

Commenter s wanted to know whether a state plan can contain both rate

- and mass

- based limits. A s an example, commenters asked whether a state plan could set mass

- based emission limits for
p ower plants "A" and "B" and a rate

- based limit for other power plants (e.g., Parent company "C" will limit total CO 2 emission rates for all of Power company "C" utilities to "Y" lb CO 2 /MWh

- net)

, provided the state plan adequately demonstrates an enforceable mechanism to meet the proposed EPA CO 2 emission limit in 2030 and beyond and in the interim time frame of 2020

- 2029.

Comment 26 : Comments suggesting that plans would more efficiently meet the EPA's goals than a federal plan

. Response 26 : The EPA agrees with the commenter, and prefers that states develop and submit state plans that best address their circumstances and policy goals in meeting the emission guidelines.

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

Commenter s asserted that state plans would meet EPA's goals more efficiently than a federal plan but did not provide any details regarding how state plans would be more efficient

.

Comment 27 : Comments requesting additional information on the use of the Carbon Reduction Credit Program developed by the Western Resources Advocates (WRA)

Response 27 : The EPA takes no position on the use of such a program in a state plan, but notes that the design o f the program, as described by the commenter, differs in some respects from requirements for rate

- based emission trading programs, as described in section VIII.K.2 of the preamble to the final rule. The EPA also notes that certain design elements of the pr ogram differ146 from basic accounting requirements for the adjustment of the reported CO2 emission rate of an affected EGU, as described in section VIII.K.1.a.(1) of the preamble to the final rule

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

Commenter s asked whether the EPA will allow states to use a market

- based approach developed by Western Resources Advocates (WRA) called the Carbon Reduction Credit (CRC) Program consisting of a credit

- trading program in which EGUs can exchange, sell or purchase cred its among themselves and with non

- EGUs. According to the commenter s , the CRC program would work as follows :

• Credits would be provided to each EGU annually according to the formula:

• (State standard

- EGU emission rate) x EGU MWh

• An EGU with an emission r ate less than the state standard would earn credits, while those with an emissions rate greater than the state standard would have a credit deficit. Because they are zero emitting resources, eligible RE and EE providers would earn credits by the same formu la, which simplifies to:

• (State standard) x RE (or EE ) MWh

• Each year, an affected EGU must demonstrate to the state that it has a credit balance greater than or equal to zero based on its own emission rate and acquiring and retiring an amount of credi ts equal to any deficit it has accumulated during a compliance period.

• Credit deficiencies existing after the applicable compliance period would be a violation of the rule and subject to enforcement.

Commenters stated that one of the advantages of the CRC program is that it can be expanded to a multi

- state program without requiring states to adopt the same standard for the multi

- state region. Commenters noted that requiring states to adopt a single multi

- state limit will discourage states from joining a mul ti

- state plan since states with a less stringent standard will be reluctant to join with a state with a more stringent standard if a single multi

- state standard is set by a weighted averaging methodology and will not result in the same volume of emission r eductions as stand

alone programs. Commenters stated that f or states entering into multi

- state programs, that program credits would be transferred between member states using an exchange rate that accounts for the difference in state standards and avoids g aming opportunities of locating emission reduction systems in less stringent jurisdictions. Commenters noted that an exchange rate is needed since if two states agreed to accept each other's credits at face value without an exchange rate one MWh of renewab le energy in a state with a 2000 lbs/MWh standard would earn twice the number of usable credits as an identical resource in a state with a 1000 lbs/MWh standard. Commenters noted that similar issues would arise with natural gas plants where147 additional cred its could be earned by increasing production in one state over another. Commenters stated that to avoid such situations, WRA has developed an exchange rate formula that would adjust the CRC values when traded between states participating in multi

- state pro grams. Commenters asserted that the CRC program would avoid these problems, would be technology neutral and flexible, and would avoid issues of whether or how it is possible to hold

non

- EGUs legally responsible for compliance with the Clean Power Plan. Com menters provided a paper describing the CRC plan in detail and included model regulatory language that could be used by states when developing their state plans.

Comment 28 : Commenters support ed u sing RTOs to help with regional planning for CPP because of established relationships between states and Tribes

. Response 28 : In the final emission guidelines, the EPA is requiring states to consult with the applicable ISO, RTO, or balancing authority in which a state is located to evaluate any potential electric reliability concerns related to a single

- state or multi

- state plan. This requirement is discussed in section VIII. G.2 .c of the preamble to the final rule. The EPA also encourages states to consult more broadly with the applicable ISO, RT O, or balancing authority in which a state is located. Such organizations may be able to assist states in developing regional strategies that can meet the emission guidelines at lower cost than a single

- state plan, and can also help facilitate coordination in the development and implementation of single

- state plans

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

Commenter s stated that the EPA should consider using the five regional planning organizations (RPOs) as part of its approach because these entities have existing framework s and governance, established relationships between states and Tribes, and a proven track recor d of using their combined technical, policy, and legal resources and expertise to address air quality issues effectively on a local, regional, and national level. C ommenter s noted that RPOs have a good understanding and respect for Tribal cultural values a nd practices, which c ommenters believed would help in implementing the p roposed r ule across state and Tribal borders. Commenters further recommended the EPA provide sufficient funding for and work closely with the existing RPOs to help implement the final rule

.

Comment 29 : Commenters suggested that the EPA set targets but allow states to meet those targets using methods of their choosing

. Response 29 : In the final emission guidelines, the EPA has provided states with a range of plan approaches that could be used to meet the emission guidelines. Under each approach, a state also has significant discretion in the types and levels of emission standards it applies to individual affected EGUs or groups of affected EGUs in a state plan, or the types of state mea sures used under a state measures plan type. This range of approaches and discretion in applying individual148 emission standards or state measures is discussed in section VIII.C of the preamble to the final rule.

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

C ommenter s believed the EPA should set emission targets but not specify pathways for compliance. Commenters believed that the authority of state utility commissions to determine the appropriate mix of generation resources must be preserved and that states need to be allowed more flexibility to determine how best to meet emission targets without imposing unnecess ary burdens on utilities and consumers. Commenters noted that North Carolina has a large nuclear portfolio but that the proposed rule would allow only 5.8% of energy from nuclear generation facilities to be included in determining compliance. Commenters st ated that this mandate penalizes forward

- acting states such as North Carolina

.

Comment 30 : Comments suggesting that the EPA allow a system of a lternative c ompliance
p ayments to m itigate c ompliance c osts

. Response 30 : An alternative compliance payment approach, as described by the commenter, does not constitute a standard of performance under CAA section 111(d), and therefore could not be included in a state plan as a federally enforceable emission standard for an affected EGU. However, if a state chose , it could include such an approach as a state measure under a state measures plan type , discussed in section VIII.C.3 of the preamble to the final rule

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

C ommenters recommended the EPA allow states to implement an a lternative c ompliance
p ayment (ACP) system under which EGUs could elect to make payments to the state as an alternative compliance mechanism when "on

- site limitations or regulatory risks (e.g., th e risks of triggering New Source Review) prevent on

- site modifications and the costs of the credits and system offsets are higher than anticipated." C ommenters explained that the payments collected would be used by the state to fund activities under buildi ng blocks 2, 3, or 4, or other qualified energy sector. C ommenters believed this approach would be beneficial to the state because it would provide funding for energy sector development and beneficial to power plants because it would enable EGUs to comply with the rule at a reasonable cost.

Commenter s stated that a ceiling

- price ACP concept was first conceived during the 1990 CAA Amendments stakeholder discussions and formally articulated in President Clinton's July 1997 memorandum to the EPA (62 Fed. Reg. 38421, 38429, July 18, 1997) when the EPA revised the National Ambient Air Quality Standards (NAAQS) for ozone and particulate matter. Recognizing that the revised standards could impose an unanticipated level of cost on regulated
sources, c ommenters note d that the memorandum recommended an ACP option for sources facing control costs at or above a cost

- effectiveness threshold to fund reductions from other sources and to stimulate new technologies. Commenters also noted that the EPA has approved ACP program s under Clean Air Act Section 110 (see, e.g., SCAQMD Rule 1121, " Control of Nitrogen Oxides from Residential Type, Natural Gas

- Fired Water Heaters").149 Commenters recommended the near

- term price for a building block 1 ACP should reflect the upper bound of th e EPA's anticipated building block 1 cost (e.g., $6 to $12 per ton of greenhouse gas emissions reduction) because the ACP would serve as an alternative to building block 1. Commenters believed a building block 1 ACP would be unlikely to interfere with the other building blocks because building block 1 would be implemented in the early years of the program and the implementation of other building blocks would likely occur over a longer period of time. Commenters also suggested the ACP should be used to help EGUs comply with the other building blocks.

Comment 31 : Comments suggesting that state plans should not require a utility that already meets the state goals to subsidize other utilities compliance costs

. Response 31 : In the final emission guidelines, the EPA has provided states with a range of plan approaches that could be used to meet the emission guidelines. Under each approach, a state also has significant discretion in the types and levels of emission standards it applies to individual affected EGUs or groups of affected EGUs in a state plan, or the types of state measures used under a state measures plan type. This range of approaches and discretion in applying individual emission standards or state me asures is discussed in section VIII.C of the preamble to the final rule.

This range of plan approaches, and state discretion in applying emission standards for affected EGUs or state measures, provides states with significant discretion to address the type s of concerns described by the commenter s through the design of a state plan.

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

Commenter s did not support any particular approach to state plans but were concerned that the plan s state s develop should not adversely impact companies like FPL which have made significant investments in clean energy technologies over the past 15 years. Commenters noted that customers of the other Florida companies affected by the proposed Clean Power Plan did not pay for FPL's investments and believe d that it would be inappropriate to make FPL's customers subsidize other company's compliance costs. Commenters argu ed that "fundamental principles of fairness and economic efficiency should prevail in establishing those approaches" and recommended states develop plans that focus on the most cost

- effective and efficient approaches to reducing emissions that does not shi ft compliance costs from customers in one region to those in another region

.

Comment 32 : Commenters suggested that the EPA provide guidance on how to structure state programs so as to promote combined heat and power ( CHP ) systems

. Response 32 : CHP systems are an eligible resource that could be used to adjust the reported CO2 emission rate of an affected EGU and for which ERCs could be issued. This is discussed in150 section VIII. K.1.a.(9) of the preamble to the final rule. CHP could also be used as an emission reduction strategy at an affected EGU, as described in section VIII.I.1 of the preamble to the final rule. The EPA has also provided a Toolbox for state plan development, which includes description of state requirements and policies that facil itate greater use of CHP. The Clean Power Plan Toolbox for States is available at <http://www2.epa.gov/cleanpowerplantoolbox >.
The following are summaries of the specific public comments under this comment :

Commenter s recommended the EPA provide guidance and examples of programs and policies that would encourage use of CHP s ystems. Commenters stated that s uch guidance and examples

, should recognize that some states have already adopted portfolio programs and other ince ntives and policies designed to encourage CHP s ystem deployment and should not require an overhaul of these programs

.

Comment 33 : Commenters requested clarification on if the EPA would approve a state plant that commits to emission reductions but does not specify how they will be achieved

Response 33 : The approach described by the commenter s is not an approvable plan approach. The approach described by the commenter s generally aligns with the state commitment approach described in the proposal, which is a variant of the portfolio approach. The EPA is not finalizing the portfolio approach, or the state commitment variant of the portfolio approach. Acceptable plan approaches, and the rationale for these approaches, are described in section VIII.C of the
pr eamble to the final rule.

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

Commenter s asked whether the EPA approve a state plan that commits to emission reductions but does not specify how they will be achieved. Commenters noted that by submitting a SIP states affirm their commitment to reducing the carbon emissions within their borders (or within the region in the case of a regional SIP). Commenters noted that the current timeline for individual states to submit an SIP is June of 2016, and that the EPA reviews each SIP and makes a determination whether or not the SIP meets the required compliance targets.

Commenters noted that many states have voluntarily taken measures to reduce carbon pollution within their territory. Co mmenters stated that some of these measures, as is the case in California, involve very complex market designs that affect various industries. Given the complexity of these reduction programs, c ommenters noted that any change in conformity with the EPA's r egulations could potentially require various impact studies and lengthy legislative or regulatory proceedings.

Commenters asked that the EPA consider and comment on the acceptability of a SIP wherein a state submits a timely SIP and commits generally to comply with the EPA's targets, but fails to explicitly identify the methods by which the state will achieve compliance

.151 Comment 34 : Several commenters supported energy efficiency programs as a means for states to comply with the CPP and pr ovided suggestions for incorporating end

- use energy efficiency into state plans,

Response 34 : The final emission guidelines provide for t he use of demand

- side energy efficiency, under both a rate

- based emission standards approach and as a state measure under a state measures plan type. The EPA also notes that demand

- side energy efficiency could be a complementary measure that helps achieve mass

- based emission standards, and that such energy efficiency measures would not be included in a state plan

. Many of the issues raised by the commenters allude to the inclusion of federally enforceable requirements related to demand

- side EE , as part of a portfolio state plan approach. In response to comments, in particular those comments raised regarding applying federally enforceable CAA requirements under a state plan to non

- affected EGU entities, the EPA is not finalizing the portfolio ap proach. The EPA’s rationale for not finalizing the portfolio approach is discussed in section VIII.C. 6.d of the preamble to the final rule. However, the EPA is finalizing other plan approaches that would allow the same types of measures outlined by the com menters to be used in state plans. This includes a rate

- based emission standards plan, where such measures could be used to adjust the reported CO2 emission rate of an affected EGU, as part of federally enforceable emission standards for affected EGUs, and the state measures plan type, where such measures could be included as state

- enforceable measures under both a rate

- based and mass

based plan approach. These plan approaches are described in sections VIII.C. 2 and 3 of the preamble to the final rule. Eligi ble measures that may be used to adjust the reported CO2 emission rate of affected EGUs are described in section VIII. K.1 of the preamble to the final rule. Requirements for rate

- based emission trading programs are described in section VIII. K.2 of the prea mble to the final rule

. The following are summaries of the specific public comments under this comment : Many commenters supported the inclusion of the end

- use energy efficiency programs as part of state plans because they would help states comply with the state goals and would be a cost

effective means of reducing emissions

. Commenter s believed that the objective of reducing emissions from EGUs through energy efficiency is best facilitated by encouraging the " continued development of a vibrant and diverse energy services market. " Commenter s argued that EE should be an integral, credible part of state, regional, and tribal plans and recommended that the guidelines recognize the state and tribal obligation for en suring affordable and reliable energy services as well as protecting the environment. C ommenter s noted that EE is " widely recognized as the least

- cost electric system resource " and argued that " customers will actually experience lower bills if the state's plan includes a strong EE component. " Commenter s believed that end

use energy efficiency is one of " the least

- cost compliance options " and thought it would " play a critical role in helping the United States meet its emission reduction policy objectives. "

Commenter s noted private industrial efficiency investments facilitated by state government agencies as programs for States to include in their compliance plans. Commenter s stated that State Energy Offices and other state agencies have worked for decades wi th industrial and manufacturing facilities to promote "best practices" investments in process improvement that152 result in substantial energy savings. Commenter s indicated many of these programs do not rely on utility rebates, so the energy savings are often not tracked by utility or state programs.

Commenter s supported including state energy financing programs in state plans. C ommenter s stated that the State Energy Loan Fund (SELF) database (http://www.naseo.org/state

- energy

financing

- programs) shows there are 79 energy financing programs operated by 44 states and territories, representing over $3 billion in capital available through State Energy Offices and their partners for energy efficiency, renewable energy, and clean technology deployment. C ommenter s n oted that this amount excludes new ratepayer and taxpayer supported "green banks" and special purpose financing initiatives that would add billions more to this amount.

Commenter s believed that using the CO 2 reductions generated through industrial energy efficiency (IEE) projects as a means of compliance would provide states with enhanced flexibility and lower compliance costs for both regulated entities and consumers.

Commenter s noted that State

- led initiatives, such as commercial property assessed clean energy (PACE) and low

- income weatherization programs, produce substantial energy savings and associated emissions reductions each year, and 25 states have established commercial PACE
programs. Commenter s also noted that nearly every state operates low

- inc ome and/or market rate residential (including multi

- family) EE programs that invest billions of dollars of federal, private, and non

- ratepayer state funds annually. Commenter s stated that most of these programs have a history of strong M&V.

Commenter s recommended the EPA allow states to include Appliance Standards in their state plans. Commenters indicated their state tracks programmatic energy savings from purchases of appliances that meet federal or more stringent state appliance efficiency standards . Commenter s noted that States can induce and track the sale and installation of new appliances meeting the federal standards through programmatic measures. Commenter s recommended that state efforts done prior to federal rulemaking should be credited for t he remaining life of the measure, specifically the efforts in the Northwest and California that adopted advanced appliance standards before the federal government. Commenter s believed the final rule should clarify that appliance standards will not lower th e state's baseline for calculating energy savings from a newly adopted federal appliance standard, and argues that if the EPA does not do so they would be creating disincentives for states to adopt state appliance efficiency standards.

C ommenters provided the following recommendations on how end

- use energy efficiency should be incorporated into state plans :

• States should be encouraged to develop strong crediting, and administrative review and oversight of utility

- , state

- , and non

- utility

delivered energy efficiency activities.

• The EPA should allow s tates flexibility in how they incorporate EE into
state plans

.

• The EPA should defer to state, regional, and tribal decision making as to how incorporate EE into state plans

.153 • The EP A should clarify how compliance measures involving federal entities, such as BPA, may be incorporated in a state compliance plan to leverage federal investments in emission reductions from energy efficiency.

• State plans should include policies and incentives that help utiliti es make investments in EE.

• The EPA should clarify that energy efficiency may be included in state plans irrespective of how efficiency programs are designed, structured and administered and irrespective of the legislative, regulatory and contractual arran gements pursuant to which such programs operate.

• The EPA should establish guidelines to ensure EE programs are adequately funded and that funding cannot be withheld or diverted to other uses once the programs become operational.

• The EPA should clarify th at states may include private

- sector delivered IEE in their 111(d) compliance plans

• The EPA should describe how to include IEE as an element of a robust portfolio of energy efficiency measures in an approvable state plan.

• The EPA should provide states wi th guidance on how to aggregate data from private

- sector delivered IEE.

• The EPA should identify approvable M&V approaches for inclusion of IEE project

- related emission reductions in state plans

.

• The EPA to should allow electricity savings that persist into the compliance period, and can be validated by an approved M&V approach to be eligible for compliance regardless of when the measure was installed.

• The EPA should p rovide states with flexibility to take credit for actions taken after the Clean Power Plan was proposed was issued and before the interim compliance period begins (2020) and count that credit toward achievement of the state's compliance obligation.

• The EPA should remove the energy efficiency penalty created when energy efficiency projects are implemented in electricity

- importing
states

.

• The EPA support the development and use of single

- state and multi

- state emission credit trading programs and other market

- based systems.154 • Emission reductions resulting from Appliance Standards should be an acceptable component of a state compliance plan.

• The EPA should allow states to include private and public

- sector investments in commercial and residential energy retrofits facilitated through state programs in their state plans.

Commenter s stated that t he EPA suggests throughout the document that there is flexibility in how emission targets are achieved, and as it relates to EE, this discussion extends to whether or not EE is required, what entity would have such responsibility (state, utility

- integrated or distribution

- only, independent program administrator, etc.), how such credits would be realized (state certificates, credits purchased by EGUs, etc.), in what market such credits are fungible (states, RTOs, trading regions, etc.) and so on. Commenter s stated unless the states are given absolute discretion to resolve these issues to their own satisfaction, the uncertainties associated with these issues amount to a federal license to reject state submissions if all of the details of the state's EE program s do not conform to standards that the EPA never clearly defined.

Other c ommenters disagree with the inclusion of EE in states plans. Commenter s recommended the EPA not include energy efficiency in its basis for state goals or accept state plans that include energy efficiency as CAA enforceable programs.

Comment 35 : Comments suggesting that the EPA allow states to include development of energy

s torage as part of state plans

. Response 35 : Energy storage technologies could be used to facilitate achievement of the CO2 emission performance levels for affected EGUs , or a state rate

- based or mass

- based CO2 goal for affected EGUs, in the emission guidelines . However, MWh output from an energy storage technology could not be used to adjust the reported CO2 emission rate of an affected EGU. It could facilitate greater grid penetration levels of RE generating techno logies that are eligible for use in adjusting the reported CO2 emission rate of an affected EGU. The treatment of energy storage under a rate

- based state plan, and the rationale for this treatment is discussed in section VIII.K.1 .a.(5) of the preamble to t he final rule

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

Commenter s believed the EPA should give careful consideration and credit for energy storage where states include storage as a technology to help achieve compliance. Commenter s stated state plans that provide incentives for the expansion of storage should be considered favorably by the EPA. C ommenter s also recommended the EPA i dentif y milestones

, monitoring

, and reporting requirements for storage and noted that corrective measures should be implemented where storage goals are not achieved or where storage does not reinforce the attainment of desired environmental outcomes.155 5.2 INCORPORATING DEMAND

- SIDE ENERGY EFFICIENCY AN D RENEWABLE ENERGY PROGRAMS AND M EASURES UNDER A RATE

- BASED APPROACH

This section addresses comments on incorporating end

- use energy efficiency and renewable energy programs and meas ures under a rate

- based approach, and includes discussion on adjusting EGU CO2 emission rates and method and tools for quantifying avoided CO2 emissions . We have organized the comments in this section under six subsections, 5.2.1 to 5.2.5. Responses to the comment topics of these subsections are discussed below along with summaries of the specific public comments

.

5.2.1 Adjusting EGU CO2 emission rates based on the effects of end

- use energy efficiency and renewable energy

This section discusses the general accounting approach for adjusting the CO2 emission rate of an affected source

. The comments and corresponding responses in this section address guidelines for tracking energy efficiency and renewable generation, energy efficiency and renewable generation impact estimations of the rate

- based approach, utilizing REC trading programs to demonstrate compliance, and additional considerations for the denominator and numerator.

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

Comment 1: Comments suggest ing that s tates should have broad discretion and flexibility on how to credit or adjust CO2 emissions rates ; commenters argued this issue falls within the state's authority.
Response 1: The EPA disagrees with the comment that the states should have broad discretion regarding the type of approach they use to credit RE and/or demand

- side EE

. In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to ref lect the MWh impacts of zero

- emitting and low

emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardle ss of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, th e MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions from the numerator, such as those estimated by applying an emissions factor to the156 MWhs, would double count CO 2 emissions impacts across the grid and is, therefore, not permitted under the general accounting approach. While states may define renewable resources in their independent state policies different from EPA, the EPA requires that renewable energy

resources states can use for purposes of meeting the emission guidelines must meet the eligibility requirements specified in the rule. These requirements align eligibility with certain factors and assumptions used in establishing the BSER, and by extension, applicat ion of the BSER to the performance levels established for affected EGUs in the guidelines. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

side EE , see s ection VIII.K of the final rule preamble of the CPP

. The same section also describes the eligibility requirements and conditions for resources t o be used to adjust a CO 2 emission rate, including specific discussions regarding hydroelectric power, biomass and combined heat and power. The rule describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in s ection VIII. K.3 of the final rule preamble

. Finally, for the reasons responded to in RTC section 1.2 regarding cooperative federalism, we disagree with commenters' assertions that EPA has "no authority" to evaluate the satisfactoriness of a state plan submitted pursuant to section 111(d).

The following are summaries of the specific publ ic comments under this comment :
Commenters claimed that the states should have broad discretion on how to credit or adjust CO 2 emission rates to incorporate renewable energy and demand

- side energy efficiency measures under a rate

- based approach. Commenter s added that as long as there is reasonable assurance that double

- counting of benefits are not occurring, this issue should be decided by individual
states. Commenter s further contended that EPA has no authority to circumscribe the mechanisms available to t he states, and that this issue falls within the state's authority under CAA section 111(d). Commenters favored allowing states the flexibility to choose whether RE and EE measures should be subtracted from the numerator or added to the denominator.

Comment er s argued that the CPP should provide deference to the Ohio General Assembly's jurisdiction over state policy and safeguard such flexibility to avoid a scenario where a federal entity is forcing a state to violate its own laws. Commenters explained that the CPP adopts a one

size

- fits

- all policy that does not give Ohio discretion to define RE resources consistent with its own statutes and policies. Furthermore, c ommenters noted, because every state's RE and EE requirements are different, a wide range of options for EM&V protocols is critical so that states can develop plans tailored to individual state needs and conditions.

Commenter s also stated that credit should be allowed for all hydroelectric generation (including internationally sited) , nuclear power including increased capacity at existing units, carbon neutral biomass, combined heat and power and even new methods to be determined, with oversight to assure no double

- counting and that the reduction credit is appropriate.

Commenter s obse rved that EPA used the statewide rate approach for its calculations of proposed state goals, but proposed to provide flexibility to allow individual EGUs to make adjustments for RE as long as assurances can be provided that there is no double counting (i.e

. , the same MWh cannot be used to make an adjustment to the rate of individual ERUs and also for statewide157 adjustment as the result of a state policy like an RPS). Commenters noted that if this strategy is employed by states, this may result in a different rate calculation from that which will be used by the EPA for the state goal. Commenters added that EPA should provide additional guidance and encourage states to use the same calculation methods for state goals and performance as the EPA used in the final state goal calculations, as this will reduce the potential for gaming and significant differences between a state's calculation and the EPA's.

Comment 2 : Comments r ecommend ing clear guidelines/additional guidance for tracking EE and RE measures and credits

. Response 2: In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EG U or state to adjust

a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. This ensures that affected EGUs receive full recognition for their investments even if the im pacts occur elsewhere and it removes the need to determine exactly which EGUs reduced and changed power generation in response to the zero

emitting or low

- emitting resource. This also ensures that quantified and verified MWh impacts of qualifying zero

- emit ting and low

- emitting resources are applied consistently across all affected EGUs. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state
rate

- based CO 2 goals in the final emission guidelines, the MWhs impacts are added to th e denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources acr oss the regional grid. Further adjustment of CO 2 emissions, such as through the concept proposed by some commenters below which calls for the subtraction of CO 2 reductions estimated by applying an emission factor conversion on the MWhs, would double count CO 2 emissions impacts across the grid given the revised calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines. These adjustments are, therefore, not permitted

. Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting method corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the ra te

- based emission trading framework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and thus credits or adjustments can be denominated in MWh and do not need to represent an approximation of the CO 2 emission reductions that result from those MWhs. This creates a crediting system or rate adjustment process that is simpler to implement than one that requires an approximation of avoided CO 2 emissions. The MWh accounting method also creates a crediting system or rate adjustment process that is indifferent to the rate

- based CO 2 emission goals of individual states, or the specific CO 2 emission rate standards that states may apply, and the relative stringency of those goals or stan dards.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC) or an energy efficiency credit (EEC). An ERC may be i ssued, however, based on the158 same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects

, addressing the potential for inte ractions between ERCs and RECs or EECs, are addressed in section VIII.K.2. Section VIII.K.3 of t he preamble to the final rule describes the requirements and criteria related to proper ex post quantification and verification of MWhs from renewable electrici ty generation or demand

- side EE savings to avoid overestimation as suggested by
commenters

. These final requirements are intended to leverage and/or closely resemble those already in routine use, including those by energy service companies engaging in ener gy savings performance contracts. The EPA is not providing additional guidance for incorporating methane utilization and reductions into state implementation plans for 111(d), as it is out of the scope for this rulemaking.

For information about mass

- based emission standards with a market

- based emission budget trading program, see Section VIII.C. 2 and VIII.C. 3

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

Commenters recommended that EPA establish cl ear guidelines for tracking energy efficiency and renewable generation. C ommenters noted that the guidelines may differ depending on whether a state employs a mass

- based program or rate

- based program.

METHANE UTILIZATION AND PRIVATE/NON

- UTILITY EE

Commenter s encouraged EPA to issue additional guidance for incorporating methane utilization and reductions into state implementation plans for 111(d). Commenter s urged EPA to state expressly that privately or other non

- utility delivered EE can be included in state compliance plans.

ENERGY SAVINGS PERFORMANCE CONTRACTS (ESPC)

Commenters noted that ESPC provides measured, verified and documented reductions. Commenters requested that EPA provide explicit guidance to states on presumptive, approvable,
energy efficiency programs. Commenters suggested that the criteria for approvable energy efficiency should have environmental rigor, quantifiable, enforceable and sustainable, administrative ease, clear investment goals and management requirements, and adaptabili ty with periodic review of state plans, with prospective adjustments, as needed.159 Commenter s requested that EPA describe approvable approaches for aggregating Energy Savings Performance Contract (ESPC) project

- related energy efficiency to determine the avoi ded emissions achieved. Commenters stated t hese data can be collected by State Energy Offices or other state

- designated entities (directly or via a third party) or through state

- or utility

administered programs from projects that are independently directe d, directed by the program, or bid.

Similarly, commenter s strongly believed that EPA should also issue clear guidance for crediting ESPC programs and projects that deliver energy efficiency through third

- parties and non

utilities. Commenters also suggested that states should be permitted to include emission reductions from Federal and public housing authority ESPC projects which occur in their respective states. Commenters stated t his Federal data could be provided by a national registry or other database a dministered by the Federal Energy Management Program at DOE.

Commenter s recommended the following 10 items of guidance that would be applicable for ESPC crediting:

• Identify Approvable Pathway. Without limiting state flexibility, EPA can offer clarifying g uidance to enable states to include performance contracting project

- related emission reductions in their 111(d) compliance plans.

• Recognize All Existing Programs. EPA should acknowledge

- as it did with energy efficiency resource standards, etc.

- that existing state performance contracting activities provide a potentially substantial contribution to 111(d) compliance.

• Targeting Sources of Energy Savings. EPA shoul d clarify how this requirement applies to performance contracting projects. Commenters recommend that the states be required only to identify building types (e.g. state

- owned, hospitals, universities etc.) targeted for performance contracting and a reasona ble estimate of savings to be achieved from anticipated PC projects.

• Aggregation of ESPC

- Created Emission Reductions. EPA should describe approvable approaches for aggregation of PC project

- related GHG reductions for use in 111(d) compliance. A national re gistry could serve this purpose, providing efficiency and the greatest degree of consistency in all aspects of inclusion of project

- related GHG reductions in 111(d) compliance. Alternately, a state energy office (or another designated Agency) can collect ( directly or via a third party) data from all PC projects in the state and determine the avoided emissions achieved.

• Clarify Approvable Approach for Key Compliance Criteria. EPA can assist states by identifying approvable approaches for key compliance crite ria that will facilitate inclusion of performance contracting project

-160 related emission reductions. Key compliance criteria for which EPA should identify approvable approaches include M&V protocols, auditing requirements for state performance contracting pr ojects, performance contracting program evaluation methods, and corrective measures.

• Existing Facilities/Installations. Emissions reductions from performance contracting projects that are validated by an approved M&V approach and persist into the complianc e period should be eligible to contribute to 111(d) compliance regardless of when the measure was installed.

• Create Incentives for Immediate Action to Reduce Emissions . EPA should provide states with flexibility to take credit for actions taken after the C lean Power Plan was proposed and before the interim compliance period begins (2020) and count that credit toward achievement of the state's compliance obligation. This early

- action provision would help ensure that the states have an incentive to reduce car bon emissions prior to 2020 and eliminate an unintentional incentive to delay EE projects until after 2020.

• Contributions to Future Avoided Emissions . Avoided electricity consumption should be allowed to count toward 111(d) compliance for performance contr acting projects subjected to proper M&V.

• Identify Remedies for the 111(d) State Energy Efficiency Penalty. EPA should address and resolve the energy efficiency penalty created when energy efficiency projects are implemented in electricity

- importing
states. As proposed, the rule would leave stranded and uncounted the emission reductions created by energy efficiency in an importing state because neither the importing state, nor the generating state, could claim credit for emissions reductions equal to 100 per cent of those created by the energy efficiency program or project.

• Encourage the Use of Tradable Credits. EPA should support the development and use of single

- state and multi

- state credit programs and other market

- based systems. This will encourage the use of the least

- cost compliance options, which, in many cases, will involve comprehensive energy retrofits.

CREDIT TRACKING

Regarding credit tracking, commenters further recommended that rate

- based compliance programs should credit renewable energy and energ y efficiency in the form of tons of CO 2 as opposed to trading credits of MWh through RECs or some other mechanism. Commenters reasoned that this approach would simplify compliance across regulated entities and avoid creating significant administrative challenges for state renewable portfolio standards, which in many states will have a different compliance entity than the state's compliance program for 111(d). Commenters stated that RECs would therefore continue to be used by load serving161 entities (LSE) for compliance with state renewable standards, while CO 2 emissions credits would be used by electric generators for compliance under section 111(d).

Commenter s suggested that guidance should include options for states to avoid situations in which different types of compliance entities at different points in the chain of custody (e.g. EGUs and LSEs) are competing for the same RECs/MWh. Commenters offered an example where the EGU is the compliance entity and the state RPS is also included in the state plan, t he state will need to determine a method for allocating RPS reductions and RECs retired for the RPS to individual EGUs reporting for 111(d) compliance. Commenters warned that the creation of another instrument of tracking credits for this purpose should be avoided, since this would increase the risk of double

- counting RECs.

Commenter s recommended using the crediting approach EPA used under building block 3, and stated that to aid in states in compliance with their 111(d) obligations, it would be most be mos t efficient and equitable for the EPA to model its approach after the best practices of existing state RPSs. Commenters stated that r elying upon existing best practices and infrastructure will aid states in efficiently meeting their obligations, while maki ng double counting structurally impossible, thereby maintaining the integrity of the emissions reductions which will be achieved.

Commenters said, the implementation of this regulatory approach would be greatly facilitated were the air regulator or the EPA to create a system for registering and tracking credits related to renewable energy and energy efficiency projects. Commenters said, as discussed elsewhere, the air regulator in a state taking this approach could also ensure greater cost

- effectiveness by also providing that it will accept credits generated within the state, within a specified set of states, or within any state taking a parallel rate

- based approach with a plan approved by the EPA. Commenters said, the creation of a tracking system for credi ts by EPA would greatly facilitate interstate coordination, and ensure that credits are not double counted towards compliance. Commenters said, however, such a system should not require new legislation or additional action by a public utility commission. C ommenters said, this approach is broadly similar to an August 2014 proposal by Western Resource Advocates, describing a "carbon reduction credit" program that would allow affected EGUs to comply with state

- wide emission standards by reducing their emission s using credits generated by lower

- emitting EGUs, clean energy resources, and providers of verified energy efficiency savings.

TIME AND ORIGIN OF GENERATION

Commenters suggested that credits should be provided at the time of generation or at the time
energ y efficiency projects are verified, but also that states should be allowed to determine the frequency which credits are created. C ommenters recommended that credits be created no less frequently than quarterly so that projects can quickly capitalize on the value they create. C ommenters suggested that the credit allowance be labeled in a manner that indicates its point of origination, which for RECs would require that a CO 2 credit could be connected to a particular REC and its associated MWh and generating f acility in one of the mandatory or voluntary tracking systems. C ommenters also recommended that EPA design and operate a tracking system that states can opt to use.

BASIS OF CREDITS AND CALCULATIONS OF AVOIDED EMISSIONS162 Commenters noted that, due to the interconnected nature of the electric grid, it is not possible to determine which power plant reduced their generation as a result of every avoided MWh due to efficiency or carbon

- free projects. Commenters recommended that i n order to avoid overestimation of emission reductions from these projects, the credits be based on the emission standard for new natural gas plants established under section 111(b), or the state's GHG emissions rate for the interim control period, whichever is lower. C ommenters also off ered an alternate approach to credit the projects in an amount based on the state's GHG emissions rate for the interim control period or the average emissions rate in their market region (consistent with the regions used to establish the requirements for t he renewables building block), whichever is lower.

Commenter s insisted that there must be guidance on a consistent/common methodology used by all states to achieve an even playing field and avoid gaming, since different calculation methodologies could res ult in different amounts of avoided emissions. Commenters stated t he guidance should also be developed in cooperation with transmission operators, since these entities have access to dispatch data. Finally, commenter s also stated that the guidance should i nclude a calculation methodology that is sufficiently precise. Commenters provided that a s an example, while requiring the use of hourly transmission data may result in calculations that are too costly for states, an avoided emissions value should be (and certainly should only be attached to an individual REC if it is) reasonably accurate for that MWh. Commenters asserted that this would help ensure that any differences (whether positive or negative) between a state's calculations for the purpose of making adjustments to rates and those performed by EPA for state goal calculation are due to increased precision.

RATEPAYER EQUITY OF BENEFIT

Commenter s expressed concerns for equity among ratepayers in a state when the benefits of actions in vertically integrate d utilities are being claimed by the state, but the integrated utility's ratepayers bear the cost. Commenters recommended that, to ensure equity among ratepayers, a state plan should ensure utilities whose ratepayers directly invest in beyond

- the

- fence str ategies receive full credit for those investments.

Comment 3: Comments on the c omplexities of EE/RE impact estimations of the rate

- based approach and need for consistency

- including concerns with stakeholder

- proposed approaches and overestimation concer ns

. Response 3: The final rule specifies a general accounting method for adjusting a CO 2 emission
rate. The reported CO 2 emission rate of an affected EGU may be adjusted based on MWhs from qualifying zero

- emitting and low

- emitting resources, as described in section VIII.K.1 of the final rule preamble of the CPP

, that are quantified and verified in accordance with the EM&V requirements specified in s ection VIII.K.3 of the final rule preamble

. These resources , such as renewable energy and demand

- side EE, mu st be tied to a state plan and can be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO2163 goals in the final emission guidelines, the MWh impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, see s ection VIII. K.1 of the final rule preamble

. Commenters expressed concern regarding the analytic challenge of estimating the quanti ty of GHG emissions that may be reduced or avoided by implementing demand

- side EE projects. This concern is eliminated in the final rule because it does not require an estimation of emissions impacts. Instead, reported CO 2 emissions of an affected EGU refl ect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions would double count CO 2 emissions impacts across the grid. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, see s ection VIII.K.1.a.(3) of the final rule preamble

.
The rule includes the requirements a nd criteria related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings, and discusses eligible demand

- side EE programs and proje cts in s ection VIII.K.3 of the final rule preamble

.

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

SEPARATE ESTIMATION APPROACHES

Commenters noted that the rate

- based approach is complex in several ways, one being that states must separately estimate impacts of EE and RE programs on fossil plant emissions, and that these programs do not affect the rate of emissions in a consistent manner. Commenter s also stated that different estimation approaches may be adopted for similar programs among different states, and there is an obvious temptation for states to skew their estimates on the high side. Commenters stated t hese increase the risks of reducing the actual emission reductions obtainable by the CPP and the possibility of double counting.

Commenter s discussed that large util ities would likely prefer a rate

- based approach, but the Generation and Transmission (G&T) serving rural electric coops would be better off using the

mass

- based approach. Commenters urged EPA to identify a mechanism to incorporate energy efficiency into th e rate

- based approach, possibly permitting a hybrid approach that measures the rate, but increases the rate permitted for each utility based on quantified energy savings. Commenters believed the proposed approaches needs to be more carefully thought out so that affected sources of all sizes can choose the most cost

- effective mechanisms to reach the same target, and possibly surpass targets over time, all the while reducing their electric customers'
costs.

CONCERNS WITH NRDC'S PROPOSED APPROACH TO CREDITING EE FOR COMPLIANCE WITH RATE

- BASED TARGET

Commenter s noted that several stakeholders have submitted detailed proposals for crediting energy efficiency improvements towards compliance with a rate

- based target (i.e., NRDC and Hibbard & Okie (2014)). Commenter s stated that these proposals provide a pathway for crediting164 energy efficiency while ensuring that the emissions reductions from those measures are real and verifiable. However, c ommenters believed that the proposals also reflect some of the drawbacks of the rate

- based approach. Commenters noted that a s an example, these proposals only allow credits for a limited set of energy efficiency efforts, not the full range of measures that may be undertaken by states, utilities, local authorities and other entitie s to increase energy efficiency. Furthermore, c ommenters added, the proposals do not provide a clear pathway for crediting reductions from pricing policies, tax credits or education efforts that reduce electricity consumption. Commenters also argued that t hese proposals require rigorous EM&V procedures to confirm the actual emissions reductions that can be attributed to specific emission measures, and that these procedures may "increase the complexity and cost of efficiency as a compliance strategy relative to the mass

- based emission reduction approach" which may result in states likely narrowing the range of efficiency programs and policies offered for efficiency credits. Commenters further noted that these proposal require an ex

- post evaluation of emission s reductions generated from particular energy efficiency measures in order to determine the value of the emissions credit generated from those measures. Commenters believed that this creates uncertainty as to the emissions reduction value of any efficiency project, which may deter investment in such projects. Commenter s noted that the proposed rule addresses each of these concerns by allowing states to adopt a mass

- based target in lieu of a rate

- based target. However,

c ommenters recommended that EPA should clarify the respective requirements for states with
rate

- and mass

- based targets and provide examples of acceptable EM&V protocols in both
contexts. Commenters believed that this information will help states decide whether to convert their rate

- based targe t to a mass

- based target, and design an appropriate plan for EM&V of emissions reductions from energy efficiency measures.

ENERGY EFFICIENCY OVERESTIMATION CONCERNS

Commenter s presented several concerns regarding overestimation of the gains from energy eff iciency measures within the proposed rate

- based standard. Commenters noted that accurately measuring how efficiency investments affect electricity demand is notoriously difficult, and recent studies indicate that the savings are frequently overestimated by a wide margin. Commenters noted the importance of this since overestimation of the gains from energy efficiency will reduce the stringency of rate

- based standards. Commenters stated that since avoided generation increases the denominator, with enough avoided generation from energy

efficiency, any state can be brought into compliance, even a state which otherwise has taken few steps to reduce carbon dioxide emissions. C ommenter s pointed out that this problem arises with energy efficiency because unlike the other components of the compliance formula, avoided generation is not directly observed and must be estimated using engineering and econometric techniques.

Commenter s presented several rea sons why actual energy efficiency savings often end up smaller than predicted, including:

• Many people counted as participants in energy

- efficiency programs would have undertaken the energy saving behavior even in the absence of the program;165 • In response t o efficiency

- induced reduction in cost, firms and households may increase demand for energy services. Therefore, a "rebound effect" seems to occur, and although 100 percent rebound is rare, it is not uncommon for as much as 30 to 40 percent of the predicte d gains from energy

- efficiency to be offset; and

• Many energy efficiency programs explicitly require ex ante estimates to be of a certain size in order for participants to receive subsidies. Therefore, there exist incentives for energy

- efficiency auditors a nd investor

- owned utilities for to overstate the size of efficiency reductions to receive subsidies or compensation.

Commenter s stated that their facility is not required to submit annual M&V studies to state utility commissions. Commenters stated it is an alytically challenging to estimate the quantity of GHG emissions that may be reduced or avoided by implementing demand

- side EE projects. Commenters stated that to estimate reduced GHG emissions in this context requires complex modeling designed to calculat e (i) the change in electricity load for each hour of the day an EE project is expected to operate, and (ii) the marginal emissions reductions associated with the marginal electric generation unit in a region that can be expected to reduce its output in re sponse to the change in electric load. Commenters noted that accomplishing this requires the use of regional electric generation dispatch modeling tools and other sophisticated analysis methods that not all entities have at their disposal. Commenters indic ated that instead of requiring these burdensome methods, to the extent that states can credibly show that these emissions have been avoided, EPA should grant credit for these actions under a state plan. Commenters stated that because their facility is a wh olesaler of electricity with over 150 local power companies that distribute their power, the business model requires collaboration from multiple parties, resulting in a complexity for EE that does not appear elsewhere.

Comment 4 : Comments suggesting that s tates and merchant facilities should have flexibility to

u se RECs as compliance mechanism

. Response 4 : In the final rule, t he EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1.a. ( 1 ) of the preamble. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1 and in accordance with the EM&V requirement s specified in s ection VIII.K.3 . These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission
rate. This accounting method corresponds with the use of MWh

- denominated Emission Rate Credi ts (ERCs) to represent the zero emission MWhs from the eligible renewables and energy efficiency. The ERCs are the tradable unit s that can be used in the rate

- based emission trading framework specified in this rule.

An ERC is issued separately from any ot her instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC) or an energy efficiency credit (EEC). An ERC may be issued, however, based on the166 same data and veri fication requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs that are used to meet state renewable portfolio standards or energy efficiency resources standards. The EPA is aware of the potential for interactions between ERCs and RECs or EECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

Requirements for rate

- based emissio n trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2.

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

Commenter s supported EPA allowing states to utilize REC trading programs to demonstrate compliance with the Clean Power Plan. Commenters understood that the proposed rule includes the ability for states to t ake credit for 111(d) compliance as well as RPS requirements without duplicating compliance credit. Commenters believed that the final rule should maintain and affirm this flexibility. Commenters further stated that this is important because under current market mechanisms, RECs may be generated and traded independent from a state RPS. Therefore, c ommenters suggested the following components of a rate

- based trading mechanism should be incorporated as a compliance option in the final rule :

• RECs may be surre ndered by the generator or sold to another regulated entity for surrender.

Commenters stated that u tilities should be able to utilize RECs associated with their renewable generation, or acquired from third parties, to demonstrate compliance with emissions reduction requirements by surrendering RECs. Commenters stated EPA should acknowledge in the final rule that states have the flexibility to expand or implement REC trading such that RECs may be sold to any entity or state needing additional carbon reduction attributes to demonstrate compliance. Commenters stated that i ncorporating a tradable

- REC program into a rate

- based compliance mechanism takes advantage of existing tools and resources, and REC purchases and sales may be a low

- cost compliance option that ultimately reduces compliance costs.

• A single REC may be utilized for compliance with multiple pro grams so long as it is used for only one state's 111(d) compliance program

.

Commenters stated that RECs should not be double counted for purposes of compliance with Section 111(d) emission targets. However, c ommenters suggested that RECs bundle together a number of environmental attributes associated with renewable energy generation; a reduction in carbon emissions attributable to renewable energy generation is but one of those attributes. Therefore, commenters stated the final rule should specify that a s ingle REC can be utilized for multiple programs so long as it is not utilized for compliance with more than one state's Section 111(d) compliance plan. Commenters believed that this approach provides maximum flexibility to states and regulated parties, rec ognizes the importance of renewable energy generation in167 reducing greenhouse gas emissions from the power sector, and encourages additional renewable energy development.

• Companies should be able to bank RECs for future compliance

Commenters believed the ability to bank RECs is one such appropriate method to credit early emission reduction actions. Commenters suggested that EPA should clarify in the final rule that RECs generated beginning January 1, 2013 (or, alternatively, June 2, 2014, the date of release of the Clean Power Plan) and not yet sold and/or retired, may be banked and utilized for compliance beginning in 2020. Without the ability to bank RECs, c ommenters believed the development of renewable energy projects may be stymied until 2 020, halting incremental environmental benefits that accompany the installation of renewable energy generation.

Commenter s discussed a situation where an affected merchant combined cycle natural gas unit is located in a state with no other company

- owned ge neration or retail customers. In this situation,

c ommenters felt that there are limited options for the unit to reduce its emission rate should actual emissions be greater than the limit imposed by the state. Commenters stated that s everal options which co uld be considered for the unit for compliance purposes include (1) closing the facility, (2) pursuing cost

- effective heat rate improvements, if any are available, (3) acquiring renewable energy credits to reduce the average emission rate, or (4) building a dditional merchant renewable generation in the state. Commenters requested that EPA confirm that the acquisition of renewable energy credits from within or outside the state would qualify as a compliance mechanism for such a merchant plant to help demonstr ate compliance if necessary.

Comment 5 : Comments s upport ing the approach of adding new RE as energy to denominator; should be consistent over time; and retired coal generation that is not replaced by fossil should retain MWh in denominator

. Response 5 : The final rule adopts the denominator approach recommended by the reviewers

. Consistent with the EPA’s revised approach to calculati ng the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, quantified and verifi ed MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan can be added to the denominator of an affected EGU’s reported CO 2 emission rate, regardless of whether the renewable generation , like the wind generation cited by th e commenter below, or demand

- side EE savings occur inside or outside the state or territory. This addition result s in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying n on

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO 2 emissions impacts across the gr id. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, see Section VIII.K.1.

Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments,168 the accounting method corresponds with the use of MWh

- denominated Emi ssion Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and thus credits or adjustments can be denominated i n MWh and do not need to represent an approximation of the CO 2 emission reductions that result from those MWhs.

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

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect renewable energy and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1 of the final rule preamble of the CPP . Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects and add ressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2 of the final rule preamble

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, see s ection VIII. K.1 of the final rule preamble

. The EPA believes that the flexibility provided for states to craft plans that are appropriate for their circumstances and emission reduction strategies fully recognizes the role that retirement of affected EGUs can play. Under a rate

- based plan, the retire ment of a higher

- emitting affected EGU will reduce the weighted average CO 2 emission rate of the remaining fleet of affected EGUs, helping a state to achieve its rate

- based CO 2 emission goal.

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

RENEWABLE ENERGY AND RECS

Commenter s supported counting additional renewable energy in the denominator. Commenters added that this allows utilities to readily demonstrate and verify renewable energy purchases by acquiring and retiring RECs against their SIP requirements. Commenters stated that the use of these tracking systems precludes double counting, and that these systems have been used for years to track, trade and retire RECs. Commenter s added that eligibility of credited MWh must be limited to RECs that avoid emissions at affected EGUs, and states must demonstrate this to EPA. C ommenter s further stated that EPA could be even more stringent, in order to increase precision and incentivize use of the more precise method, by requiring tha t states demonstrate that all of the avoided emissions from the RE that is used for MWh crediting in fact took place at affected EGUs.169 ENERGY EFFICIENCY

Commenter s supported adding energy efficiency savings to the denominator if a state chooses to comply t hrough the rate based approach. Commenters stated that this approach is simpler and likely to be more accurate than estimating the CO 2 emission reductions from energy efficiency policies and programs and subtracting this from the numerator, given the uncertainties regarding the actual time of energy savings and defining which specific power plants cut their generation as a result of end

- use energy savings.

RETIRED COAL NOT REPLACED BY FOSSIL

Commenter s suggested that when a retired coal plant is not replaced by fossil generation, the MWh associated with the plant should remain in the denominator, similar to the treatment of

zero

- emitting resources. Commenters stated that this approach fully reflects the benefits of the coal plant retirement.

CONSISTENCY WITH GOAL CALCULATIONS AND OVER TIME

Commenters also supported the MWh crediting in the denominator approach, since this is the method E PA has used to calculate state goals and the potential for gaming exists if states may choose one approach or the other. Therefore, commenter s urged EPA to require that states be consistent within the state plan and over time in terms of which method is us ed, and not be permitted to use either method at different times or for different RE policies.

Commenter s argued that there needs to be consistency between the goal calculation methodology and the compliance demonstration methodology and that the methods f or determining actual carbon dioxide emissions and performance goal attainment should be the same or consistent with the methods used for calculating the goals.

Commenter s argued that for energy efficiency (EE), whatever methodology is used for compliance purposes should be consistent with how the BSER was calculated.

Commenters also recommended that for rate

- based compliance plans, EPA require that avoided emissions from energy efficiency and renewable energy be credited by adding the avoided generation t o the denominator of the BSER emission rate equation. Commenter s noted this approach will ensure consistency between goal setting and goal compliance and also equity between states.

SUPPORT DENOMINATOR APPROACH, BUT ALTERNATIVE TREATMENT OF DIRECT FOSSIL REPLACEMENT DOES NOT WORK IN ALL CASES

Commenter s added that location constraints on the New York system mean that all generation is not fungible, and that a wind farm located up

- state will not offset the use of steam units in the New York City metro area

. Commenters stated that t herefore, the alterative EE and RE treatment of directly replacing 2012 fossil generation levels does not work for them. Commenter s also170 noted that NGCC units will be needed to balance intermittent resources such as wind and solar and provide ancillary services during normal grid operations.

INCORPORATION OF STATE GHG RULES AND CPP FOR COMPLIANCE

Commenter s noted that sources identified by EPA as affected facilities under the CPP are also subject to emission reductions of Hawaii's GHG Rules. As a result, c ommenters added, existing EE/RE policies can be combined with emissions limits established by Hawaii's G HG Rules to meet BSER goals of the CPP. Commenters suggested that federally enforceable GHG limits would be a component of the numerator of the calculation, while other enforceable EE/RE programs would be a component of the denominator of the calculation.

REASONS TO NOT RECOMMEND NUMERATOR APPROACH

Commenter s did not recommend the numerator approaches, stating that under this approach, the renewable energy must be converted into estimates of displaced fossil fuel, and deriving displaced emissions is complic ated and would not yield accurate results for all companies or circumstances. Commenters offered that, if EPA selected the numerator approach, then displaced emissions should be bound between the range of fossil fuel emissions for combined cycle gas turbin es and existing coal.

Commenters supported counting additional renewable energy in the denominator. Commenters added that this allows utilities to readily demonstrate and verify renewable energy purchases by acquiring and retiring RECs against their SIP re quirements. C ommenters stated that the use of these tracking systems precludes double counting, and that these systems have been used for years to track, trade and retire RECs.

Commenters did not recommend the numerator approaches, stating that under this approach, the renewable energy must be converted into estimates of displaced fossil fuel, and deriving displaced emissions is complicated and would not yield accurate results for all companies or circumstances. Commenter s offered that, if EPA selected the numerator approach, then displaced emissions should be bound between the range of fossil fuel emissions for combined cycle gas turbines and existing coal.

Commenter s added that accounting for renewable energy under a mass

- based approach is simplified, and imported power could simply be assigned an emission rate of the region, utility or specific power plant. Commenters added that some tracking systems (for example, the NEPOOL GIS 1) already assign emission rates to every MWh imported into their respective

r egion, whether it be a regional rate or the rate of a specific power plant, and would be well suited to track emissions under a mass

- based approach.

Comment 6 : Comments regarding i ncreased EE lowering overall generation in the denominator, which increases the emissions rate in the compliance calculation

. Response 6 : The final rule adopts the denominator approach recommended by the reviewers. Consistent with the EPA’s calculation of the CO2 emission performance rates and state rate

-171 based CO2 goals in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and eligibility requirements for resources that can be used to adjust a CO2 emission rate, see s ection VIII. K.1 of the fi nal rule preamble

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

Commenter s argued that EE is equivalent to negative load growth, or fewer MWh generated, and that this increases the emission rate under the proposed compliance calculations. Under the proposed rate

- based approach compliance calculation, c ommenters believed that EE measures would lower the denominator, which increases the emissions rate and compliance burden of the CPP and discourages aggressive EE measures, which is counter to the goal of reducing overall CO 2 emissions.

Comment 7 : Comment er s suggesting RE and EE b e accounted for by subtracting avoided emissions from the numerator

. Response 7 : In the final rule, EPA adopted the denominator approach, not the numerator approach recommended by the se reviewers that commented upon the proposed approach

. EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals from the one used in the proposal. Consistent with EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

emitting resources across the regional grid. Further adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE

, how it ensures consistency with goal

- setting calculations, and eligibility requirements for resources that can be used to adjust a CO2 emission rate, including new and incremental renewables (including hydro), nuclear and energy efficiency , see s ection VIII. K.1 of the final rule preamble of the CPP

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

Commenter s supported accounting for renewable energy, energy efficiency, and electric generating unit retirements by subtracting avoided emissions from the numerator of a state's or entity's emission rate, rather than by adding the clean and avoided generation into the denominator. Commenter s also supported counting the emission reductions for renewables, nuclear, and efficiency in the numerator of the emission rate formula rather than just the generation in the denominat or. Commenters strongly agreed with this approach as these172 technologies are clearly reducing CO 2 by displacing fossil generation and it's a more consistent and equitable approach with how natural gas fuel switching is treated. Commenters argued, however, t hat only the CO 2 reductions from new and incremental renewables (including hydro), nuclear and efficiency should be counted, as the CO 2 reductions from existing renewables (including hydro), nuclear and efficiency are already embedded in the baseline emiss ions and generation mix.

Comment 8 : Comments suggesting that the EPA's standard needs to encompass the full fuel cycle ; clarification of renewable energy generation

. Response 8 : The EPA recognizes the value of BSER and non

- BSER measures, such as demand

side EE and combined heat and power, to reduce CO 2 emission from affected EGUs, and allows for the inclusion of both BSER and non

- BSER measures as a part of a state’s plan to meet t he emission guidelines. To the extent qualifying demand

- side EE, renewable energy and non

- BSER measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the savings occur inside or outside the state or territory.

In response to comments, in the final rule, the EPA clarifies eligibility requirements in s ection VIII.K.1 of the final rule preamble of the CPP for BSER and non

- BSER resou rces that can be used to adjust a CO 2 emission rate when demonstrating compliance with the emissions guidelines under a rate

- based approach, including requirements related to energy efficiency, biomass, incremental hydroelectric power, wind, geothermal, co mbined heat and power and waste heat power. EPA also clarifies which resources are ineligible from counting toward compliance in a state plan, such as those that reduce CO 2 emissions outside the electric system.

While states may define renewable resource s in their independent state policies different from EPA, EPA requires that renewable energy resources states can use for purposes of meeting the emission guidelines must meet the eligibility requirements specified in the rule. These requirements align eli gibility with certain factors and assumptions used in establishing the BSER, and by extension, application of the BSER to the performance levels established for affected EGUs in the guidelines.

Biomass is not considered part of the best system of emission reduction in this rule and therefore it is not included in goal

- setting or compliance evaluations. However, similar to other technologies outside of BSER, biomass may be considered as a part of a state’s plan to meet the emission guidelines.

For more info rmation regarding Building Block 3, refer to Section V.E of the preamble.

A discussion regarding the use of some biomass feedstocks for compliance purposes can be found in Section VIII.I.2.c and Section VIII.K.1 of the preamble.

The following are summaries of the specific public comments under this comment :173 Several commenters said that the EPA should clarify how renewable energy technologies are addressed in state compliance plans.

Commenters argued that since emissions are directly related to energy consumption, the focus must be on source efficiency and EPA should embrace an efficiency standard that encompasses the full fuel cycle and considers the entire energy chain from source to site with rules and policies accordingly.

Commenters recogniz ed that the EPA likely intends to allow states to credit the full range of renewable energy generation, but the EPA should clarify that all emission reductions resulting from a range of renewable technologies, such as biomass, incremental hydroelectric pow er, and marine renewable energy, are acceptable in a state compliance plan. Commenters agreed with the EPA that expanded renewable energy generation provides an important and cost

- effective component of the Proposal and supported its inclusion in the BSER. Commenters provided a detailed discussion of renewable energy resources and programs in the State of Oregon. Commenters supported the following elements of the proposal:

• EPA's consumption based approach to renewable energy crediting in state compliance p lans.

• The alternative method for renewable BSER calculation, but with a modification to use regional technical and economic potential for each technology.

• Allowing generation from biomass in a state compliance plan similar to

non

- emitting generation and consistent with the EPA's forthcoming biogenic carbon dioxide accounting framework.

Commenters noted that waste heat from industrial applications, biomass from beetle kill and methane from landfills and coal mining are allowed to count toward compliance w ith the RPS in Colorado, and while combustion from burning biomass and methane emits greenhouse gases, the overall benefit from combusting these fuels should be accounted for in the Plan. Commenters concluded that the Plan should encourage generation from any resource that reduces overall greenhouse gas emissions, specifically, any electricity generated from methane that would otherwise be vented to the atmosphere or flared, as waste gas should count toward the emission reductions contemplated by the Plan.

Commenters said that the EPA needs to provide additional clarification on what generation, energy efficiency and demand side sources are considered "renewable" for purposes of the rule. Commenters noted that many western states, including Nevada, are expe riencing increased implementation of Distributed Generation (DG) resources, particularly adoption of roof top solar installations in residential markets. Commenters asked that the EPA recognize DG as an eligible resource without restriction for inclusion i n state compliance plans and for demonstrating compliance with emission reduction targets. Commenters stated that in addition to wind and solar resources, both existing and new geothermal resources should be treated as 100% renewable sources and should be available for states to include in their compliance plans. Unlike some renewable energy sources that are intermittent, commenters described their facility that174 provides a more consistent output as the compressor station is expected to operate approximately 90% of the time. Commenters stated that this type of facility/process should also be recognized by the EPA as a qualifying renewable resource and that the EPA should not assign a discount rate to either geothermal sources or heat recovery resources.

Comm enters said that the CAA explicitly envisions that states will have more flexibility to design compliance plans than EPA does in determining BSER and the resulting emission limitation. Commenters stated that while an emission limitation must be achievable through application of BSER, the standards of performance in state compliance plans need only to "reflect the degree of [the] emission limitation."(See CAA section 111(a)(1)). Commenters added that state compliance plans, therefore, need not require use of the measures the EPA proposes to determine are BSER and the use of the word "degree" further reinforces that a state need not implement the specific system of emission reduction the EPA used to set the emission limitation. Commenters concluded that so lon g as the state plan results in emissions that are consistent with the state goal, the standard is consistent with the authority granted to the states under section 111(d). Commenters added that non

- BSER measures could provide important, but relatively smal l, emission reductions.

Commenters supported allowing incremental hydroelectric power projects to provide compliance credit as these types of upgrades extend the hydroelectric power system and provide for real emission reductions. Commenters said that bec ause the estimates and accounting for this technology can vary widely among operators, the EPA should consider best practices in the states when it develops the methodology for these calculations. Commenters added that incremental hydropower is an efficien cy improvement and the EPA should consider providing states guidance on the appropriate measure life for such an upgrade.

Commenters favored the inclusion of incremental hydropower, including new construction and uprates, in the RE calculation. Commenters said that the year

- to

- year variation in hydropower generation could be accommodated by using a 3

- year average. Commenters recommended that the rule should clarify that banked generation from previous years will be counted toward a current year in Building Block 3. Commenters supported the use of RECs from 2012 to 2030 for goal compliance purposes because these RECs represent a sizable economic investment and have displaced carbon emitting generation. Commenters said that the same can be said for energy

was te reductions accomplished during the years 2012 through 2030 and continuing to provide air quality benefits in those years.

Commenters supported allowing offshore wind and wave and other marine renewable resources to provide compliance credit in the same manner as other renewable energy technologies, whether they are located in state territorial waters or federal waters. Commenters said that marine energy is an emerging renewable energy sector that offers unique benefits to coastal communities with limite d power generation options.

Commenters said that consideration should be given to a fifth building block based on moving power from a centralized power station to point of consumption with a distributed power system. Commenters stated that two

- thirds of t he energy generated by a centralized power station is consumed, moving the power from where it is generated to the user. Commenters stated the US can reduce the amount of carbon it puts in the atmosphere by supplementing centrally produced175 power with energ y produced by a distributed power system, solar, wind, and geothermal systems that serve individual homes and businesses. While this will not replace the base load produced by power plants, commenters stated, it may mitigate the need to build additional ca pacity to satisfy peak loads. Commenters added that a distributed power system has the added benefit of being resilient, because homes that would otherwise lose power when the grid is affected by an extreme weather event or other disaster may be able to pr ovide the capability of sheltering its occupants in place through that disaster, reducing the need for emergency services.

With respect to fuel cells, commenters said that the proposed rule does not indicate how fuel cell generation will be credited and r ecommended that fuel cells be treated as a renewable regardless of fuel source. Commenters stated that accordingly, fuel cells should be creditable in a state plan regardless of when installed. Commenters noted that Connecticut has limited capacity to buil d renewable generation in state, but the state has made significant investment in encouraging fuel cell generation as an economically viable option for reducing air pollutant emissions from in

state generation. Commenters stated that the EPA has indicated that it intends on treating fuel cells powered by natural gas as fossil fueled generation in the final rule, and that they believe this is an inappropriate treatment of fuel cell technology and does not properly recognize the potential for this clean techn ology to reduce CO 2 emissions from existing fossil fuel generation. Commenters stated that excluding natural gas fuel cells from the renewable energy generation definition would exclude existing units from compliance and, would not properly recognize the

c ontributions of leading states like Connecticut in advancing this technology.

Commenters applauded the EPA for providing as a compliance option an adjustment or tradable credit system for demand side resources, and added that this approach should be appli ed to all demand

- side solutions including not only RE and EE but also other forms of generation such as fuel cells and CHP. Specifically, commenters stated, the EPA should include low

- emissions distributed generation under Block 4, as these technologies re present a more efficient method of generating energy. Commenters said that the EPA should use the adjustment of CO 2 emission rate based on avoided CO 2 emissions approach using the marginal emissions rate inclusive of the avoided transmission and distributi on losses inherent in generating electricity close to loads. Consistent with industry standards, commenters said that this is the most appropriate method for crediting emissions reductions resulting from demand

- side measures as it allows for more flexibili ty and streamlined implementation than adjusting a specific EGU's emission rate based on avoided MWh. Commenters stated that if it is implemented using the appropriate marginal emissions rate representing the generation that is displaced at the margin for every MWh saved or generated on the demand

- side (and not using an average emission factor), it will provide a high degree of accuracy and consistency with existing state programs.

Comment 9 : Comments support ing inclusion of EE as a component of the BSER ; demand

- side EE programs allow states flexibility ; comments requesting t he EPA provide guidance to states on how to account for emission reductions from EE measures

.
Response 9 : In this final rule, EE is no longer considered part of the best system of emiss ion reduction. H owever, demand

- side EE may be included as a part of a state’s plan to meet the emission guidelines. T o the extent demand

- side EE measures are tied to a state plan, the176 quantified and verified MWh impacts of the measures may be used by an af fected EGU or state to adjust a CO 2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. The addition of these MWhs to the denominator of an affected source’s reported CO 2 emission rate results in a lower adjusted CO 2 emission rate. For more detail on the BSER, refer to section V of the final rule preamble of the CPP

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources used to adjust a CO 2 emission rate, including but not limited to demand

- side EE, see s ection VIII.K.1.a of the final rule preamble

.
This final rule all ows for the development and use of single

- state and multi

- state trading programs, as specified in s ection VIII.C of the final rule preamble

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

Commenters stated that because the proposed Clean Power Plan includes end

- use EE programs as components of the BSER to be implemented and enforced under section 111(d) it provides significant flexibility for state regulators to select an optimal portfolio of pollution reduction strategies t hat includes a combination of on

- site and off

- site control measures. Commenters stated it is important for EPA to preserve this flexibility while also providing sufficient guidance to state regulators on how they can account for emissions reductions from E E measures in their initial section 111(d) plans and subsequent compliance demonstrations. Commenters stated these comments highlight some of the key questions that the EPA should address when issuing the final rule and any accompanying guidance, as well a s recommendations on how EPA can develop a flexible regulatory framework that will allow states to experiment with a variety of different approaches for reducing emissions through EE

.

5.2.2 Approaches for adjusting EGU CO2 emission rates

This section discusses the basic accounting method for adjusting the reported CO 2 emission rate of an affected EGU, through the use of measures , such as energy efficiency and renewable
energy that substitute for or avoid generation from affected EGUs. That method is based on adding MWh from such measures to the denominator of an affected EGU’s reported CO 2 emission rate.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also p rovided for these topics.

Comment 1: Comments summarizing a variety of factors that impact adjusting EGU CO2 emission rates and/or have not been considered by EPA.
Response 1: In the final rule, the EPA provides a clear approach for demonstrating that renewable energy and energy efficiency project reductions are creditable. The EPA adopted the177 denominator approach, not the numerator approach recommended by the se reviewers that commented on the propose d approach

. The EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals from the one used in the proposal. Consistent with EPA’s calculation approach in the final emission guidelines, quantified and verif ied MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would d ouble count CO2 emissions impacts across the grid.

Under a rate

- based plan, the retirement of a higher

- emitting affected EGU will reduce the weighted average CO2 emission rate of the remaining fleet of affected EGUs, helping a state to achieve its rate

- based CO2 emission goal.

In the final guidelines, the EPA modified its treatment of nuclear energy. As described in s ection VIII.K.1.a.(8) of the final rule preambl e of the CPP , c onsistent with treatment of other low

- and

zero

- emitting generation, new nuclear power generating capacity installed after 2012 and incremental generation resulting from nuclear uprates after 2012 are measures eligible for adjusting a CO2 em ission rate. However, existing nuclear units (i.e., those that originally commenced operation in 2012 or earlier years) that receive operating license extensions are not eligible for use in adjusting a CO2 emission rate, except where such units receive a c apacity uprate as a result of the relicensing process. Only the incremental capacity from the uprate is eligible for use to adjust a CO2 emission rate.

In response to comments received, the EPA makes it clear what counts as a RE for purposes of Section 11 1(d) compliance in s ection VIII.K.1.a.(2) of the preamble to the final rule

. In the final rule, the EPA is not allowing shifting generation to new NGCC units to be used as a measure for adjusting CO2 emission rates for affected EGUs in rate

- based state pla ns, as described in s ection VIII.K.1.b of the final rule preamble

. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE , the timing and the eligibility requirements for resources

us ed to adjust a CO2 emission rate, including renewable resources such as wind, solar, biomass and nuclear , see s ection VIII. K.1 of the final rule preamble . The rule describes requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in s ection VIII. K.3 of the final rule preamble

. The following are summaries of the spe cific public comments under this c omment:

Commenter s supported EPA's proposal that renewable energy measures may be incorporated into a rate

- based approach through an adjustment or tradable credit system applied to an EGU's reported carbon emission rate. C ommenters also supported EPA's alternative approach to provide an adjustment based on the estimated carbon emissions that are avoided from the power pool or identified region as a result of renewable energy.178 Commenter s encouraged EPA to provide states clea r guidance on the role of biomass

- based and NGCC units before the states are required to submit state plans for approval.

Commenter s claimed that EPA has failed to provide a clear approach for demonstrating that renewable energy and energy efficient project reductions are creditable. Commenter s argued that power plants shutting down after the baseline date should have their emissions a nd energy contribution factored into the calculation of growth or reduction of carbon load and the clean power fraction.

Commenter s discussed Building Block 4 compliance calculations.

Commenter s stated that increased energy efficiency is equivalent to neg ative load growth and negative load growth is equivalent to fewer megawatt

- hours ("MWh") generated. Commenters stated that in the proposed rule's annual compliance calculation, the amount of MWh generated is in the denominator. Commenters noted that for co mpliance purposes, lowering the denominator lowers the overall emission rate level, which increases the compliance burden with the Clean Power Plan. Commenters stated that such a reality creates a disincentive to engage in aggressive energy efficiency meas ures, which is counter to the goal of reducing overall CO 2 emissions.

Commenters stated that the guidelines for compliance with energy efficiency requirements written in the proposed Rule further complicate matters, as they impose limitations regarding whe n energy efficiency can be brought onto the electric utility system. Commenters stated that compliance can be demonstrated by adjusting the CO 2 emission rate based on pounds per CO 2 or MWh (lbs/ CO 2 or lbs/ MWh) of affected generation that the new energy e fficiency displaced. Commenters stated that this brings up a concern for industry regarding how the lower emission rate or offset of affected generation is calculated and justified.

Commenters stated that EPA should simplify in the final Rule regarding how energy efficiency is accounted for in the compliance calculation so that increased energy efficiency is a benefit to the state for compliance and not a potential detriment.

Comment 2: Comment s stating that the proposal does not provide adequate detail on how compliance calculations should be determined

. Response 2: In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO2 emission performance rates and state rate

- based CO2 goals in the final emission guidelines, the MWh impacts are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE, including eligibility requirements and sample calculations, see s ection VIII. K.1 of the final rule preamble of the CPP

.179 For more information on the treatment of in

- state and out

- of

- state renewable energy and energy efficiency impacts, see section VIII. L of the final rule preamble

, Treatment of Interstate Effects. The rule describes requirements and criteria related to proper quantification and verification of MWhs from renewable electricit y generation or demand

- side EE savings in s ection VIII. K.3

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

Commenter s requested that EPA provide model compliance calculations that include all types of existing and new gener ation sources and new energy efficiencies.

Commenter s indicated a lack of clarity in EPA's calculation methodology and how a rate would be calculated for a utility that operates across state boarders. Commenters requested that EPA provide examples of the c alculation methodologies for EGUs and explain how incorporating demand

- side energy efficiency measures under a rate

- based approach impacts utilities that operate across state boarders.

5.2.2a Adjustment of CO2 emission rate based on avoided MWh

This section discusses the measures to reduce CO 2 emissions from affected EGUs by avoiding the need for generation altogether (in the case of resources that lower electricity demand through improved demand

- side EE and demand

- side management).

Commenters h ave raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comment s suggest ing that the EPA should provide more guidance on approvable emission crediting methodologies, and clarify that the avoided MWh approach is acceptable. Some commenters contend that requirements to eliminate a MWh of fossil fuel generation for each MWh of RE added or avoided generation will create reliability problems

. Respon se 1: In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO2 emission rate, regardless of whether the renewable generation o r demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO2 emission performance rates and state rate

- based CO2 goals in the final emission guidelines, the MWh impacts are added to the denominat or of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE, including eligibility req uirements and sample calculations, see s ection VIII. K.1 of the final rule preamble of the CPP

.
For more information on the treatment of in

- state and out

- of

- state renewable energy and energy efficiency impacts, see section VIII. L of the final rule preamble

, Treatment of Interstate Effects180 and Addressing Potential Leakage . The rule describes requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in s ection VIII. K.3 o f the final rule preamble

. Regarding reliability, EPA officials worked closely with DOE and Federal Energy Regulatory Commission (FERC) officials to ensure, to the greatest extent possible, that actions taken by states and affected EGUs to comply with the final rule mitigate potential electric system reliability issues. Senior EPA officials met with each of the FERC Commissioners and EPA staff had frequent contact with FERC staff throughout the development the rule. FERC held four technical conferences to d iscuss implications of compliance approaches to the rule for electric reliability. EPA staff attended the four conferences and EPA leadership spoke at all of them. The EPA, DOE, and FERC will continue to work together to ensure electric grid reliability in the development and implementation of state plans. For more information about reliability considerations, see s ection II.D of the final rule preamble and for more detail about EPA consultations about reliability, see s ection II.K.

The following are summa ries of the specific public comments under this c omment:

Commenter s stated that The Clean Power Plan should provide more guidance on approvable emission crediting methodologies, and should make clear that the avoided MWh approach is acceptable. Commenters added that, in order to provide certainty to states and to the advanced energy industry, EPA should provide clearer guidance in its final Clean Power Plan as to which accounting methods will be acceptable. Commenters also asked if EPA would leave it to th e states to choose among these methods, and if the Clean Power Plan would include only a limited set of approvable methods rather than all methods identified in the Proposed Rule. Commenters recommended that EPA should not wait until the plan approval proc ess to signal what methods
states can use.

Commenter s noted that the electric grid is supplied by a wide variety of generating sources such as coal

- fired EGUs, natural gas

- fired EGUs and CCTs, nuclear, renewable energy (including hydro and pumped storage), and other generation (waste gases, petroleum, and storage). Commenters then asked what the procedure would be to estimate the avoided emissions for the credit. Commenters added that, since the avoided power consumption could come from any one of the sourc es of generation, how would they identify the source of the electrons that provide the electric energy avoided by an energy efficiency project? Commenters further posed the question on whether EPA's intent was to allow states to count any type of non

- emitt ing MWh toward compliance, and also how to account for new low

- emitting MWh (i.e., fossil with CCS). Finally,

c ommenters asked for clarification on whether it is necessary for a state to provide some type of policy support for EE, RE, and nuclear power to be able to count associated MWh toward compliance with rate goals, or is the determination regarding which MWh count based entirely on technology type and possibly start date.

Commenter s argued that requirements for states to eliminate a MWh of fossil fuel generation for each MWh of renewable energy added or each MWh of generation avoided through energy efficiency would make the current unattainable targets even more stringent, and would create insurmountable reliability problems. Commenters noted in partic ular potential problems from181 cutting off baseload generation for intermittent renewable generation in situations where the renewable generation is not being facilitated (i.e., wind fails to blow or sun does not shine).

Comment 2: Comment s u rg ing the EPA to use the avoided MWh approach for zero

- carbon generation and energy efficiency measures, consistent with target calculation methodology for Building Blocks 3 and 4. Comments also suggest ing that emission crediting for avoided emissions should be based up on the marginal generating resource

. Response 2: In the final rule, the EPA adopted the denominator approach, not the numerator approach recommended by the se reviewers that commented on the proposed approach

. The EPA revised the methodology used to calculate CO 2 emission performance rates and state rate

- based CO 2 goals from the one used in the proposal. Consistent with the EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impa cts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO 2 emissions impacts across the grid.

The EPA agrees that tools for estimating the timing of EE savings or RE production are well

demonstrated and reliable ; they add further layers of complexity to the avoided CO2 approach. As indicated above, however, t he EPA has adopted in the final rule the denominator or MWh approach instead of the avoided CO2 approach. The EPA does not require a projection of CO 2 emission performance for all state plan approaches. For those that do require a projection, the EPA does not require that states use dispatch modeling but calls for the use of technically sound methods that are reliable and replicable. The EPA addresses what types of state plan approaches require a projection and requirements related to methods and tools in s ection VIII.D.2.a.(3) of the final rule preamble of the CPP

. Because of the separate accounting of MWhs and CO 2 emissions, with emission impacts inherent in reported stack CO 2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the acco unting method corresponds with the use of MWh

denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and thus credits or adjustments can be denominated in MWh and do not need to represent an approximation of the CO 2 emission reductions that result from those MWhs.

For more information about specific methods to adjust the CO 2 emission rate of an a ffected EGU to reflect RE and demand

- side EE and the eligibility requirements for resources used to adjust a CO 2 emission rate, including biomass, see s ection VIII. K.1 of the final rule preamble

. Requirements for rate

- based emission trading programs and th e issuance and tracking of ERCs in
rate

- based emission trading programs is addressed in detail in section VIII. K.2 of the final rule preamble . The rule describes requirements and criteria related to proper quantification and verification of MWhs from renew able electricity generation or demand

- side EE savings in

s ection VIII. K.3 of the final rule preamble

.182 The following are summaries of the specific public comments under this comment :
Commenters urged EPA to use the avoided MWh approach for zero

- carbon generation and energy efficiency measures. Commenter s stated that this approach can be with the greatest certainty and at the least cost, and is most likely to provide an acceptable level of emission reduction accuracy. Commenter s added that this approach is the easier of the two possible approaches. Commenters also noted that this approach is consistent with the Proposed Rule's methodology for the calculation of BSER for Building Blocks 3 and 4. Commenters further stated that it would be inconsistent for E PA to find that method an acceptable means of estimating emission reduction from zero

- carbon generation and energy savings for the purpose of calculating state targets but not for the purpose of determining compliance with those targets.

Commenter s recomm ended the final rule incorporate an emissions reduction crediting framework resulting from energy efficiency measure savings. Commenters further suggested that each state would use the value based upon the marginal generating resource, since marginal

resou rce emissions reduction credit would reflect inter

- regional generation and transmission inter

- dependence and fully recognize the value of energy efficiency across the region. Commenters stated that this approach would also create a market based mechanism t hat states could use to meet their targets. In a similar fashion, commenter s recommended that EPA always consider avoided emissions based upon the system's marginal emission rate. Commenters further stated that such an approach would produce an estimate of the emissions reductions that actually occur from the marginal plants that reduce output.

Commenter s supported the avoided MWh approach as preferable for the following reasons, 1) the approach is consistent with how EPA calculated the targets for both Blo cks 3 and 4 resulting in greater certainty about how to incorporate RE and EE into the state plans; 2) switching to a different methodology might mean that a States RPS might not have the impact EPA anticipated based on the state's emission rate; 3) the av oided MWh approach allows states to predict with more certainty the impact of their RE and EE measures on their plan performance demonstration; 4) using the avoided CO 2 approach requires a calculation of the CO 2 emissions avoided by each MWh generated from a renewable resources and while the accuracy of these methodologies increases with their complexity and resources to execute them, for longer time horizons (as those in the CPP) which require states to forecast power systems dynamics 14 years out, the act ual EGUs displaced and tons of CO 2 avoided may differ significantly. In contrast the avoided MWh approach allows states to implement a policy designed to bring about a certain level of renewable energy generation and if that policy works properly, the stat e will be on track to meet its goals; 5) the use of an avoided MWh approach will be more transparent to the public and to EPA. If system dispatch and capacity planning models are used , stakeholders seeking to review the plan or assess the state's complian ce will have to procure expensive licenses to work with the models; 6) the avoided MWh approach would be less expensive and complicated for state agencies to implement; and 7) while accounting for actual CO 2 reductions attributable to specific EE and RE

me asures would be helpful, it is not necessary to satisfy the quantifiable requirement for emission standards under section 111(d), quantification of MWhs and treatment of those MWhs

as zero

- carbon generation as part of an overall system will satisfy the sec tion 111(d) conditions.

Commenter s also noted that while EPA proposed a range of methodologies for estimating avoided CO 2 , the ten year compliance period, combined with a four year gap between state plan183 development and beginning of the compliance period, will require capacity expansion modeling in addition to system dispatch. Commenters stated t his requirement will greatly increase the expertise and resources needed to develop the state plans and result in difficulties for stakeholders and EPA staff in rev iewing the proprietary model inputs and outputs. Commenters
note d that were EPA to require states to use dispatch modeling to forecast emission reductions, a barrier to estimating avoided CO 2 from renewable energy is the need for information on the day and time the renewable energy was generated or the MWh was saved. Commenters stated that

e xisting REC tracking systems do not maintain information on the day and time that an RE megawatt hour wa s generated. Commenters stated that l ikewise, most EE program administrators do not gather information on when a particular RE measure is actually saving energy on the system, though estimates can be developed based on the type of EE measure. Commenters no te d that while tools for estimating the timing of EE savings or RE production are well

- demonstrated and reliable, they add further layers of complexity to the avoided CO 2 approach. Commenters stated that i n contrast, most state RE and EE targets are either already designed around MWh targets or are based on percentage of load, which can be readily converted to MWhs. Commenters stated i n most states, the officials implementing these programs have limited experience or a lack of tools to convert MWh savings t o avoided CO 2 emissions.

Commenter s note d some advantages of the avoided CO 2 approach, including 1) it is fundamentally more accurate in calculating how much CO 2 is being reduced through RE and EE measures; and 2) under the avoided CO 2 approach, not every MWh of RE and EE is equivalent as those that displace higher emitting affected EGUs would be more valuable and there would be an incentive for states and compliance entities to design RE and EE measures that achieved the greatest reductions in carbon emiss ions so applying the avoided CO 2 method would help generate better information about which RE and EE measures are most effectiv e at reducing carbon emissions.

Comment 3: Commen t s suggest ing that s tates develop and manage verifiable energy efficiency tracking and crediting systems

. Response 3: In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust

a CO2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

emitting resources across the regional grid. Further adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts a cross the grid. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE,

see s ection VIII. K.1 of the final rule preamble

.184 In the final rule, the EPA does require tracking systems for emission rate credits, which can be issued for demand

- side energy efficiency and other measures. R equirements related to the issuance and tracking of ERCs are described in VIII.K.2 of the final rule preamble

. Cr iteria related to proper quantification and v erification of MWhs from renewable electricity generation or demand

- side EE savings in s ection VIII. K.3

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

Commenter s argued that states that choose to demonstrate compliance with rate

- based goals must develop and manage verifiable energy efficiency tracking and crediting systems that are reliable for compliance determinations. Commenters wanted verifiable demand reducti ons to be credited and added to the total MWh sales used in th e CO2 lb/MWh compliance calculation but is opposed to assigning a system average carbon dioxide emission reduction to the avoided MWh since it is unwarranted and will result in double counting

.

5.2.2b Adjustment of CO 2 emission rate based on avoided CO 2 emissions

This section discusses measures used to reduce CO 2 emissions by substituting zero

- or low

emitting generation for generation from affected EGUs.

Commenters have raised a number of issue s related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments suggest ing different approaches (i.e., marginal or average emission rates) for states making administrative adjustments to the average carbon emission rate of affected EGUs and discussing the extent state plans would need to address out

- of

- state emission reductions from energy efficiency measures

. Response 1: In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2

. The EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals from the one used in the proposal. Consistent with the EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions already reflect the actual emission reductions from the deployment of qualifying non

- emi tting and low

- emitting resources across the regional grid. An adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid. For mor e information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and how it ensures consistency with goal

setting calculations, see s ection VIII. K.1 of the final rule preamble of the CPP.185 The followi ng are summaries of the specific public comments under this c omment:

Commenter s supported allowing quantified and verified renewable energy generation to be credited toward a demonstrated carbon emission rate for EGU compliance purposes or used by the state to administratively adjust the average carbon emission rate of affected E GUs. Commenters believed that the credit should be determined based on the MWh saved or generated and then multiplied by a carbon emission rate for the power pool or region, and that the carbon emission rate should be based on the average or marginal emission rate in the power pool. Commenters further stated that EGUs should be able to comply with a carbon emission rate limit in part through the use of credits, and if a state is implementing a portfolio approach, then the state should administratively adjust th e average carbon emission rate of affected EGUs through a similar process, provided that the carbon

- avoiding measures are enforceable elements of the state plan.

Commenter s encouraged EPA to adopt an adjustment of CO 2 emission rate based on avoided CO 2 emi ssions. Further, c ommenters urged EPA to consider a requirement for reporting of hourly energy efficiency savings to improve the estimation of avoided CO 2 , although

c ommenters noted that this is currently not practiced in most states. Commenters stated tha t the assumption of dispatch of all EGUs being reduced uniformly under the average emission rate approach is not what actually happens, and therefore, calculation of avoided CO 2 being used in the determination of state compliance should identify savings on an hourly and unit specific basis in order to accurately calculate avoided CO 2 emissions from energy efficiency.

Commenter s requested clarification on the extent state plans would need to address how energy efficiency measures affect out

- of

- state emission reductions in order to take credit for CO 2 emission reductions. C ommenter s also asked to what degree the energy efficiency or renewable energy measure avoids new fossil fuel generation capacity and affects transmission or other system planning in order to take credit for CO 2 emission reductions.

Comment 2: Comment s stat ing that a voided emissions must equal avoided emissions at affected EGUs specifically.

Response 2: In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2 so avoided CO2 calculations are not necessary. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE, see s ection VIII. K.1 of the final rule preamble of the CPP

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

Commenter s argued that if avoided emissions are used they must be calculated to represent affected EGUs only instead of a system

- wide a voided emissions value.186 5.2.2c Adjustment based on the rate

- based emission limit in the state plan

No comments in this section.

5.2.2d Other considerations

This section discusses other issues with adjusting CO 2 emissions that states may seek to include in their state plans to meet the emission guidelines. The comments in this section address the use of alternative compliance payments as a compliance tool, enforceable measures in a state plan for the state to rec eive credit under a rate

- based approach, the risk of double counting CO 2 emission reductions, and potential emissions reductions at non

- affected units under the rule.

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

Comment 1 : Comments suggest ing that alternative compliance payments need to be accounted for and are either supported or opposed as a compliance tool

. Response 1: In the final rule, only quantified and verified MWh impacts of qualifying zero

emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO2 emission rate, adding the MWhs to the denominator of an affected EGU’s reported CO2 emission rate. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE, see s ection VIII. K.1 of the final rule preamble of the CPP

. Requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings are described in s ection VIII. K.3 of the final rule preamble

. The following are summaries of the specific pu blic comments under this c omment:

Commenter s stated that EPA has not clearly indicated how alternative compliance payments (ACPs) will be accounted for and whether states will be allowed to use such payments to demonstrate compliance. Commenters stated th ey prefer that EPA minimize costs to electrical consumers by permitting ACPs under state programs to partially or fully offset compliance obligations. C ommenter s noted that there may need to be some consideration of whether a state should get credit for me eting CCPs goals from a contribution to a renewable goal and also to a demand

- side EE goal as the same dollar is being used for both.

Commenter s opposed using alternative compliance payments (ACPs) as a compliance tool. Commenters noted that, although these ACP payments may be directed to programs to promote the deployment of renewable energy technologies, these payments are not equivalent to renewable energy generation and should not be counted as such in state plans.187 Comment 2 : Comments questioning the e xtent of including enforceable measures in a state plan to qualify for credit under a rate

- based approach and if it is acceptable for the state to not require specific and achievable energy efficiency or renewable energy amounts

. Response 2: The types of measures a state can use depend on the approach the state chooses, as described in Section VIII.C. In the final rule, quantified and verified MWh impacts of qualifying

zero

- emitting and low

- emitting resources tied to a state plan

, such as RE or demand

- side EE, may be used by an affected EGU or state to adjust a CO2 emission rate, regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. The MWh impacts are added to the denomina tor of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and eligibility requirem ents for resources used to adjust a CO2 emission rate, see s ection VIII. K.1 of the final rule preamble of the CPP

. Requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE s avings are described in s ection VIII. K.3 of the final rule preamble

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

Commenter s posed various questions regarding the extent of including enforceable measures in a state plan for the state to receive credit under a rate

- based approach. Commenters presented a scenario where a state has codified EM&V requirements for verifying generati on from RE or avoided generation from EE in its plan and methods of determining the amount of credit, but does not require specific energy efficiency or renewable energy amounts to be achieved. Commenters stated that i nstead, these provisions are included as a compliance option so EGUs or other entities can generate credits if they choose to do so. Commenters asked if this scenario would meet the enforceability requirements of the rule for these types of measures to be creditable. Commenters further noted t hat if this approach was allowed, states may not be able to predict future CO 2 emissions, but would only be able to predict the average adjusted rate for EGUs, which could be based on the use of EE/RE credits. Therefore, c ommenters also asked whether the p rediction of the average adjusted rate for affected EGUs, which could include the use of EE/RE credits, would satisfy the emission performance projection requirements of the proposed rule.

Commenter s stated that as long as renewable energy is supplied to a n electricity distribution system, it is displacing fossil

- fired generation and the resulting avoided CO 2 emissions from affected EGUs should be creditable under the rule. Commenters suggested crediting all renewable energy to a system which is supplied by one or more affected EGUs if a state has appropriate evaluation measurement and verification (EM&V) measures incorporated into its plan along with codified methods for quantifying the amount of credit to be given.

Comment 3: Comments arguing that d ouble

- counting is possible when an Independently Owned Utility's (IOU) sales include those resold to municipalities and cooperatives188 Response 3: The EPA agrees that it is necessary to minimize or avoid the risk of double counting. In the final rule, under a rate

- based plan, there needs to be an explicit adjustment of reported CO2 emission rates from affected EGUs, to reflect the measures that substitute low

- or

zero

- emitting generation or energy savings for affected EGU generation. Under all types of state plans, states must ensure that the measures and associated CO2 emission reductions counted as part of meeting their plan requirements are not duplicative of any measures that are counted by another state. States with rate

- based plans must demonstrate that the RE and demand

- side EE MWhs that they use to adjust their CO2 emission rate are non

- duplicative and meet specific requirements related to quantification and verification as described in s ection VIII. K.3 of the final rule preamble of the CPP

. More details about the accounting approach for adjusting the CO2 emission rate of an affected EGU is detailed in section s VIII. I.2 and VIII.K.1 of the final rule preamble

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

Com menter s stated that sales from Independently Owned Utilities (IOU) include sales to other entities for resale. Commenters also stated that this could result in double counting due to resale to municipalities and cooperatives. Commenters then asked how this reselling would impact state compliance especially in states where the public utility commission lacks jurisdiction over retail sales of municipalities and co

- ops

.

Comment 4: Comments concerning a lack of credit towards CO2 rate reduc tions for non

affected units under the rule

. Response 4: The MWh accounting method adopted in the final rule allows for a wide range of measures that may be used to adjust a CO2 performance rate. While the CO2 emission reductions from the eligible measures may occur across the region, an affected EGU or a state may only take credit for the avoided CO2 emissions at that affected EGU or set of affected EGUs as reflected in their reported stack CO2 emissions. Thro ugh an adjustment to the denominator of a reported CO2 emission rate, however, affected EGUs can take full credit for the zero

- emitting MWhs resulting from eligible measures that they are responsible for deploying, no matter where the eligible measures may occur across the region. For more information about adju s tments to CO2 emission rates in rate

- based plans, including the approach and description of eligible measures, see section VII. K.1 of the final rule preamble of the CPP

. During the interim and compl iance periods, affected EGUs will have the opportunity to adapt their investments over time to ensure that they meet the emission guidelines

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

Commenter s noted that EPA states that emissions reductions will potentially occur at peaking and new EGUs which are non

- affected units under the rule. Commenters stated that n ew units may impact which marginal EGUs go online/offline differently than were forecasted and this may impact the state's ability to meet its expected reductions. Commenters were concerned that189 states will be investing resources in emission reductions from these two building blocks and get very little credit toward CO 2 reductions at affected un its.

5.2.3 Methods and tools for quantifying avoided CO 2 emissions from end

- use energy efficiency and renewable energy

This section discusses the methods and tools for accounting and adjusting the CO2 emission rate from low or zero

- emitting resources. The comments in this section address interstate impacts on emission reductions, specific methods to adjust the CO2 emission rate that can be used during both the compliance plan development and approval p hase, eligibility dates for MWh generation and savings and for installation of RE/EE, and eligibility requirements for resources used to adjust a CO2 emission rate

.

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

.

Comment 1 : Comments suggest ing to us e the EPA's AVERT and other tools for accounting for emissions from low or zero

- emitting resources for evaluating state plans or during the compliance time period. Commenters also suggest that the EPA include a framework for monitoring, reporting and recordkeeping in the rule

. Response 1 : In the final rule, the EPA allows for the adjustment of a CO 2 emission rate based on avoided MWhs, not avoided CO 2 so avoided CO 2 calculations are not necessary. To the extent RE generation and demand

- side EE measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, see s ection VIII. K.1 of the final rule preamble of the CPP

. The final rule provides information about approaches states can use when projecting the emission performance of their plan, when applicable, in s ection VIII.D.2.a.(3) of the final rule preamble

. In response to comments about state policy and analytic needs, the EPA, in consultation with U.S. DOE and other federal agencies, continued to refine its toolbox of decision support resources at: http://www2.epa.gov/ www2.epa.gov/cleanpowe rplantoolbox. The site includes information on regulatory requirements, including state plan guidance and state plan decision support. The state plan guidance section serves as a central repository for the final emission guidelines, RIA, guidance documents , TSDs and other supporting materials. The state plan decision support section includes information to help states evaluate different approaches and measures they might consider as they initiate plan development. This section includes, for190 example, a summa ry of existing state climate and RE and demand

- side EE policies and programs, information on electric utility actions that reduce CO 2 , and tools and information to estimate the emissions impact of RE and demand

- side EE programs, including the AVERT model. For more information about Resources for States to Consider in Developing Plans, see

s ection VIII.H of the final rule preamble of the CPP

. The final guidelines establish and describe monitoring, reporting and recordkeeping requirements for affected EGUs, state reporting and recordkeeping requirements and public participation on the state plan in s ection VIII.D.2.a of the final rule prea mble

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

Commenter s presented suggestions for accounting for emissions from low or zero

- emitting

resources. Commenters observed that accounting measures will be necessary during b oth the compliance plan development and approval phase and the compliance demonstration phase to ensure that the full emissions reductions associated with use of these resources are credited back to the entity making the investment, and that these measures will be needed under either a rate

based or a mass

- based system, and for all zero

- and low

- emitting resources. Commenters recommended that EPA should allow the use of a simpler but less precise accounting method during the plan development and approval ph ase, out of recognition of the fact that it is impossible to predict with any certainty how fuel prices, generator additions and retirements, and other factors affecting generator commitment and dispatch will change in the future. Commenters added that thi s could include allowing states to simply credit generation from a

non

- emitting resource at the state or regional average fossil emissions rate. Commenters also added that more sophisticated but easily implementable approaches, such as EPA's AVERT tool,

co uld also be well suited for these calculations.

Commenter s suggested that EPA could assist states by providing region

- wide quantifications of the emissions reductions produced by non

- emitting resources for the purposes of developing and evaluating state pl ans. Commenters added that, by jointly assessing state plan and/or using regional modeling, EPA can avoid problems whereby the emissions reductions produced by one state's compliance action will change due to power system changes caused by another state's compliance action.

Commenter s stated that, for the compliance time period, more precise accounting methods can be used than those used for state plan development. Commenters noted that EPA's AVERT tool is accompanied by annual updates to the underlying dataset that statistically determines which power plants had their output reduced by the addition of non

- emitting resources, so this updated data can be used during the complia nce timeframe. Commenters also noted that other approaches for a marginal emissions calculation or power system modeling can also be made more precise and accurate during the compliance timeframe by incorporating empirical data on fuel prices and other fac tors affecting actual dispatch patterns.

Commenter s generally noted that, as state air regulatory agencies generally have no experience with renewable energy or energy efficiency or their enforcement, it would seem very important for Subpart UUUU to provid e a framework for monitoring, reporting, and recordkeeping of these affected entities.191 Commenter s recommended that EPA develop an EE program toolkit to support cross

- state comparability and greater harmonization of EE approaches across jurisdictions. Comme nters stated a three organization group (NACAA, NARUC, and NASEO) have urged EPA to 1) support inclusion of EE programs in state plans, 2) issue guidance providing criteria and methodologies for development of acceptable state efficiency programs, 3) provi de examples of approvable efficiency strategies, and 4) support multi

- state programs. Commenters stated this approach would benefit appliance replacement and recycling programs. Commenters requested that EPA develop a set of standardized and validated ERG protocols supported by key stakeholders and EPA/DOE. Commenters stated t he protocols would not be mandatory but would represent a tool kit that states and utilities could incorporate into their 111(d) implementation plans. Commenters stated s uch a tool kit will reduce burdens on state resources, improve the likelihood that PUCs will approve the programs, that EPA will accept state plans, and ensure documented reductions for state taking credit in meeting the target goals. Commenters recommend ed that DOE con vene a working group of key stakeholders and provided a key elements piece and methodology in the comment appendix as a starting point for developing a model protocol for linked replacement/recycling rebate programs.

Commenter s recommended that EPA develop a projection tool that supports the states in analyzing complicated options under the rule and demonstrates that a proposed plan will meet the performance level over the 10

- year projection period. Commenters argued that the tool should be at the national level to accommodate the impact of multi

- state trading and interstate RE purchasing and to project changes to dispatching. Commenters also argued that the tool must be robust and accurate to project emissions under various compliance scenarios to within 10 % of actual emissions.

Commenter s requested that EPA provide further guidance under a range of plausible scenarios on how states should treat emission reductions from EE measures that they pay for but some or all of the emission reductions of the power gr id are modeled to occur in a different state and a scenario where both the generating state and buying state might try to claim the CO 2 emissions reductions and renewable energy credit.

Commenter s expressed concern with EPA's proposed RE and EE framework since several of the options proposed require an analysis that will be administratively burdensome and could result in regulatory uncertainty if the amount of credit is unknown for a new renewable energy project or discourage the use of energy efficiency a s a compliance option.

Commenter s supported EPA's general principle of flexibility for states to design state

- wide compliance strategies and wants states to be permitted to take full life cycle credit for emissions reductions resulting from energy efficien cy measures implemented. Commenters noted concern with states only receiving credit for EE savings that can be traced back to reduction in demand at an in

- state fossil fuel generating unit since it will limit the value of EE as a cost

- effective compliance tool.

Comment 2 : Comments asking how far into the future should activities be expected to generate emission reductions in a state plan

.192 Response 2 : The lifetime of efficiency measures can vary by measure. The final rule specifies information states needs to document in their plan

, including the underlying measure

- related assumptions when demonstrating that the emission standards and/or measures contained in a plan are projected to achieve the CO2 emission performance rates or state CO2 emission goal. For more information, see s ection VIII.D. 2.a.(3) of the final rule preamble of the CPP

. Section VIII.K.1.a.(2) of the final rule preamble clarifies the eligibility dates under a rate

- based plan for MWh generation and savings and for installation of RE/EE and o ther measures. Specific requirements related to quantification and verification during the compliance period are described in s ection VIII. K.3 of the final rule preamble

. The final rule clarifies consideration of a facility’s " remainin g useful life " in s ection VIII.G .1 of the preamble

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

Commenter s posed questions concerning how far into the future EPA expects activities to generate reductions in a state plan. Commenters observ ed that EPA indicated that energy efficiency measures reduce emissions for 10 years, but were unclear on how long EPA would expect other types of activities to generate reductions. Commenters asked whether a unit retirement in 2015 would reduce emissions d uring the interim plan period. Another question posed by the commenter s is how far activities or measures undertaken before 2019 would count for compliance, and whether this depended on the remaining useful life of a unit (and, if so, who would make this determination).

Comment 3 : Comments suggesting the EPA modify the rule to simplify the RE and EE building blocks to alleviate emissions tracking and multi

- state issues by basing RE and EE reductions on a percentage of sales

. Response 3 : In the final rule, to the extent RE generation and demand

- side EE measures are tied to a state plan, the MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation or demand

- si de EE savings occur inside or outside the state or territory. This ensures that the affected EGUs are recognized for their RE generation and demand

- side EE investments regardless of the location of the CO 2 reduction. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to th e MWhs, would double count CO2 emissions impacts across the grid. This removes the need to track the specific location of RE generation or electricity savings by states or quantify the avoided CO 2 emissions through separate analysis using a tool like AVERT , as suggested by the commenter below

. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, including specific geographic eligibility requirements and limitations, see s ection VIII. K.1 of the final rule preamble of the CPP

. Because of the separate accounting of MWhs and CO2 emissions, with emission impacts inherent in reported stack CO2 emissions and zero

- emitting MWh impacts requiring explicit adjustments, the accounting metho d corresponds with the use of MWh

- denominated Emission193 Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and thus credits or adjustments can be denominated in MWh and do not need to represent an approximation of the CO2 emission reductions that result from those MWhs. This creates a crediting system or rate adjustment process that is simpler to implement than on e that requires an approximation of avoided CO2 emissions.

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

Commenter s urged EPA to modify the rule to simplify the RE and EE building blocks to alleviate emissions tracking and multi

- state issues by basing RE and EE reductions on a percentage of sales. Commenters stated t his approach inherently accounts for the impact of importing and exporting of electricity and states share the burden on a cost/use basis. Commenters stated that t racking the location of avoided generation whole not be required on a rigorous basis and RE generation and EE avoided generation could maintain the same EM&V and reporting to ensure the energy savings actually occur. Commenters stated t his approach

w ould make the cost to reduce CO 2 from EE fair to all states regardless of whether they are importing or exporting and allow CO 2 reductions at both peaking and base EGUs to be counted. Commenters stated t his approach simplifies calculating BSER goals for ea ch state and would not require complex negotiations between states to account for importing/exporting and avoided generation.

Commenters stated AVERT modeling should be sufficient to estimate the quantity of CO 2 reduced for the whole country and this redu ction would be allocated to each state based on the amount of MWhs avoided. Commenters stated t he participating state's CO 2 emission rate would then be given a credit.

Commenters also proposed a second approach to allocating avoided generation by EPA runni ng IPM each year to determine the amount of avoided emissions occurring at states which are going beyond the requirement. Commenters stated t his rule would be applied to the state's CO 2 emission rate , and that o ut of state reductions that occur at non

- part icipating states could be bought for credit by these states.

Commenters opposed allocating avoided emissions to a particular EGU or group of EGUs since it is complicated and has unknown accuracy levels. Commenters were concerned that using AVERT at this le vel penalizes importing states and rate payers are paying for emissions reductions that happen out of state and cannot take credit on their state plans for the reductions.

Comment 4 : Comments suggest ing that the EPA require states to conduct a comprehensive energy assessment.
Response 4 : The final rule requires that states demonstrate in a state measures plan, and in some circumstances under an emissions standards approach, that the emission standards and/or measures contained in a plan are proj ected to achieve the CO2 emission performance rates and/ or state CO2 emission goal. While the final rule is not requiring a specific type of emission194 quantification approach or model, it requires the states to choose technically sound methods that establish a clear relationship between electricity grid interactions of the s tate enforceable measures, affected EGU dispatch, generation cost and operations within the time frame outlined in the final guidelines. For more information about when projections are required and the related requirements , see s ection VIII.D.2. a.(3) of th e final rule preamble of the CPP

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

Commenter s requested that EPA require states to conduct a comprehensive energy assessment encouraging states to maximize the "least cost option" in their low

- carbon energy portfolios going forward. Commenters stated that EPA should assist states in understanding the true costs and benefits of energy development and encourage them to participate in regional compliance models such as renewable energy credits (RECs) trading

.

C omment 5 : Comments suggest ing clarification on Energy Savings Performance Contract (ESPC) proj ect

- related emission reductions and that that all avoided electricity consumption from ESPC projects should be allowed to count toward CPP compliance

.
Response 5 : To the extent demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts may be used to adjust a CO2 emission rate, provided they meet the eligibility requirements for resources used to adjust a CO2 emission rate, described in s ection VIII. K.1 of the final rule preamble of the CPP , the eligibility requirements and provisions related to demand

- side EE programs and projects and the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings are described in s ectio n VIII. K.3.

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

Commenter s stated that the EPA should clarify that Energy Savings Performance Contract (ESPC) project

- related emission reductions will be treated the same way as reductions achieved through utility ratepayer program EE activities.

Regarding contributions to future avoided emissions, c ommenters stated that all avoided electricity consumption from ESPC projects should be allowed to count toward CPP compliance. Commenters noted that some have argued that building EE improves at a steady rate due to normal replacement o f equipment, thus a discount rate should apply to building EE projects, but they believe that such assumptions are not necessarily sound. Commenters stated that r egardless of how EPA considers this issue, EPA should apply the same approach to measuring EE contributions from ESPC projects as for ratepayer

- funded programs.195 5.2.3a Average emission rate approach

This section discusses the average emission rate approach to quantify and allocate emission reductions, including avoided CO 2 calculations using emiss ion rates.

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

Comment 1: Comments o ppos ing the average emission rate approach

. Response 1: In the final rule, the EPA is not requiring the use of an average emission rate approach to quantify and allocate emissions reductions. The final rule adopted the MWh denominator approach, not the numerator approach which might have involve d the calculation o f emission reductions using an average emission rate that commenters oppose below

. Between the proposal and the final rule, the EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals to better reflect the regional operation of the electricity grid . Consistent with EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the d enominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid and is not appropriate. For more informati on about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and how the methods ensures consistency with the goal setting calculations in the final rule, see

s ection VIII.K.1 of the final rule preamble of t he CPP

. The following are summaries of the specific public comments under this c omment:
Commenters opposed EPA's average emission rate approach to quantify and allocate emission reductions.

Commenter s argued that this method oversimplifies electricity dispatching, where importing states may not see in

- state generation displacement, and could double count emissions reductions. Commenters noted that there is no mechanism to ensure the reductions are not being double counted.

Commenter s requested that the provisions be based on the marginal CO2 emission rate in the regional transmission area and not on the average CO2 emission rate.

Commenter s restated EPA's options and noted that use of a weighted average emission rate goal using each state's emission rate goal from the guidelines is consistent with the method used to calculate the state

- specific, rate

- based emission performance goals, but does not address that a weighted average emission rate performance goal for multiple states may be influenced196 significantly by the weighting of electricity generation from affected EGUs in different states. Commenters presented a sample calculation using 2012 generation data from affected units for the states of Ohio, Pen nsylvania, and New York. Commenters stated t he regional goal from this calculation is almost double New York's individual state goal and stated t his is partially due to New York's generation mix. Commenters argue d that a weighted average goal for a group o f states is only appropriate when source

- specific goals are set for each state. Commenters stated
t he weighted average approach will disproportionately impact those state that provide power to New York while affording New York the opportunity to reach much of its state goal via RECs or similar mechanisms. Commenters noted that a more sophisticated methodology should be developed that accounts for the generation mix of each state and the importer/exporter status of each state.

Commenter s also opposed EPA's s econd option where projected generation is used instead of a generation from a certain year. Commenters stated t his approach helps alleviate discrepancies based on differing generation mixes amongst a group of states but opposes its use in setting federall y enforceable targets. Commenters stated a ny potential and unforeseen difficulties arising from inaccurate projection would only be magnified when applied to a group of states.

5.2.3b Marginal emission rate approach

This section discusses establishing ma rginal emission rate factors.

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

Comment 1: Comment s regarding the difficulties in establishing marginal emission rate factors for RE and EE because a state would need to know what resource was at the margin at the time the renewable energy or energy efficiency was created

. Response 1: : In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2 so avoided CO2 calculations using emission rates are not
necessary. For more information about specific methods to adjust the CO2 emission ra te of an affected EGU to reflect RE and demand

- side EE and how the methods ensures consistency with the goal setting calculations in the final rule, see s ection VIII. K.1 of the final rule preamble of the CPP

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

Commenter s urged EPA not to assign a CO2 value to renewable energy and energy efficiency measures in order to re

- assess building blocks 3 and 4. In their supporting discussion,

c ommenters stated that, to appropriately as sign a CO2 value to RE and EE, a state would need to know what resource was at the margin at the time (which involves hour to hour variations) the renewable energy or energy efficiency was created, or EPA would have to come up with some197 marginal emissions factor. Commenters further stated that very few studies exist on marginal emission factors in the US, and EPA would likely have to conduct foundational research into this
matter. As a result, c ommenters concluded, EPA should treat renewable energy and ener gy efficiency as originally proposed.

Commenter s reiterated EPA's discussion on the complications inherent in adjusting the emission rate due to the need to determine which EGU's emissions are reduced for each MWh avoided by RE and EE (i.e., the marginal i mpact of RE and EE). Commenters stated t he complications in accounting for the impacts of RE and EE may discourage states from pursuing innovative demand

- side EE programs that alter consumer and building occupant behavior. Commenters said that s tates may a lso be discouraged by additional paperwork to develop new protocols for quantification, monitoring, and verification to incorporate savings into the states emission rate calculations.

Comment 2: Comment s suggesting that s tates be allowed to assign an energy efficiency emission reduction value equal to the emission rate of the power pools' marginal resources

. Response 2: In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2 so avoided CO2 calc ulations using emission rates are not
necessary. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and how the methods ensures consistency with the goal setting calculations in the final rule, see S ection VIII. K.1 of the final rule preamble of the CPP

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

Commenter s suggested that EPA should allow each state to assign an energy efficiency emission reduction value equal to the emission rate of the power pools' marginal resources. Commenters also stated that EPA should include a crediting framework for emission reductions resulting from energy efficiency measures in the final rule that allows each state within the power pool to use a rate reduction value based on the resource mix serving that power pool at the m argin. Commenters further suggested that each state should be allowed to use the marginal hourly emissions rate (averaged over a year) from its power pool when assigning an emission reduction value to energy efficiency.

Commenter s sugge sted that if states opt for an emission rate standard, clean energy solutions should be credited on the basis of projected marginal emissions reduced (for example, through dispatch modeling or use of AVERT).

Comment 3: Comment s supporting the use of a marginal emission rate for purposes of rate

based compliance plans with avoided emissions resulting from EE and RE

.198 Response 3: In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2 so avoided CO2 calculations using emission rates are not
necessary. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and how the methods ensures consistency with the goal setti ng calculations in the final rule, see s ection VIII.K.1 of the final rule preamble of the CPP

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

Commenter s recommended that EPA credit avoided emissions using the appropriate RTO marginal emission rate because incremental EE and RE have historically avoided generation from the marginal EGU. Commenters stated u se of an average RTO emission rate is inappropriate because incremental RE and EE often reduce the rate of demand growth rather than displacing generation from the average unit. Commenters stated t he generation that would be required to meet demand growth is typically supplied by the marginal unit. Comment ers presented information on New England's generating capacity by fuel type as an example. Commenter s also supported the use of multiplying the MWh of clean or avoided generation by the marginal emission rate for the load zone in which the EE or RE is loca ted

.

5.2.3c Calculation tool method

This section discusses calculating avoided emissions using EPA's AVERT, and other EPA and DOE tools to calculate energy, loads, emissions, and other critical components.

Commenters have raised a number of issues relate d to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments asking if states choose whether energy efficiency measures could go in either the numerator or denominator and if the AVERT tool would satisf y EPA requirements to convert energy efficiency to carbon emission amounts ; comments supporting to calculate avoided emissions using AVERT

Response 1: Consistent with the revised methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals, i n the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2 emissions

. I t is

, therefore, not necessary to convert energy efficiency impacts to carbon emission amounts

, when demonstrating achievement of an emissions rate

, using a tool like AVERT

. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and how the methods ensu res consistency with the goal setting calculations in the final rule, see s ection VIII.K.1 of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this c omment:199 Commenter s asked whether energy efficiency measures could go in either the numerator or denominator, and whether states could choose one approach or the other. Commenters further asked if the AVERT tool would satisfy EPA requirements to convert energy efficiency imp acts to carbon emission amounts.

Commenter s supported calculating avoided emissions using EPA's Avoided Emissions and Generation Tool (AVERT) and standard technical resource manuals that project savings for energy efficiency technologies and programs. Comm enters provided for example the Northeast Energy Efficiency Partnerships Mid

- Atlantic Technical Reference Manual which offers guidance on standardized evaluation, measurement and verification methods and energy savings assumptions.

Comment 2 : Com ments suggesting the EPA and DOE tools to calculate energy, loads, emissions, and other critical components do not accurately treat the overall annual net energy reductions of GSHPs, waste energy, or hybrid GSHPs needed for emissions reductions quantifications.

Response 2 : It is not necessary to quantify emissions reductions since, under the MWh accounting approach adopted in this final rule, the CO 2 emission impacts of zero

- emitting and low

- emitting resources are reflected in the reported stack CO 2 emissions of affected EGUs. For details regarding the general accounting approach for adjusting a CO 2 emission rate, see s ection VIII. K.1 of the final rule preamble of the CPP

.
To the extent RE and demand

- side EE measures , including geothermal heat pumps

, are tied to a state plan and meet the eligibility requirements for resources used to adjust a CO 2 emission rate, described in s ection VIII.K.1.a.(2) of the final rule preamble , the eligibility requirements and provisions related to demand

- side EE program s and projects and the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings are described in s ection VIII.K.3, the quantified and verified MWh impacts may be use d to adjust a CO 2 emission rate

In the final rule, EPA does not require a projection of CO 2 emission performance for all state plan approaches. For those that do require a projection, EPA does not prescribe specific EPA or DOE tools that states must use but gives states flexibility to choose appropriate tools provided they use technically sound methods that are reliable and replicable. EPA address es what types of state plan approaches require a projection and requirements related to methods and tools in

s ection VIII.D.2.a.(3) of the final rule preamble

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

Commenter s noted that EPA and DOE tools to calculate energy, loads, emissions, and other critical components (including AVERT) do not accurately treat the overall annual net energy reductions of GSHPs, waste energy, or hybrid GSHPs needed for emissions reductions quantifi cations. C ommenter s also noted that there is no standard for establishing a baseline200 system for comparing with GSHP systems to determine the energy savings and other benefits achieved by these systems.

5.2.3d Electricity sector modeling method

This sectio n discusses the EPA’s alternative methodology accounting for specific fossil fuel emissions and proposed forecasting models.

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

Comment 1 : Comments regarding i ssues with the EPA's alternative methodology accounting for the specific fossil fuel emissions displaced by RE and EE.

Response 1 : In the final rule, the EPA changed the methodology used to establish the best system of emission reduction. In order to ensure consistency with the calculation of CO2 performance rates and state rate

- based CO2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach for adjusting the CO2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO2 emission performance rates and state rate

- based CO2 goals in the final emission guidelines, the MWhs impact s are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitt ing resources across the regional grid. Further adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO2 emission rate, see s ect ion VIII.K.1 of the final rule preamble of the CPP

. The rule describes the requirements and criteria related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in s ection VIII. K.3 of the final rule preamble

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

Commenter s noted that EPA's goal calculation equation incorporates the impact of RE and EE by adding RE generation and EE savings to the denominator. Commenters stated f or projecting or demonstrating compliance, a state might take an alternative approach that accounts for the201 specific fossil fuel emissions displaced by RE and EE and this approach will generally yield a lower rate than EPA's goal setting methodolog y. Commenters employed this alternative calculation methodology and found that the use of the alternative methodology was helpful in allowing preservation of additional coal generation while still achieving the final goal, however makes it more difficult t o achieve the interim goal without overshooting the final goal. Commenters noted that the alternative does not resolve the inconsistency between the BB2 implementation date and the rule's intended flex ibility.

Comment 2 : Comments regarding concerns on the EPA's proposed forecasting models

. Response 2 : The final rule does not require a projection for states choosing an emissions standard approach, unless a state chooses to apply rate

- based emissions performance standards to individual affected EGUs or to s ubcategories of affected EGUs at a rate different from the CO2 emission performance rates or the state’s rate

- based goal

. The final rule does require that states demonstrate in a state measures plan that the emission standards and/or measures contained i n a plan are projected to achieve the state CO2 emission goal. The final rule is not requiring a specific type of emission quantification approach or model. However, it requires the states to choose technically sound methods that establish a clear relation ship between electricity grid interactions of the state enforceable measures, affected EGU dispatch, generation cost and operations within the time frame outlined in the final guidelines and to documents specific assumptions as described in s ection VIII.D.2. a

. (3 ) of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this c omment:
Commenters noted concerns with EPA's proposed forecasting models (e.g., IPM), including 1) while Method C, IPM, or other electricity forecasting models provide a robust approach for examining changes to dispatching, they require a significant investment of state resources due to the model complexities, time to coordinate and QA the data collection for annual planning and
rep orting, and coordination and execution of the modeling for the entire US; 2) states do not have the tools to accurately characterize state

- level and regional electricity dispatching characteristics; 3) states do not have the methods, resources, and experti se to engage in energy modeling; 4) EPA's approach requires a non

- proprietary and accurate model that is available for states to use; 5) EPA is not equipped to provide the necessary assistance to states and 6)
commenter s found assumptions for future activi ties in the 2018 IPM results regarding their EGUs that are inconsistent or inaccurate with actual plans.

5.2.3e Considerations associated with use of an avoided emissions rate

This section discusses the value and basis of avoided emissions, criteria for RE generation that must be met from affected EGUs using RE, parameters used for demonstrating emissions performance and projections, and additional consideration for energy efficiency credit

.202 Commenters have raised a number of issues related to this subsec tion which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1 : Comments concerning the general discussion to affirm the value of avoided emissions, and increased generating capacity under an emission cap pro gram with e xamples of similar system under Section 1605(b) of the 1992 Energy Policy Act

. Response 1: In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2

. EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals from the one used in the proposal. Consistent with EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions already reflect the actual emission reducti ons from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. An adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count C O2 emissions impacts across the grid. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE and how it ensures consistency with goal

setting calculations, see s ection VIII.K.1 of the final rule preamble of the CPP

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

Commenter s presented discussion and examples to affirm the value of avoided emissions. To begin with, c ommenters stated that every megawatt

- hour of electricity produced by an emission

free generating unit, such as a nuclear plant, a hydroelectric facility or a wind farm, is a megawatt

- hour that a fossil

- fueled plant, which produces various emissions, does not produce

. Regarding increased generating capacity under an emission cap program, c ommenters added that increases in emission

- free generating capacity thus have a measurable clean air compliance value, and reduce the cost of compliance that would otherwise be impos ed on the emitting generating capacity. Commenters noted that the Department of Energy operated a voluntary program, mandated by Section 1605(b) of the 1992 Energy Policy Act, under which companies could report reductions in greenhouse gas emissions. Comme nters stated that the 1605(b) program accorded the same value to avoided emissions as to emission reductions. Furthermore,

c ommenters added, the 1605(b) program defined avoided emissions and established the methodology for calculating them. Commenters stat ed these 1605(b) voluntary guidelines determined that the "avoided emission benchmark for electricity generation will be an approximation of the average emissions intensity of fossil

- fired electric power generation for
state

- based regions in a recent year. "203 Comment 2 : Comments on how EE achievement and measurement in the Pacific Northwest is unique and the avoided emissions rate should be based on the generating resource displaced by EE and not the existing resource mix (which is predominately hydropower).

Response 2 : In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2

. EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals from the one used i n the proposal. Consistent with EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emissi on rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions already reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. An adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid. For more information about specific methods to adjust the CO2 emission rate of an affe cted EGU to reflect RE and demand

- side EE and how it ensures consistency with goal

setting calculations, see s ection VIII.K.1 of the final rule preamble of the CPP

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

Commenter s noted that there are unique issues with the Pacific Northwest and that the ir avoided carbon emissions rate is based on the generating resource displaced by EE and not the existing resource mix (which is predominately hydropower). Commenters and their customers invest in EE because it reduces load growth, which reduces or eliminates the need to build and/or run a physical generating resource. Commenters stated that i n the Pacific Northwest region, the marginal generating resources is typically a natural gas

- or coal

- fired power plant that is operated to meet load and is seldom hydropower. Commenters stated t he carbon reduction value of energy efficiency exists in avoiding emissions associated with the marginal resource mix and not the reduction of emissi ons from the existing resource mix.

Comment 3 : Comments suggesting to achiev e emission reductions from affected EGUs by meeting RE certain criteria

. Response 3 : In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2 . This MWh accounting approach is indifferent to avoided CO2 emission rates and creates the same number of zero

- emitting credits or adjustments for each MWh of energy generation or savings from eligible measures, wherever they occur. For more information on adjustments to CO2 emission rates in rate

- based state plans, including the approach and eligible measures, see section VIII. K.1 of the final rule preamble of the CPP

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

Commenter s argued that the following criteria must be met in the RE generation used for 111(d) compliance for the CPP to achieve emission reductions from affected EGUs using RE:204 • For states using a rate

- based approach, EPA must require that adjustments for RE may only be made for RE generation that has avoided emissions at affected EGUs. This will effectively limit the eligibility of RE and RECs under 111(d) to only those that have reduced emissions at affecte d EGUs;

• For states using a rate

- based approach, EPA must require that no adjustments be made to an emissions rate for RE that is not identified and included in the state plan. This produces an incentive for states to implement RE policies and prevents stat es from claiming reductions from RE that was caused and claimed by another state;

• For states using a mass

- based approach, EPA must require similar adjustments to reported masses. Since mass

- based reporting will automatically only reflect reductions from RE that occur at affected EGUs, EPA need only require adjustments to masses to avoid double counting and to reflect the mass CO 2 emissions achieved by the state plan;

• Because the mass

- based approach will automatically reflect reductions from RE, EPA must req uire upward adjustments to masses for avoided emissions from RE without RECs (both power that is imported without the RECs and in

- state RE generation where RECs are sold out of state);

• EPA must not allow states to make an adjustment to lower masses for RE and EE since avoided CO 2 mass emissions from RE and EE are automatically reflected in the mass and this would result in double counting;

• EPA must require upward adjustments to masses for avoided emissions from RE that was not included in the state plan. Un less RE is included in a measure in its plan and the RECs for that generation have been retired in state, a mass

- based state must demonstrate to EPA that RE is not affecting it mass to avoid an upward adjustment;

• Tracking RE and the avoided emissions from RE using a nationally uniform instrument, preferably RECs, is necessary regardless of the accuracy with which avoided emissions can be quantified. Challenges with the calculation of avoided emissions from RE are associated with the use of RE for 111(d) and not with the use of RECs in particular as the tracking mechanism; and

• EPA must require that emissions reductions from voluntary renewable energy (VRE) are not counted as part of other state policies included in 111(d) plans.205 Comment 4 : Comments suggestin g EPA require the same parameters used in demonstrating emissions performance for compliance should be enforced for projections

. Response 4 : When demonstrating emissions performance for compliance, states and affected EGUs can use quantified and verified MWh impacts to adjust a CO2 emission rate, provided that RE and demand

- side EE measures are tied to a state plan, meet the eligibility require ments for resources used to adjust a CO2 emission rate, described in s ection VIII.K.1 of the final rule preamble of the CPP , the eligibility requirements and provisions related to demand

- side EE programs and projects and the requirements and criteria relat ed to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings are described in s ection VIII. K.3

. This clarification of the accounting approach creates consistency and minimizes opportunities for gaming. The final rule requires a projection only for states choosing an emissions standard approach where they apply rate

- based emissions performance standards to individual affected EGUs or to subcategories of affected EGUs at a rate different from the C O2 emission performance rates or the state’s rate

- based goal or for states choosing a state measures approach. The final rule is not requiring a specific type of emission quantification approach or model. However, it requires the states to choose technical ly sound methods that establish a clear relationship between electricity grid interactions of the state enforceable measures, affected EGU dispatch, generation cost and operations within the time frame outlined in the final guidelines and requires the docu mentation of key assumptions and parameters

. Requirements related to projections to demonstrate emission performance are described in

s ection VIII.D.2. a

. (3 ) of the final rule preamble

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

Commenter s argued that EPA should require that the same parameters used in demonstrating emissions performance for compliance should be enforced for projections and vice versa. This will provide consistency and prevent gaming

.

Comment 5 : Comments suggesting c redit for energy efficiency to be calculated based on the avoided emission rate for the measure and load zone in which it is implemented

. Response 5 : In the final rule, the EPA allows for the adjustment of a CO2 emission rate based on avoided MWhs, not avoided CO2

. EPA revised the methodology used to calculate CO2 emission performance rates and state rate

- based CO2 goals from the one used in the proposal. Consistent with EPA’s calculation approach in the final em ission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO 2 emissions already reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. An adjustment of CO2 emissions, such as through the subtraction of emissions estimated by applyin g an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid. For more information about specific methods to adjust the CO2 emission rate of an206 affected EGU to reflect RE and demand

- side EE and how it ensures consistency with goal

setting calculations, see Section VIII.K.1

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

Commenter s argued that credit for energy efficiency should be calculated based on the avoided emission rate for the measure and load zone in which it is implemented. Commenters stated EPA should ensure that credit for energy efficiency will approximate the actual ca rbon emissions that it displaces. While this is challenging, c ommenters believe d that current EM&V protocols are advanced enough that EPA should be able to model the avoided emissions rates for EE measures in different regions with reasonable granularity. C omment ers encourage d EPA to conduct or arrange for modeling each year to calculate a load reduction profile for all valid EE measures and avoided hourly emissions rates in each region.

5.2.4 EE and RE Measures that can be incorporated

This section discusses comments on the EE and RE measures that can be incorporated into state plans and used for compliance demonstrations.

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

Comment 1 : Comments on the o verall b enefits of transmission and distribution i mprovements ; comments supporting credits for T&D efficiency improvements

.
Response 1 : In the final rule, t he EPA acknowledges the value of measures that increase transmission and distribution (T&D) efficiency or reduce electricity use

, strengthening the transmission system and facilitating the transition to a new resource mix that includes more low and zero

- emission resources

. The f inal rule allows that the verified and quantified MWhs of avoided losses or reduction in end use electricity that result from T&D measures installed after 2012 to be used to adjust a CO2 emission rate. For more information on the accounting approach for adjusting a CO2 emission rate and specifics on eligible transmission and distribution

measures, see s ection VIII.K.1 of the final rule preamble of the CPP

. For more detail on the requirements and criteria for proper quantification and verification of MWhs, see s ection VIII. K.3 of the final rule preamble

.
In the final rule, to the extent RE generation, including solar energy, and demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. The MWh accounting method addresses interst ate effects because it inherently accounts for how generation replacement and CO 2 emission reduction impacts may cross state borders and is indifferent to207 avoided CO 2 emission rates, creating the same number of non

- emitting credits or adjustments for each MWh of energy generation or savings. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, including specific geographic eligibility requirements and limitations, see s ection VIII.K.1 of the final rule preamble

. For more information on the treatment of in

- state and out

- of

- state renewable energy and energy efficiency impacts and interstate effects, see section VIII.L of the preamble to the final rule.

Regarding ensuring operatio nal reliability, EPA officials worked closely with DOE and Federal Energy Regulatory Commission (FERC) officials to ensure, to the greatest extent possible, that actions taken by states and affected EGUs to comply with the final rule mitigate potential ele ctric system reliability issues. Senior EPA officials met with each of the FERC Commissioners and EPA staff had frequent contact with FERC staff throughout the development the rule. FERC held four technical conferences to discuss implications of compliance approaches to the rule for electric reliability. EPA staff attended the four conferences and EPA leadership spoke at all of them. The EPA, DOE, and FERC will continue to work together to ensure electric grid reliability in the development and implementati on of state plans. For more information about reliability considerations, see s ection II.D of the final rule preamble and for more detail about EPA consultations about reliability, see s ection II.K.

In response to comments received expressing concern regar ding, among other things, reliability, feasibility, and cost related to meeting the guidelines, EPA made modifications to the timelines included in the proposal. The final guidelines establish three types of performance periods: 1) a final deadline by whic h and after which affected EGUs must be in compliance with the final reduction requirements, 2) an interim period, and, 3) within that interim period, three multi

- year interim step periods. As discussed in s ections VIII.B.1 and V of the final rule preamble , these performance periods are consistent with determination of the BSER and are also responsive to the key comments we received on this aspect of the state plans.

In the final rule energy storage is not directly recognized as an eligible measure that can be used to adjust a CO 2 emission rate, because storage does not directly substitute for electric generation from the grid or avoid electricity use from the grid. However, the final rule acknowledges the value of energy storage as an enabling measure that facilitates greater use of RE. Additional information regarding energy storage is in s ection VIII.K.1.a.(5) of the final rule preamble

.
Measures that reduce CO 2 emissions outside the electric power sector, including emission reductions from reductions in vehicle fleet use, may not be counted toward meeting a CO2 emission performance level for affected EGUs or a state CO 2 goal, under either a rate

- based or

mass

- ba sed approach, because all of the emission reduction measures included in the EPA’s determination of the BSER reduce CO 2 emissions from affected EGUs. For more information, see section VIII.K.1.c of the final rule preamble

. The following are summaries of th e specific public comments under this comment :
Some commenters described how T&D improvements reduce EGU emissions "at the source" and others emphasized that the benefits extend to other changes contemplated in the CCP including renewables.208 Commenters stat ed that the final guidelines should affirm that states can include transmission and distribution efficiency improvements in compliance plans because these types of projects can reduce line losses and thus reduce the need for additional CO 2 - emitting generat ion from existing EGUs. Commenter s stated that the final guidelines should help to incentivize the deployment of the innovative technologies to both reduce CO 2 emissions and achieve the increased utilization of renewable generating resources, two of the ob jectives of the proposed guideline, by allowing states to include them in their compliance plans.

Commenters described the potential environmental benefits of T&D line loss reduction practices and strategies to optimize power quality, which means they hav e to generate less power to satisfy demand. Commenter s stated that T&D of electricity accounted, in 2005, for approximately 6% of net electricity loses. Commenter s added that reduced demand translates into a reduction in the amount of coal or natural gas b urned and CO 2 emissions. To the extent these strategies can be implemented to defer investment in new generation capacity or to address reduced capacity due to old generating assets being taken offline, commenter s added that the benefits can be enormous especially when load growth is small.

Commenters stated the current proposed guidelines focus solely at two portions of the electric supply chain; generation and consumption. Commenters said EPA ignored "outside the fenceline" improvements that have nothing to do with neither heat rates, nor EE. Commenters said transmission and distribution line improvements, which are ignored in the guidelines, can result in as much as a 3

- 4% reduction in emissions by lowering need for electricity. Commenters suggested that EPA include within the proposed fifth building block, comments supportive of allowing improvements in line

- loss levels at both the transmission and distribution levels.

Commenters stated the current proposed guide lines focus solely at two portions of the electric supply chain; generation and consumption. Commenters said EPA ignored "outside the fenceline" improvements that have nothing to do with neither heat rates, nor EE. Commenters said transmission and distribu tion line improvements, which are ignored in the guidelines, can result in as much as a 3

- 4% reduction in emissions by lowering need for electricity. Commenters suggested that EPA include within the proposed fifth building block, comments supportive of all owing improvements in line

- loss levels at both the transmission and distribution levels. Commenter s said that states and regional transmission organizations (RTOs) and other regional entities charged with regional transmission planning and coordination acro ss multi

utility markets or across multiple states can also attain the CPP's targeted reductions through activities beyond the Building Blocks. Commenter s explained that transmission provides a range of benefits that is capable of contributing to the succe ss of the CPP and reduces the chance that delay or insufficiency of new transmission capacity will diminish the possibility of achieving the CPP's goals. Commenter s said that w hile the focal point of the CPP is understandably on shifts in generation resour ces that are central to a program of emissions reduction as well as on technologies that enhance the efficiency, reliability, and power transfer capabilities of high voltage transmission, the need for additional conventional transmission resources should a lso be considered in setting the parameters of state implementation of the CPP's Building Blocks.

Commenter s added that the adequacy and ubiquity of transmission cannot be assumed or that the major changes to, or utilization of, the generation fleet that the EPA' proposals envision will occur without also making substantial changes and investments in the high

- voltage transmission209 grid. Far from simply connecting Point A to Point B, commenter s said that the transmission network provides an extensive portfol io of benefits, including the ability to leverage and aggregate new investments in advanced technologies distributed generation, storage, micro

- grids, energy efficiency and more for the benefit of broader evolving markets. Citing an important study on the benefits of new transmission capacity

, commenter s argued that, not only will a robust grid deliver the low

- or zero

- carbon resources upon which one of the CPP's building blocks depend, transmission investment adds a flexibility and adaptability to the enti re bulk power system that will smooth the transition to the new resource mix that the CPP promotes.

Commenter s noted that the EPA identifies transmission "efficiency improvements" as a measure that could be used to reduce CO 2 emissions that was not specif ically included in one of the Building Blocks, but c ommenters said that transmission delivers efficiency at a different level than that which the EPA contemplate. Commenters pointed to the discussion of Building Block 4, where the EPA states: "Another way to reduce the utilization of, and CO 2 emissions from, affected EGUs is through electricity transmission and distribution upgrades that reduce electricity losses during the delivery of electricity to end users. Just as end

- use energy efficiency can reduce mass emissions from affected EGUs, so can transmission upgrades." Commenter s said that this does not entirely capture the macro

- efficiencies that transmission can bring to regional markets in terms of cleaner generation or the option not to build generatio n at all. Commenter s asked the EPA to more fully examine the efficiency potential of a strengthened transmission system.

Commenter s added that transmission can help ensure reliability and the efficient use of resources as reserve margins shrink. In develo ping the Rule, commenter s said that the EPA assumed that because most regions have capacity above their target margins, most Coal Generation retirements will be "absorbed by a reduction in excess reserves over time." However,
commenter s noted, there are ad ditional EPA regulations, such as Mercury and Air Toxics Standards, which will further reduce reserve margin, and the cumulative effects of these regulatory requirements have the potential to create significant reliability challenges as the states
move to implement their plans.

Commenter s noted that high

- voltage transmission is the perfect example of why the EPA must be permitted to look "outside the fence" in pursuing the necessary objectives of this rule: the transmission wires that deliver power to mark ets are by definition "outside the fence" of the power plants, but without them the power plants are useless. Commenter s said that they are critical facilities for delivery of electricity whether it is generated with or without carbon emissions, and they c annot and should not be ignored in any policy that would attempt to facilitate a transition from carbon

- emitting generation to clean energy. Commenter s added that this obvious reality is the driving motive of Americans for a Clean Energy Grid; it should li kewise be recognized and acted on throughout this proposed rule. Commenter s described the benefits of transmission improvements, steps already being taken in states and regions and barriers to implementation (design, permitting and construction timelines). Commenter s added that the experiences of regulators, transmission planners, and transmission owners in Texas, California, the Mid

- Continent Independent System Operator (MISO), and the Southwest Power Pool (SPP) all provide powerful evidence that expanding and modernizing high

- voltage transmission networks is a highly cost effective approach to reducing carbon emissions from the electricity sector and provided extensive examples of their projects.210 Commenter s explained that power system reliability encompas ses both adequacy of supply to meet demand and operational reliability of the transmission system. Commenter s added that power systems must be operated to ensure that supply and demand are balanced and that this balance is maintained respecting thermal, vo ltage, and frequency criteria for not only the present operating state but also for any single contingency and other credible contingencies beyond a single contingency. Commenter s stated that the proposed rule considers only the adequacy perspective of the reliability impact of the rule but does not address the potential thermal, voltage, or frequency impacts, nor does the rule consider the associated potential transmission economic implications of additional facilities required to ensure operational reliab ility or financial implications of stranded transmission investments that become underutilized as a result of the change in system power flows.

Commenter s described the role that detailed reliability studies play in coordinating the construction of new fa cilities and retiring old ones. Commenter s added that coordinating outages across many systems that are attempting to simultaneously develop new transmission facilities to accommodate mandated generation changes will be challenging at best and likely resul t in increased congestion costs and longer lead times to commission the new facilities as sequencing of outages will be required. Commenter s added that it is unlikely that sufficient lead times exist for actually building new transmission facilities that m ight be required to support the change in generation mix to meet the rules interim goals in 2020, especially considering the challenges scheduling outages of existing facilities noted above. In addition to economic impacts associated with relieving congest ion resulting from new generation, commenter s noted that the retirement of a large number of conventional thermal generation plants may also impact transmission system voltage and frequency stability. Commenter s described several scenarios illustrating thi s concern and concluded that most of the transmission reliability considerations noted can be mitigated with additional investments in transmission infrastructure, but the impact of these costs and timing of these facility upgrades on reliability during tr ansitional periods should be considered as part of the proposed rule.

Commenter s affirmed that increased development of renewable and other electric generation will require adequate electrical transmission and distribution systems, e.g., expanded use of n atural gas requires infrastructure to support the transport and supply of natural gas to new natural gas plants or to increase supply to existing plants. Commenters said that w ithout adequate transmission and distribution systems

, electric reliability is c ompromised. Commenter s added that this will require significant new investment in transmission and distribution infrastructure, which affects not just the cost of energy but also has significant implications for how quickly the state could comply. Commente r s stated that the EPA should clarify that any transmission upgrade after 2012 would be eligible to be included as a measure to meet the interim and final goals.

Commenters also said that the rule should make provisions for utilities to receive credit for improvements to distribution or transmission grids that effectively reduce CO 2 emissions as well as customer owned generation and transmission. Commenter s added that acceptable measures should include electrification projects, transmission projects that r educe line losses or otherwise specifically increase the efficiency of non

- generating portions of the electric system and nuclear generation.211 Commenters commented on electricity storage with respect to pumped storage. Commenters stated an unintended conse quence of this proposed rule is penalizing using electricity storage as a dispatch planning and air quality mitigation strategy. Commenters stated one example of electricity storage is hydro

- pumped storage, which is a way of storing electricity via pumping water up during the night while electricity demand is relatively low and letting the water run down through the turbines during peak demand hours during the day. Commenters stated this can help reduce the need for peaking units to operate, which are usually among the dirtiest and least efficient units. Commenters stated it also helps reduce peak emissions from EGUs during the day, which can help control ambient con centrations of traditional pollutants, however, the use of pumped storage results in an efficiency loss since more electricity is required to pump the water up than is generated by letting the water run back down through the turbines. If the energy require d to pump the water is generated with fossil fuels, Commenters stated this results in more CO 2 emissions in aggregate. Commenters stated this could discourage the use of pumped storage, especially since the proposed rule does not allow generation from exis ting pumped storage facilities to be used for compliance purposes under a rate

- based approach (because of the exclusion of existing hydropower). Commenters stated the Department suggests that EPA rectify this issue in the final rule. Commenters stated one potential remedy is to give generation credit to electricity storage facilities. Commenters stated the amount of generation credit for electricity storage facilities (such as pumped storage facilities) would be the difference between their consumed generat ion (i.e. to pump the water) and their created generation.

Commenter s supported the recommendation that efficiency improvements to utility transmission and distribution systems (e.g., conservation voltage reduction) starting in 2020 be eligible for the same energy savings credits as end

- use energy efficiency measures. Comme nter s also recommended that such measures may be included in state compliance plans for incremental actions beyond those otherwise planned prior to development of the 111(d) compliance plan. Commenter s said that the states' plans should account for the fac t that new transmission facilities and upgrades to the transmission system create energy market efficiencies allowing dispatch of the most efficient resources available within the RTO footprint.

Although not expressly included in the Rule's building block s, commenter s stated that transmission efficiency improvements can help the states meet their goals. In addition,
commenter s noted that transmission can assist in the implementation of regional compliance approaches, which may allow for more cost

- effective solutions and address certain reliability concerns. To support the regional implementation of the Rule, commenter s said that the EPA should clarify that emissions will be linked to the location of consumption. Commenter s explained that the variations in n atural resources and infrastructure capabilities between states demand needed flexibility to allow lower

- emitting generation to be transmitted to energy users, which would be hampered if emissions are linked to the source rather than the energy user.

Comm enter s recommended that the EPA clarify, with respect to its proposed interstate accounting methods, the interstate effects of emission reductions. Commenter s noted that the TSD appears to adopt an asymmetrical approach to interstate accounting for renewab le energy versus energy efficiency measures (TSD, page 88). While different stakeholders appear to have differing perspectives on this issue and/or perspectives that differ from EPA's Proposed Rule,
commenter s stated that accounting for interstate and mult i

- state clean energy deployment and212 energy efficiency savings, and avoiding double counting of such measures, and the related crediting of emission reductions is critical.

Based on experience with state policies in Arizona, New York and California, comment er s said that energy storage should be an intrinsic part of the energy mix and SIPs. Commenter s described potential partnerships and studies to bolster the development of this technology. Commenter s added that accounting for development and deployment of s torage will serve to strengthen the methodology EPA chooses that in turn affirms the ability for energy storage to impact all four building blocks set forth in the rule. Commenter s supported allowing states to include T&D loss factors. C ommenter s stated th at since emissions reductions are measured from the location of electric generating plants, energy savings from EE should not only include end

use savings but also avoided T&D losses. Commenter s said that states should be allowed to use their own T&D loss factors where state

- specific data are available, but where state

- specific data are not available, states should use a regional T&D loss factor such as RTO data, or EIA data.

Commenter s supported energy storage and cite d Ontario as an example of an energy storage project that is possible to implement in the U.S.

Commenter s noted that the issue of crediting for interstate transmission upgrades could be another fertile area for modular multi

- state agreements and that the EPA should defer to such agreements as long as their terms appear reasonable and avoid double

- counting emission reductions.

Commenter s described FERC rules and policies that now require transmission planners and owners to play an unprecedented role in developing a less carbon

- intensive electr icity system, and the decisions they make will directly impact the cost and efficacy of state implementation plans to comply with the proposed rule. Commenters stated that i n upholding FERC's Order 1000's requirement that transmission planners consider relevant public policies, the U.S. Circuit Court of Appeals for the District of Columbia found "all of the challenges to the public policy mandate to be without merit." Commenter s stated that the EPA should follow FERC and federal courts by recognizing the critical interdependencies between transmission infrastructure and efforts to reduce carbon emissions in the power sector, requiring state compliance plans to reflect and incorporate relevant transmission planning analyses, and crediting low and zero carb on energy enabling transmission investments appropriately.

Commenter s also asked whether the EPA will allow states to count avoided T&D losses when accounting for EE savings, and if so, should EPA use a standard accounting of T&D losses.

Some commenters d escribed technological improvements that will facilitate the integration of renewable energy (wind and solar generation), reduce transmission line losses 30

- 50 percent compared to traditional AC systems, provide increased grid flexibility and reliability a nd reinforce and debottleneck the existing AC network. Commenters pointed to the use of new HVDC transmission that can link several renewable energy projects together. Commenters stated that by connecting individual projects, HVDC transmission increases re source diversity, smoothing out the generation curve over the electric system and reducing the impact of short

term fluctuations in output at any one wind farm or solar array. Commenters added that the most notable advantage of HVDC transmission lines is t heir ability to transfer power underground and213 undersea over long distances, which could facilitate the growth of wind and solar energy by allowing solar energy from the Southwest or wind power from the Midwest to be transmitted to other parts of the count ry. Commenters also noted that use of higher voltage, HVDC or improved efficiency for distribution transformers would reduce emissions and added that the EPA should be discussing this option for reducing emissions with the appropriate federal agencies.

Co mmenters agreed that electric utilities can improve the efficiency of their distribution systems by replacing distribution transformers with higher

- efficiency models. For example, commenters stated, utilities can upgrade to transformers with amorphous meta l cores, which experience no

load losses that are 60

- 70 percent lower than those of transformers with conventional high

efficiency silicon steel cores. Commenters stated that according to GE modeling of an electric utility that serves 500,000 customers and replaces 4,000 distribution transformers per year, the selection of amorphous core over conventional transformers can save 190 million kWh per year through reduced losses and avoid average annual CO 2 emissions of 110,000 metric tons.

Commenters said that to absorb more solar energy into the electric grid, there are certain ways that the electric grid can be adapted. Commenters added that as part of a balanced energy portfolio, solar can improve grid reliability and provide benefits to the existing energy infrastructure, including reducing transmission losses and relieving congestion on the grid. Commenters provided an extensive discussion on the benefits of integrating these technologies, ways to implement them, costs and benefits of integrating solar and examples of real world projects.

Commenters provided an extensive discussion of the factors leading to America's inadequate high

- voltage transmission network that limits renewable energy growth, drives developers to lower quality and higher cost resources , and reduces the efficiency and availability of installed renewable generation. Commenters explained that high

- voltage transmission is essential to developing remote renewable resources at scales consistent with meeting long

- term carbon emissions targets. Commenters provided examples of grid operators that are reliably and efficiently managing high levels of variable renewable energy thanks to transmission investments, improved forecasting, and other advances.

Commenters noted that "smart" technologies wi ll allow engineers to operate the grid even more efficiently. For example, commenters explained, synchrophasors monitor electrical conditions hundreds of times faster than current technologies and time

- stamp every measurement to synchronize data across lar ge regions. Commenters stated grid operators can use this information to detect disturbances that would have been impossible to see in the past, allowing them to address the disturbances before they lead to serious and costly problems like severe congestio n, voltage reductions, or widespread losses of power (e.g. the Northeast Blackout of 2003.) Commenters said that synchrophasors installed on the U.S. high

- voltage network increased nearly tenfold from just 200 in 2009 to more than 1,700 today thanks to DOE 's Smart Grid Investment Grants (funded by the American Recovery and Reinvestment Act of 2009). Commenters stated that grid operators are still developing procedures to use this powerful new data resource, but it is certain that the information will make t he grid more efficient, reliable, and capable of managing high levels of variable renewable generation. Commenters added that there are a number of other technologies, such as dynamic line ratings, synchrophasors, gridscale energy storage and smart solar i nverters, that can help increase reliability, resiliency, and214 efficiency, all of which ultimately contribute to reducing CO 2 emissions. Commenters described the benefits of "smart grids" and their role in end

- use efficiency, one of the Clean Power Plan's

c ompliance building blocks, as well as aid the smooth integration of intermittent renewable energy sources and distributed energy power from rooftop solar or small

- scale wind.

Commenters described the benefits of energy storage, when paired with grid moder nization, and said that it should be included in a new grid modernization block. Commenters said that storage supports renewable energy generation as a generation asset, but also enables grid owners/operators to deploy storage as a grid asset at the transm ission and distribution levels (across the grid): it can help support the integration of variable resources (e.g., wind, solar), as well as levelize/smooth loads, increase the efficiency of baseload generation, and reduce power outages. Commenters stated t hat storage also can reduce system peak demands and the impact that has on peaking generation needs. Commenters added that storage also provides the capability for transmission and distribution system operators to optimize grid performance, thereby enhanci ng consumer reliability.

Commenters stated EPA should explicitly state in the final rule that energy storage technologies can be granted credits for avoided emissions that they create. Commenters stated EPA should credit energy storage technologies for th e emissions reductions benefits generated both directly by increasing the efficiency of certain coal

- fired units by reducing ramping and allowing the units to run at their most

- efficient capacities, but also indirectly through improving system efficiencies , such as through reducing the need for spinning reserves.

Commenters offered specific recommendations for the agency's consideration, including the following:

• Support the development of state plans that anticipate a role for energy storage.

• Develop eval uation criteria that help states demonstrate the role that storage will play in the accelerated introduction of non

- emitting technologies.

• Require states to conduct ongoing monitoring and evaluation of the role of energy storage in their electricity system s and introduce corrective measures where possible.

• Consider how emissions reductions in other sectors (such as transportation) might be facilitated by the introduction of technologies, such as electric vehicles.

• Consider the calculation of net emissions c hanges, including changes in other sectors, in state plans.

• Assist states in accounting for the potential role of electric vehicles in the determination of activity levels that are used in the transition from
rate

- to mass

- based standards.215 Commenters add ed that electric vehicles and electric vehicle fleets should be considered as "smart grid" or, grid modernization, technologies/"smart" loads that can help optimize and/or levelize loads in a manner that optimizes the use of low

- or zero

- carbon emitting ge neration. As an example, with "smart grid" technologies, commenters said that utilities can charge EVs when low

- or zero

- carbon emitting generation is available (e.g., sunny afternoons and the middle of the night). Moreover, commenters added that EVs and e lectric utility fleet trucks can be used to export power back to the grid (as is currently being pilot tested by some utilities in this manner) to help reduce and/or avoid power outages.

In the same vein, commenters believed that consideration also should be given to utilities that can demonstrate emissions reductions from their vehicle fleets as a result of automating the control of their various grid systems. Commenters said that an example is the use of Advanced Metering Infrastructure (AMI) to perform remote services orders, such as "connects" and "disconnects." Commenters said that grid technologies that enable outage situations that are on the customer side of the meter versus the utility side of the meter to be diagnosed remotely can greatly reduce t he "truck rolls" of a utility and, thereby, can dramatically reduce GHG emissions from these vehicles. For example, commenters said that during Superstorm Sandy, one utility alone reported such efforts saved more than 6,000 truck rolls. Commenters stated t hat the removal of such a substantial quantity of trucks from the road (i.e., this is just one utility during one extreme weather event) results in significant GHG emission reductions. Commenters added that new grid technologies, like smart grid sensors an d distribution automation equipment, also can help reduce truck rolls and the number of miles utility crews must drive during power outages or to conduct grid maintenance, thereby, also translating to still further GHG emission reductions.

Commenters state d that Volt/VAR Optimization (VVO) technology can help reduce T&D line losses and is an important non

- BSER compliance option.

Commenters explained that VVO is a software

- enabled application that allows an electric utility to dynamically manage and optimiz e voltage and reactive power levels across its distribution system. Commenters said that conservation voltage reduction (CVR), a specific application of VVO, involves the use of capacitors and localized controls to flatten and lower the voltage level along a distribution feeder. Commenters stated that CVR reduces end

- use energy consumption with no noticeable impact to consumers. Commenters stated that according to GE modeling of an electric utility that serves 500,000 customers with 160 distribution substat ions, they noted that a two percent reduction in voltage during peak periods can result in a savings of 6 MWh per year per substation, which equates to an average emissions reduction of 200,000 tons of CO 2 per year.
Commenters added that allowing VVO syst ems to be included in compliance plans can help encourage wider deployment of this technology, with benefits that include improved power quality and reduced peak demand in addition to carbon mitigation. Commenters explained that the concept of Volt/VAR man agement or control is essential to electric utilities' ability to deliver power within appropriate voltage limits so that consumers' equipment operates properly, and to deliver power at an optimal power factor to minimize losses. Commenters added that feed er voltage regulation (Voltage) refers to the management of voltages on a feeder line with varying load conditions, and VAR refers to Volt

- Ampere Reactive power, the reactive power nearly all power system loads require in combination with real power (Watts ). Commenters stated that216 experience has shown that the overall costs and performance of operating a power system can be best managed if voltage control and reactive power control are well integrated . According to the commenters, the benefits of Volt/VAR m anagement technologies are well

- known, having been used by the power industry for over 30 years, and these technologies have advanced to include Volt/VAR Optimization (VVO) sensors, equipment and software.

Commenters stated that through the use of these V VO systems, utilities can optimize voltage profiles and VAR flow to reduce overall distribution line losses by two to five percent through tight control of voltage and current fluctuations, and achieve a variety of other objectives, including: reducing pea k demand, targeting power factor levels to minimize energy losses and implementing CVR. Commenters added that CVR

- related strategies can lower overall system voltage and thereby reduce overall system demand by a factor of 0.7 to one percent for every one
p ercent reduction in voltage. Commenters stated that VVO systems work in conjunction with a number of other technologies to optimize the electric system, including microprocessor

- based controls and computing platforms, pervasive, high performance communicat ions technologies, widely deployed sensor technology including AMI systems, and advanced software algorithms. See id. at 2.

In addition to VVO systems, commenters stated there are a number of other technologies that can help reduce T& D losses, which in turn means utilities need to generate less power, leading to CO 2 reduction benefits. Commenters noted that high

- temperature low

- sag conductors can increase the capacity of the transmission network by making lines more capable of carrying higher volumes of power without overheating or sagging, which in turn can significantly reduce loss and increase the efficiency of the installed transmission infrastructure. Because they sag less, commenters said, electricity flowing through the conductor experiences less resistance, meaning that the conductors can also reduce transmission losses of power by 25 to 40 percent of what otherwise might be lost. Commenters stated if transmission losses are reduced, less electricity generation is required to mee t the same amount of load, reducing emissions from generators.
Commenters stated that Building Block 4 must be finalized to ensure that system level electric distribution utility measures, such as lowering line losses and VOLT/VAR support at the distribut ion level, may be used as a compliance option.

Commenters stated savings from transmission and distribution system efficiency investments that reduce utility losses or reduce the energy used by appliances and devices by optimizing voltage can add an additi onal 0.2 percent per year. Commenters recommended savings from transmission and distribution efficiency improvements should be included in the BSER for Block 4 and credited in state plans. Commenters indicated that 6.3 percent of electricity is used in T& D. Commenters cited an EPRI study that estimates the potential to reduce electricity use in this area is about 10 to 15 percent. Commenters noted that electricity losses in the distribution system can be reduced substantially through the use of efficient t ransformers, improved voltage control, phase balancing, and balancing of reactive power needs. In the transmission system, commenters noted opportunities include voltage overlays, voltage and line efficiency. Commenters stated these measures can enhance no t only the efficiency, but also the flexibility and reliability of the electric system, facilitating integration of renewables into the system. Commenters stated EPA excluded Volt VAR Optimization/Conservation Voltage Reduction, a217 cost

- effective option for states and utilities to save energy and reduce pollution. Commenters stated maintaining voltage in the lower half of the 114 to 126 volt range saves energy, because reducing voltage reduces the energy used by customer appliances and equipment. Commenters stated utilities often have set a strategy of "setting voltage high enough," however with recent advances in sensors, communication, and information processing and control techniques, utilities can use a process called "Volt Var Optimization," and these pr actices are termed "Conservation Voltage Reduction." Commenters stated 26 projects are funded by the Smart Grid Investment Grants through the ARRA implemented VVO or CVR ; AEP Ohio implemented VVO on 17 circuits and yielded a 3 percent reduction in residen tial customer energy use during the test period (measured for those customers with AMI meters) ; and a large pilot in the Pacific Northwest, the Distribution Efficiency Initiative Project, tested CVR practices , and average energy savings using end

- of

- line voltage regulation was 2 and 3 percent, voltage regulation with minor system improvements saved 1 to 2 percent of energy use . Commenters stated the Regional Technical Forum of the Northwest Power & Conservation Council is developing a protocol for measur ing the savings from Conservation Voltage Red uction

. Commenters recommended EPA raise the best practices level of energy efficiency by 0.2 percent per year, to account for the savings from conservation voltage reduction and other transmission and distribut ion system investments. Commenters stated in developing EM&V Guidance, EPA's designated entity, should consider developing or validating a protocol for estimating savings from CRV and T&D system that reduce line losses.

Comment 2 : Comments o ppos ing req uiring T&D improvements

Response 2 : The final rule does not require transmission

- related improvements but does recognize the value of measures that increase transmission and distribution (T&D) efficiency or reduce electricity use. It allows that the verified and quantified MWhs of avoided losses or reduction in end use electricity that result from T&D measures by interested states can be used to adjust a CO2 emission rate. For more information on the accounting approach for adjustin g a CO2 emission rate and eligibility requirements across a range of resources that may be used to adjust a CO2 emission rate, see s ection VIII.K.1 of the final rule preamble of the CPP

.
The following are summaries of the specific public comments under th is c omment:

C ommenter s w ere concerned that the Rule will drive additional, costly transmission projects that have high ROI for transmission providers within the markets, driving up costs for consumers, with very little to no actual benefit. As a small muni cipal utility principally serving their community, commenter s said that the transmission lines are very short distances, such that increasing efficiencies, even just another .09%, would be relatively impossible to achieve. Commenters stated t he EPA's expected efficiency increase in transmission did not consider a small municipal utility with a small and networked transmission system in establishing the efficiency goal commenter s concluded.218 Comment 3 : Comments on w ater s ector e fficiency p rograms

.

Res ponse 3 : The EPA recognizes the value of energy efficiency as a low cost resource and gives states the flexibility to use zero

- emitting resources, like energy efficiency, to achieve their CO2 emission performance rate. To the extent demand

- side EE measures are tied to a state plan, the quantified and verified MWh impacts may be used to adjust a CO2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO2 emiss ion rate. Water efficiency programs that improve EE at water and wastewater treatment facilities also provide demand

- side EE savings opportunities that may be eligible for adjustments
to CO2 emission rates at affected utilities. For more information about the general accounting approach for adjusting a CO2 emission rate and specific discussion of water system efficiency,

see s ection VIII. K.1 of the final rule preamble of the CPP . The measures must also meet the eligibility requirements and provisions relate d to demand

- side EE programs and projects, if applicable, and the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings are described in s ection VIII. K.3 of the final rule preamble

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

Commenter s said that the water sector has the potential to contribute significant carbon emission reductions and encouraged the EPA to clarify in the final rule that states will be allowed t o account for measurable RE and demand

- side EE measures taken by the water and wastewater industries (post

- 2012) in their CPP Section 111 (d) state plans. Commenter s noted that the current discussions of demand side efficiency are vague and it is not curre ntly clear if RE generation by any entity other than an electric utility would count at all. Without a clear signal if the projects will count, commenter s said that it will be difficult for states and electric utilities to justify incentive programs and di fficult for the water sector to pursue such projects. Commenter s explained that water sector renewable energy and demand

- side measures may be under

- utilized in reducing emissions due to lack of awareness of some of the efficiency opportunities among the se ctors (for example, amongst demand side efficiency programs), competing high priority public health needs and necessary infrastructure upgrades, and lack of funding for the water sector to implement efficiency programs. If a flexible approach is adopted in the CPP,
commenter s said that EGUs, energy users and states could realize cost savings by providing incentives for the water sector to voluntarily increase efficiency and implement renewable energy generation. C ommenter s stated one large water company alo ne, serving customers in many states, has replaced or refurbished 140 water pumps over the last four years with more energy efficient pumps, saving 12 million kilowatt

- hours per year, a reduction of approximately 18 million pounds per year of carbon emissi ons. Also, commenter s continued stating that a relatively modest

- sized utility recently installed much more efficient blowers, mixers, and aeration equipment at its wastewater treatment plant, thereby reducing annual electricity use by about 30 percent, or about 3,000,000 kilowatt

- hours a year. Commenter s agreed that energy/water nexus provides an additional opportunity for CO 2 emission reductions because about 2

- 4 percent of the total energy used in the United States is used by water and waste water system s, which equates to approximately 187 million MWh per year. Commenter s described potential projects to replace or refurbish water pumps with more energy efficient pumps and the potential emission reductions.219 Commenter s described how Indiana has taken step s to reduce the amount of energy used by water and wastewater utilities. Commenter s noted that energy consumption by public drinking water and wastewater utilities, which are primarily owned and operated by local governments, can represent 30

- 40% of a muni cipality's energy bill. At drinking water plants, commenter s said that the largest energy use (about 80%) is to operate motors for pumping, while at wastewater treatment plants, aeration, pumping, and solids processing account for most of the electricity t hat is used. Commenter s stated that the Indiana Finance Authority, in cooperation with IDEM, has promoted the use and installation of energy efficient pumps, pipes, treatment systems, and control processes as part of the state's Revolving Loan Program for financing water and wastewater infrastructure projects. Commenter s also stated that a rule requiring water utilities to address unacceptable leakage from their drinking water infrastructure was promulgated to improve efficiency and save energy by reducing the amount of water pumped and treated.

Commenters described new technologies to improve T&D that should be considered in the guidelines and suggested how to implement them in the proposed rule.

Commenters described several emerging technologies and/or p rograms that will be beneficial in reducing emissions.

Comment 4 : Comments suggesting w ays to i ncentive the c onstruction of n ew t ransmission l ines.

Response 4 : This comment is outside the scope of this rulemaking. This final rule sets emission performance goals for states based on the BSER for existing sources under CAA section 111(d). In this rule, EPA is not designating which technologies or infrastructure prio rities should be invested in. The final rule does support flexible measures to achieve CO2 emission reductions and the increased use of zero

- and low

- emitting generation. Transmission and distribution efficiency improvements are discussed in the preamble in section VIII.K.1.a of the final rule preamble of the CPP

.
The following are summaries of the specific public comments under this c omment:
Commenters described ways to incentivize the construction of new transmission lines.

Commenters noted that under typical cost

- recovery rules, new generation projects must pay to construct their own interconnection (called a tie

- line). For location

- constrained renewable sites, commenters said that the cost of such lines can be very substant ial which deters new investment. Commenters stated developers are reluctant to build projects with no guaranteed transmission, and transmission owners are reluctant to build new lines without assurance of demand from generators. Commenters described pionee ring solutions to this problem such as California's Location Constrained Resource Interconnection Facility (LCRIF) program and Texas' Competitive Renewable Energy Zones (CREZ). Commenters said that these programs incentivize the construction of new transmi ssion lines to designated resource

- rich areas. By enabling development of projects that otherwise may be uneconomic, commenters said that these220 programs offer a creative way to support development of renewable resources at the lowest cost. Commenters descr ibed key features of programs that other states might adopt to support interconnection of location

- constrained renewable resources.

-- Create Competitive Renewable Energy Zones; a CREZ is generally a remote geographic area where renewable generation facili ties will be constructed. In conjunction with setting up a CREZ, the required transmission upgrades to deliver the renewable energy generated to load areas are defined. Once the needed transmission upgrades are identified, the state public utility commissi on provides the necessary approvals for their construction. A bill creating a CREZ should grant a PUC specific authority to extend transmission construction to relieve congestion and transmit renewable energy to load centers and could allow utilities to in clude capital costs for transmission facilities not yet in service in their rates.

-- Reduce the Time Needed for Planning, Building, and Siting Transmission; the average time it takes to build a new high voltage transmission line is in the range of a decade or longer for most planning regions. For lines crossing multiple planning regions, balancing areas, RTOS's markets or state boarders, the time to construction is expected to be much longer. A relatively painless first step for accelerating transmission si ting would be to maximize the potential for joint use of existing rights

- of

- way for other transmission functions. The U.S. is crisscrossed by railroads and highways that already take up land. These existing rights

- of

- way could provide dual service as
route s for new bulk

- power transmission lines. Such dual usage could not only offer additional revenues to land owners, but also cut down on land

- owner objections.

-- Maximize the Use of Present Infrastructure; states could encourage the maximization of present transmission infrastructure by seeking approval from FERC and NERC for dynamic line ratings. Dynamic line rating much more precisely matches the transfer capacity of high voltage lines to their actual operating environment in real time, increasing their tr ansfer capacity by 10

- 20 percent or more. Dynamic line ratings would increase transmission capacity of existing lines at extremely low cost and provide line owners with the maximum return on their investment.

Commenters explained that investor

- owned utili ties lack sufficient incentives to invest in technologies that allow them to monitor the real

- time load or reduce losses on their electric grid, particularly on the distribution grid, but also to some extent on the transmission grid. Commenters said that u tilities historically have used voltage reductions in emergency situations to reduce load and avoid power outages. With advances in monitoring and control technologies, particularly on the distribution grid, commenters said that some utilities now are redu cing voltage during peak conditions to reduce the need for peaking generation. Commenters stated that this capability can be expanded greatly, as incentives grow for investments in relevant technologies and, as changes occur over time in related business a nd regulatory models. Through the implementation of sophisticated volt

- VAR management, which also will increase as these incentive structures change, commenters said that utilities can improve the efficiency of the grid during all loading conditions and ca n optimize voltage levels on their systems during peak and

non

- peak loading conditions, thereby optimizing the use of low

- or zero

- carbon emitting generation. Commenters added that certain grid modernization investments, e.g., in transformers, also help ac hieve structural efficiencies. Commenters concluded that the investments in the grid needed to help achieve efficiencies and, thereby, help reduce greenhouse gas emissions, also will provide benefits to customers by improving power quality.221 Comment 5 : Co mment s suggesting the EPA should allow financing program strategies as part of the implementation plans

.
Response 5 : EPA encourages the use of innovative EE program design and financing as enabling measure s that facilitate greater use of RE and demand

- side EE. In the final rule, however, financing program strategies are not directly recognized as an eligible measure that can be used to adjust a CO2 emission rate, because financing does not directly substitut e for electric generation from the grid or avoid electricity use from the grid.

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

Commenter s recommended that EPA allow states to utilize financing program strategies as part of their implementation plans. Commenters stated that a ppropriate financing schemes can help promote many demand

- side energy efficiency strategies under building block 4. Co mmenters provide d an example from Peoria, AZ where the local government has incentivized reductions in electricity consumption through low interest financing resulting in 7.7% annual electric usage reduction.

Commenters noted that many states have develop ed successful revolving loan fund (RLF) programs for demand

- side energy efficiency and that these programs often exist outside of commission regulated DSM programs and do not have rigorous EM&V standards applied to them. However, commenters added, RLF prog rams are successful because they have low operational costs and low default rates, and they also help serve lower income residents who often do not have the needed cash or credit to make long term investments in energy efficiency, such as replacing old, in efficient, or possibly broken HVAC systems. Commenters stated that the EPA needs to work with states to develop approvable EM&V measures that allow for energy savings to be counted in state plans, but, these EM&V programs cannot be so burdensome that they raise the operational costs of RLFs and cause utilities and states to reconsider offering them. Commenters added that costs of EM&V will also often be passed along to the customers who greatly benefit from the programs.

Commenters stated that financing pro grams to enable energy efficiency improvements should also be credited to state plans, and there is a range of financing options available including revolving loan funds, state green banks funds, on

- bill financing programs (23 States), property

assessed cl ean energy programs (PACE) (in 9 States and District of Columbia), and others that result in implementation of energy efficient measures.

Commenters encouraged EPA to explicitly reference PACE financing in its final rule as a compliance tool available to t he 31 states that have authorized it, and to encourage the remaining 19 states that have not to authorize the use of PACE and to implement programs.

Commenters stated the U.S.DOE issued guidelines for PACE projects in its "Guidelines for Pilot PACE Financ ing Programs

. " Commenters stated these DOE guidelines are intended to help structure projects so as to ensure that the energy savings are realized and that mortgage holders222 are protected. Commenters stated the specific guidelines to help ensure that projec ts will deliver energy savings include, but are not limited to, the following:

• Projects should have a savings

- to

- investment ratio of greater than one;

• Property value should be greater than outstanding debts attached to the property;

• Mortgage

- holders should receive notice of PACE liens;

• PACE liens should not accelerate in the event of a property owner default;

• Projects should be limited to 10% of the property's estimated value;

• Contractors and inspectors should be properly certified and licensed; and

• PACE pr ograms should incorporate a debt service reserve fund to protect investors.

In addition to these DOE guidelines, commenters stated EPA may wish to suggest additional underwriting provisions for PACE projects to verify that funds are used to pay for the cle an energy

- related projects for which they are intended.

Commenters encouraged EPA to explicitly reference revolving loan funds in its final rule as a compliance tool available to help all states reduce their CO 2 emissions under building block four. Comme nters stated revolving loan funds have been proven to leverage initial capital investments by providing low

- interest loans to multiple projects and replenishing the fund with the interest charged to the facility owner. Commenters stated that Texas, for exa mple, uses its LoanSTAR revolving loan fund to help finance energy efficiency investments in state, public school, university, and hospital facilities around the state, which have resulted in $395 million in low interest loans as of January 2014, a total o f $419 million in energy savings for Texas taxpayers, and avoided emissions of more than 3.7 million tons of CO 2 . Commenters stated according to the National Association of State Energy Officials, as of July 2013 there were 79 revolving loan fund programs in operation across 44 states, which represents a total of $2 billion in energy efficiency financing. Commenters stated these programs should be explicitly referenced and the expansion of these programs should be encouraged in EPA's final rule.

By reducin g counterparty risk for lenders, commenters stated loan

- loss reserve funds allow lenders to reduce interest rates on loans offered to building owners because they will be partially or fully reimbursed in the event that a borrower defaults on a loan. Commen ters indicated that States should be allowed to and encouraged to set up and fund loan

- loss reserve programs in order to leverage their investment and reduce the cost of delivering energy efficiency and reducing CO 2 emissions; for example, Michigan Saves h as worked with private lenders to offer a loan

- loss reserve so that they will reduce the rates they offer to homeowners in Michigan looking to install energy

- efficient equipment in their homes at annual interest rates of no more than 7 percent.223 Because loan

- loss reserve funds can reduce the cost of financing energy efficiency upgrades to buildings, commenters encouraged EPA to explicitly reference loan

- loss reserve funds in its final rule as a compliance tool that states can use to reduce CO 2 em issions under building block four.

By offering building and home owners tax deductions, tax credits, or rebates for installing certain energy

- efficient technologies, commenters indicated that states can directly reduce the cost of investing in energy eff iciency and encourage building owners to reduce their energy consumption and CO 2 emissions. Commenters stated many states have property tax exemptions for energy

- efficient buildings or buildings with solar photovoltaic systems, sales tax exemptions for cer tain energy

- efficient technologies or renewable energy systems, personal and corporate tax credits or deductions for installing energy

- efficient technologies or renewable energy systems, and/or rebate programs for energy

- efficient technologies (e.g., LED l ighting, solar photovoltaic systems, efficient hot water heaters, efficient furnaces or heat pumps, energy audits, and more). Commenters stated these tax incentives and rebate programs should be actively encouraged and specifically mentioned in EPA's final rule as compliance mechanisms for states to use to reduce CO 2 emissions under building blocks three and four.

Commenters emphasized that the EPA did not provide an exhaustive listing of low

- cost finance tools available to help reduce the cost of investing in energy efficiency. To ensure maximum flexibility for states, commenters stated additional tools (e.g., on

- bill financing, energy infrastructure banks, energy

- efficient mortgages) should also be available to be used as compliance mechanisms, however, commenters believed that the aforementioned low

- cost finance tools should be explicitly referenced in the final rule to give states additional certainty as to the types of programs they could implement to help reduce their CO 2 emissions under building block four of the Clean Power Plan.

Commenters indicated that State

- level green banks are a valuable tool for scaling

- up clean energy and will play an essential role in reducing the costs of clean energy investment, increasing private capital investment, lowering costs to consumers, and creating jobs. Commenters stated the success of the Connecticut Green Bank, the first in the nation, is strong evidence of the benefit s of green banks in accelerating the transformation of the energy sector that the EPA rule envisions and provides a promising model for other states as they prepare to implement that rule.

Commenters stated green banks help build the market mechanisms tha t connect investment with projects that allow consumers to save money while adopting cleaner energy. Commenters stated no matter the policy a state adopts to increase the deployment of renewables and energy efficiency, a green bank can help the state imple ment that policy with ample and reasonably

priced capital, and with green banks, this capital will come through public

- private partnerships that maximize the efficiency of each public dollar while stimulating private investment.

Commenters stated Building Blocks 3 and 4 call for increased usage of renewable power and the implementation of energy efficiency measures to reduce overall demand for electricity from carbon

- emitting power plants. Commenters stated these strategies will, to a significant extent, f

all outside of the traditional utility

- financing arena and in many instances will be spearheaded by independent project developers dependent on access to private capital. While utilities have been investing in wind and solar power and energy efficiency and demand reduction programs224 and will continue to do so, commenters stated much of the growth and innovation in these areas has come from outside the utility sector.

Commenters stated the prime example is roof

- top (or distributed) solar where decentralized entrepreneurs interfacing directly with consumers are reshaping retail power markets and delivering low

- cost electricity. Commenters stated expanding these projects to serve a larger population of power users will be critically important to the success of 111(d) implementation plans. Commenters stated this expansion will require innovative financing approaches that increase the availability and lower the cost of capital and offer electricity to consumers at competitive prices.

Commenters stated a green ban k typically takes the form of a state chartered financing authority that leverages private capital with public dollars to grow clean energy markets quickly. Commenters stated green banks increase total clean energy investment through innovative financing m echanisms and stimulate demand by creating new market structures that increase consumer access to clean energy solutions. Commenters stated green banks lower the price of clean energy through better financing terms and have minimum/no long

- term costs to ta xpayers, as public dollars are returned and recycled. Commenters indicated States can authorize green banks to use a wide range of financing tools and apply them to a variety of clean energy technologies and strategies. Commenters stated green banks can op timally scale up the amount of clean energy in a state, efficiently using public dollars and reducing harm to consumers.

Commenters stated green banks drive efficient and rapid deployment of clean energy by focusing on four main objectives, as follows: (1 ) accelerate market growth by delivering consumers low

cost capital for cheaper and cleaner energy; (2) fill gaps in commercial investment and maximize private: public leverage; (3) maximize consumer demand for clean energy by facilitating up

- front financi ng and market transparency; (4) build self

- sustaining loan programs to maximize efficiency of public dollars while holding taxpayers harmless.

Commenters stated green banks drive efficient and rapid deployment of clean energy in four
ways: (1) lowering th e price of clean energy to allow for a higher market penetration; (2) reducing subsidies and offering taxpayer

- neutral support for clean energy; (3) providing increased security for energy efficiency investment; (4) coordinating and aggregating small proje cts to attract investors.

Commenters stated green banks do not need to rely on subsidy to grow clean energy markets, green banks allow states to grow clean energy markets while preserving taxpayer or ratepayer dollars. Commenters stated green banks loan at reasonable and for

- profit rates commensurate with risk. Commenters stated green bank lending only finances projects that are net present value positive at reasonable discount rates

- the projects financed by green banks produce energy solutions that are both cleaner and cheaper than the pre

- existing energy consumption by the end

users.
Commenters stated the green bank model works; its successful implementation across the country will attract more private investment and increase the deployment of energy efficiency measures and renewable energy technologies at low costs to consumers. Commenters stated thus, green banks can perform a unique function in accelerating the transition to clean energy that will225 be required to meet the state emission reduction goa ls in EPA's 111(d) rule. Following and building on the Connecticut experience, commenters indicated states should consider creating green banks as an essential tool to support smart, cost

- effective implementation of state plans developed in response to EPA 's final rule.

Commenters stated green banks are a proven tool to grow clean energy markets and reduce GHG without punishing consumers. Commenters stated green banks use limited public dollars to leverage the large amounts of private investment needed to achieve the EPA's proposed GHG reduction targets, and because public dollars are used for finance rather than grants, public funds invested in green banks are preserved and can be returned to taxpayer and/or ratepayers. Commenters stated this cost

- effectiv e and scalable approach to clean energy market growth makes green banks an ideal tool for state implementation of the proposed EPA rules. Commenters indicated State interest in green banks is rising rapidly, and the EPA and Obama Administration can support the proliferation of this successful tool by promoting green banks as part of state implementation plans.

Commenters stated the EPA should provide flexibility on defining EE, to include EISA, codes and standards, and distribution efficiency. Commenters s tated EE is a broad term which can be considered in different categories and quantified in different manners, including utility scale programs and changes in codes and standards. Commenters stated Washington's early action in the area of EE means that achi eving future EE will be more costly than what has been achieved to date. In order for Washington to meet the energy efficiency targets needed to meet the 2030 EPA final goal, commenters stated EE must be defined broadly to include all aspects of energy eff iciency savings, whether it is by federal level, state, or regional codes and standards rather than just utility

- run energy efficiency programs.

To ensure states have flexibility to acquire energy efficiency using whatever means is most effective, comment ers stated the EPA needs to clarify the following with respect to energy efficiency:

• Federal Energy Independence and Security Act (EISA): Savings from improvements in energy efficiency in the state associated with the Energy Independence and Security Act s hould count toward energy efficiency savings in the state. If states cannot take credit for these savings, EPA would be developing a policy where states will fight against federal efficiency standards just so the states can implement the same policies at a state level where they should get credit, which could ultimately undermine the federal standards

.

Comment 6 : Comments suggesting credit for nuclear investments

. Response 6 : The final rule does not include nuclear generation from existing or under construction units in the determination of the BSER. Generation from new nuclear units and capacity uprates at existing nuclear units will be eligible for use in adjusting a CO2 emis sion rate, however, preserving generation from existing nuclear capacity is not eligible for use in226 adjusting a CO2 emission rate. For more information on the treatment of nuclear when adjusting

a CO2 emission rate, see s ection VIII. K.1.a.(8) of the final rule preamble of the CPP

. The following are summaries of the specific public comments under this c omment:
Commenters argued that Virginia would only get credit for 5.8% of its zero carbon nuclear generation based on the manner in which MWhs from zero carbon nuclear facilities are credited towards the state compliance goal in comparison to 100% credit to MWhs generated from wind and solar energy. Commenters argued that the credit for nuclear investments should be raised.

Comment 7 : Comments r egarding net carbon emission reductions from new carbon

- emitting generation sources

.
Response 7 : In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources may be used by an affected EGU or state to adjust a CO2 emission rate, regardless of whether the renewable generation or demand

- side EE savings oc cur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO2 emission performance rates and state rate

- based CO2 goals in the final emission guidelines, the MWhs impacts are added to the denominator of an affected EGU’s re ported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid and so separate quantification of emission reduction is not necessary. Further adjustment of CO2 emissions would double count CO2 emissions impacts across the grid. For more information about the MWh accounting approach to adjust the CO2 emission rate of an affected EGU to reflect demand

- side EE, see Section VIII.K.1

. For more information regarding additional accou n ting and reporting requirements related to biomass, see s ections VIII.I.2.c, VIII.K.1.a.(3)(b) and VIII.K.1.a.(9) of the final rule preamble of the CPP

.
The following are summaries of the specific public comments under this comment :
Commenters argued that EPA should only permit states to count net carbon emission reductions from new carbon

- emitting generation sources when determining Section 111(d) compliance to prevent over

- counting of emission reductions. Commenters stated the proposed rule contemplates the use of other carbon

- emitting sources of energy, such as biomass, and while this new generation may displace power from higher carbon

- intensive sources, ne w carbon emissions will also be created. Commenters argued that such sources could displace existing zero

- carbon renewable energy sources or deployment of energy efficiency. Commenters stated that failing to account for emissions from new sources could als o create an incentive to replace existing generation with equally carbon

- intensive new generation, resulting in costs but no actual reductions in carbon emissions and potentially causing an increase in net emissions over time.

Commenters believed that the EPA's approach may have implications for states' ability to use their existing RPSs for Section 111(d) compliance. Commenters stated that since states take different approaches as to what counts as a "renewable" source, the EPA should make it clear227 what c ounts as a RE for purposes of Section 111(d) compliance. Commenters also stated any credit earned by new carbon

- emitting generation must reflect the actual net emission reduction.

Comment 8 : Comments supporting the allowance of credit for a wider range of EE measures for both utility

- sponsored and non

- utility sponsored EE programs
Response 8 : The EPA recognizes the value of non

- BSER measures, such as demand

- side EE and combined heat and power, to reduce CO2 emission from affected EGUs, and allows for the inclusion of non

- BSER measures as a part of a state’s plan to meet the emission guidelines. To the extent qualifying demand

- side EE, renewable energy and non

- BSER measures are tied to a state plan, the quant ified and verified MWh impacts of the measures may be used by an affected EGU or state to adjust a CO2 emission rate , regardless of whether the savings occur inside or outside the state or territory. This adjustment results in a lower adjusted CO2 emission rate.

Incremental emission reduction measures, such as RE and demand

- side EE, installed after 2012 can be recognized as part of state plans, but only for the emission reductions they provide during a plan performance period. The measures must meet the ge neral and specific eligibility requirements for resources used to adjust a CO2 emission rate, including but not limited to renewable energy, demand

- side EE, water system efficiency, CHP, waste

- to

- energy , transmission and distribution measures including Vol t/VAR optimization, and others as described in S ection VIII.K.1 of the final rule preamble of the CPP

. The measures must also meet the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings are desc ribed in S ection VIII.K.3 of the final rule preamble

. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources used to adjust a CO2 emission rate, including but not limited to demand

- side EE, see s ection VIII.K.1 of the final rule preamble

.
Measures that reduce CO2 emissions outside the electric power sector, including emission reductions from reductions in vehicle fleet use, may no t be counted toward meeting a CO2 emission performance level for affected EGUs or a state CO2 goal, under either a rate

based or mass

- based approach, because all of the emission reduction measures included in the EPA’s determination of the BSER reduce CO2 emissions from affected EGUs. For more information, see section VIII.K.1.c of the final rule preamble

.

The MWh accounting method in the final rule corresponds with the use of MWh

- denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. The accounting method only requires a quantification of the MWh generated or avoided by an eligible measure, and t hus credits or adjustments can be denominated in MWh and do not need to represent an approximation of the CO2 emission reductions that result from those MWhs. The final rule allows states to develop and use emissions budget and emission rate credit (ERC)

- b ased trading programs depending upon the type of approach the state chooses. For more228 information about the approaches and requir ements related to trading, see s ection VIII.C and VIII.K. 2 of the final rule preamble

. The following are summaries of the speci fic public comments under this comment :
Commenters encouraged EPA to ensure that all reductions in electricity demand achieved through energy efficiency policies can be fully counted in the denominator of the state's power sector emission rate, assuming pr oper MR&V protocols are followed. Commenters stated that in addition to energy efficiency resource standards qualifying demand reduction measures should include appliance standards, building standards, incentives for combined heat and power (CHP)
or waste heat to power (WHP), and all financial policy tools a state may use to reduce demand, including grants, tax credits, and loans.

. If a state implements the Clean Power Plan in a manner that involves tradable emission or generation credits, commenters encouraged the EPA to allow states to fully account for, and assign credits to, demand reductions at large industrial or commercial fac ilities that are otherwise voluntary. Commenters stated for example, if a water utility reduces its electricity demand by reducing the demand for water (thereby reducing demand for pumping and treatment), this reduction should be creditable to the state's emission rate denominator.

Commenters supported an "Everything

- Should

- Count" approach to clean energy. Commenters encouraged EPA to produce a final rule that provides states with ample guidance on the best approach to including all viable clean energy pro ject types. While the current rule and the State Plan Considerations Technical Support Document outline methods for including EE and RE programs and projects operated by regulated utilities providers, commenters stated the current proposal does not provide significant guidance on including a broader range of projects, including private guaranteed energy performance contracts, behind

- the

- meter private solar projects, private combined heat and power projects, etc. While the inclusion of these types of technol ogies poses unique enforceability challenges, commenters stated they could significantly contribute to states' ability to fulfill their CPP obligations. Commenters strongly urged that EPA provide guidance in the final rule on how to include such technologi es.
Commenters stated that some large industrial or institutional entities and commercial retailers (e.g., big

- box stores) may aggregate multiple facilities and be interested in going through the effort to get credit for energy savings they achieve on the ir own. Commenters stated the same procedures should be applied for these customers as the ones described above for energy performance contracting. For industrial projects, however, commenters stated there may be an additional need for adjustments based on actual production levels. Commenters stated the DOE Superior Energy Performance program has developed a methodology for estimating baseline and savings from industrial projects and recommended that EPA approve this methodology as adequate for state compli ance plans.

Commenters stated that EPA should not make the eligibility of emission rate reductions contingent on state requirements. Commenters requested that EPA not penalize companies for the actions of their state governments. Specifically, commenters pointed to an example wherein Oklahoma has recently proposed a three

- year ban on wind energy development. Commenters229 asked that EPA's final rule not require companies to be dependent on state action, and allow companies as much time as possible to develop renewable energy generation.

Commenters said that energy efficiency offers an opportunity to create over 300,000 new jobs, save consumers $100 billion per year in energy bills, and eliminate 600 million tons of CO 2 emissions each year.

Commenters describ ed the overall benefits to greater investment in energy efficiency, which has huge potential to conserve demand and can have a significant impact on greenhouse gas reduction from power plants, particularly when technological and cost constraints can limit the degree of improvements realistically possible at the plants themselves. Commenters said that there are several active and passive approaches to demand reduction and peak shaving at various stages of development or implementation today. For example, com menters said that ICAC members are actively involved in developing technologies for reducing energy demand by up to 30% from commercial buildings. Commenters agreed that programs to reduce peak demand should count toward compliance, and that the EPA should issue guidance explaining how these programs could be used under this rule and detailing the EM&V procedures required for such compliance.

Commenters urged the EPA to consider a diverse array of EE programs, including those beyond typical utility or stat e sponsored rebate programs that are overseen by utility commissions. Commenters stated building energy codes, appliance standards, RLFs, efficiency tax credits, building disclosure programs, behavioral modification programs, etc. are all successful and in novative programs that the EPA should be encouraging states to consider in CPP compliance. Commenters agreed that literature review indicates that building codes and appliance efficiency standards can, by themselves, achieve savings comparable to those EPA projects under building block 4, and reinforced their conclusion that the EPA's proposed savings targets are readily achievable. Commenters stated that it is important for the EPA to encourage states to allow for energy efficiency (EE) savings from a wide variety of programs, including those outside of typical, certified demand side management (DSM) programs. Commenters pointed to the range of geographic, cultural, political, and climate differences in the states and said that encouraging states to count E E from a wide range of programs and policies will encourage energy savings and innovation that might not otherwise occur in individual states. Commenters added that it is important for the EPA to recognize that participation in typical, certified DSM progr ams is a voluntary decision by consumers and no matter how much money is spent on marketing and outreach (and thus increasing program costs), some states and utilities simply might not be able to achieve the savings targets outlined in the CPP through typi cal DSM programs.

Commenters advocated for EPA to allow a broad range of energy efficiency measures outside of utility

- sponsored programs. Commenter s maintained that more than half of current energy efficiency measures are delivered through nonutility pro grams, residential contractors operating outside of state programs and building and industrial facility operators. Commenter s recommended using EM&V practices for non

- ratepayer energy efficiency programs based on SEE Action Network Energy Efficiency Progra m Impact Evaluation Guide. Commenter s recommended the use of a registry to register and retire emissions from non

- utility programs. Commenter s asked that EPA clarify which types of efficiency programs could be credited toward compliance and the required EM &V. Commenters were concerned that certain230 language in the TSD about enforceability and what types of state programs are approvable seems to be confusing and possibly limiting in terms of the types of programs that states could use in their plan.

Commente rs supported the current proposal to credit a range of efficiency programs including both utility and non

- utility programs, as long as all measures include the same standards for EM&V. Commenters recommended a wide range of programs including behavioral pr ograms, financing programs, city programs, and other voluntary programs should be credited in state plans. Commenters further recommended increased compliance with building codes (0.87 percent per year in 2030) should be included in the potential emissions reductions in the BSER for Block 4 and both increased compliance and adoption of updated building codes by states and local governments should be credited in state plans.

Commenters commented that the EPA should not consider limiting the wide variety of EE sources available to meet the proposed standard. Commenters provided several examples of several measures that should be considered as eligible to contribute toward the EE achievement target, including transmission and distribution line efficiency upgra des, design and operational practice improvements; CHP; and improved codes and standards. Commenters added that restricting the use of any source of EE will reduce the ability of EE to contribute to the reduction of emissions, and ultimately increase the c osts of compliance. Commenters explained that transmission and distribution facility efficiency upgrades, in particular, can be a significant component of any EE program. Commenters stated the distribution efficiency improvements can result in both energy and capacity savings and provide other operational benefits. Similarly, commenters stated that transmission equipment efficiency improvements and practices can allow the grid to operate more safely and improve system utilization, thereby reducing emissions

. Commenters stated these measures collectively could substantially contribute to EE achievements and should be creditable toward any reasonable EE targets that are established.

Commenters stated that as proposed, the Clean Power Plan allows both utility a nd non

- utility programs to receive energy savings credits. Commenters stated however, some aspects of the proposal should be clarified in this regard including indicating which types of programs are eligible for inclusion in state plans and for energy effi ciency credits, and which are not. Commenters made several proposals. Commenters stated the EPA should allow states and utilities to receive savings credits for a wide variety of utility programs, including but not limited
to measure

- based incentives, beha vior change programs, transmission and distribution system upgrades, financing programs, building code support programs, and incentives for combined heat and power (CHP). Commenters stated non

- utility policies and programs should be eligible for savings cr edits and may include building energy codes, energy retrofit ordinances, tax incentives, financing programs, public sector energy efficiency improvement policies or programs, programs to spur market transformation, state

- based appliance efficiency standard s, state policies or programs to foster adoption of CHP systems, and state programs to improve industrial or agricultural efficiency. Commenters stated policies or programs adopted and/or implemented by local governments should be eligible for energy savin gs credits if they are included in state plans and the energy savings are properly measured and verified according to EPA

- approved procedures and protocols. Commenters stated for example, some states such as Arizona and Colorado are home rule states where by state constitution certain policies such as building codes are adopted and enforced at the local level, not at the state level. Commenters stated that in such231 cases, states should be allowed to aggregate savings across local jurisdictions, evaluate ener gy savings (if not done by local governments), and receive energy savings credits. Commenters stated likewise, states should be able to receive energy savings credits for public building retrofit or other public sector efficiency programs approved and impl emented at the local level, as long as these programs are part of state plans and the EM&V requirements and other rules established by the EPA are followed. Commenters stated energy efficiency credits should only be claimed for energy savings resulting fro m policies and programs included in state compliance plans. Commenters stated credits should not be provided to individual energy efficiency projects as this would be an administrative nightmare, it would be difficult to ensure that proper EM&V procedures are followed, and it would be difficult to avoid double counting of energy savings credits between policies and programs on the one hand and individual projects on the other.

Commenters encouraged EPA to provide guidance to states to include a broad array of efficiency options in their plans. Commenters stated there are thousands of energy efficiency programs around the U.S., each focused on a different market or technology. Commenters stated that generally, younger programs focus on lighting retrofits, wh ile more mature programs target savings opportunities "deeper" within buildings. Commenters stated the mission of FirstFuel and other companies is to reduce the cost to find these deeper energy savings, by deploying advanced data analytics and offering ins ights through simple, web

- based tools. Commenters stated they do this by using data from advanced electricity and natural gas meters, which provide near

- real

- time information about a building's energy use. Commenters stated their database of Energy Conserv ation Measures (ECMs) includes hundreds of recommendations, which they consider each time they look for savings potential in a building. Commenters stated including a broad list of ECMs helps reduce the total cost of identifying energy efficiency, and redu ces "stranded savings" in buildings

-- a phenomenon whereby certain savings opportunities are cherry

- picked, and others are ignored because they are not supported by incentives.

As technology advances and the cost of resource alternatives change, commente rs stated they hope that the definition of DSM/EE would also be appropriately expansive. Commenters stated this seems to have been recognized by U.S. EPA, but Indiana needs specific guidance demonstrating that U.S. EPA will be receptive to additional energ y efficiency and demand reduction programs.

Commenters believed State implementation plans should let all forms of energy efficiency and demand response activities from industrial sources ("outside

- the

- fence line") compete with other emission reduction technologies, including the following: (1) recognizing and fully valuing the GHG reductions of industrial demand side management activities by allowing compensation equal to EGU to be provided directly to DR providers; (2) encouraging existing state and

re gional GHG programs to include industrial energy efficiency and DR as offsets with compensation adequate to support expansion of those programs; (3) encouraging states to utilize market

- based platforms to provide industrial consumers full value for their r eductions, including the opportunity to use more effective mechanisms for DR aggregators; and (4) encouraging states to consider flexible incentive programs for EE programs, such as retrofits at facilities of large energy users.

Commenters stated that ass uming EPA's final rule allows credits for early action, a national ER program could be launched soon after the rule is promulgated, with support from their232 association's members, utilities, retailers and EPA/DOE. Commenters stated that this program could b uild a large bank of credits that could later be counted toward compliance with state plans starting in 2020 and immediately capitalize on the significant gains in efficiency from the new DOE standard.

Commenters supported EPA's BSER that sets state targe ts by looking at real

- world potential to reduce carbon, but believes the proposal under estimates the amount of RE that can be deployed at reasonable cost. Commenters said EPA excluded a number of additional opportunities such as building codes, transmissi on and distribution, voltage optimization, and combined heat and power. Commenters said EPA should include all available EE opportunities in its final analysis, and increase the targeted annual savings to at least 2% of retail sales.

Commenters recommended that EPA provide specific guidance to states that other non

- utility delivered EE can be included in state compliance plans. Commenters stated EPA may wish to provide additional information in the final CPP on Financing, including that States should receiv e credit for energy savings that result from EE finance programs such as Property Assessed Clean Energy (PACE), and on State Tax Incentives & Rebate Programs such as providing State and municipal tax incentives, as regulations and product rebate programs c an accelerate investment in EE technologies and improve EE outcomes.

Commenters stated that the recommended types of programs to include are listed below:

• Building Energy Codes

• Energy Savings Performance Contracts (ESPCs) delivered by private energy service companies if verified in accordance with well

- recognized protocols such as the International Performance Measurement and Verification Protocol and the Federal Energy Management Program M&V Protocol. Commenters particularly stressed the impo rtance of performance contracting to meeting the CO 2 reduction goals. Commenter s stated that EM&V conducted for typical performance contracts are more rigorous that what is conducted for state energy efficiency programs.

• Privately

- Owned Commercial and Indu strial Retrofit Projects verified using the IPMVP by either the local utility or third

- party experts.

• Building Efficiency Rating Systems including U.S. EPA ENERGY STAR, the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED), and other less well

- established EM&V rating system certifications.

• Energy savings due to superior design and construction in new and renovated buildings and through ongoing operations and maintenance if verified by third

- party licensed architects and eng ineers, who are legally accountable for their work.233 • Residential Retrofit Projects Delivered by States, Non

- Profit Organizations, Contractors and Aggregators that provide home performance upgrades through incentive and labeling programs if verified through established EM&V methods by third

- party evaluators utilizing energy usage data that are weather

- normalized and compared to baseline data and control groups.

• Weatherization and other non

- ratepayer programs.

• Appliance standards

• Industrial energy efficiency p rograms.

• Geothermal (ground source) heat pumps

• Educational and behavioral EE programs

• Electric vehicles

• Water and wastewater sector EE

• Waste to Energy electricity

- generating projects

• Non

- affected CHP

• Low income EE programs

• Refrigerator rebate programs

Commenters stated that v oluntary and emerging EE/RE must be allowed under the rule with significant flexibility and without restrictions on how they can be utilized. Commenters noted that if EPA limits voluntary and emerging EE/RE to 6% of the total EE/RE possible measures, Ohio would be unable to achieve its EE/RE targets.

Commenters stated that, ultimately, the design of EE programs included in section 111(d) implementation plans is a decision for states required to comply with EPA's guidelines. Nonethel ess, commenters believed certain standard design features would enhance the effectiveness of appliance rebate programs and facilitate their consistent and successful implementation on a national or regional scale. Commenters provided a number of recommenda tions for a model program, these are listed below:

• Verification . The rebate would be provided to the consumer upon verification that a new refrigerator had been purchased and the older refrigerator removed and recycled. In all likelihood, the retailer wou ld arrange for the pick

- up of the old refrigerator when the new one is delivered, and the delivery service would complete a form documenting that the refrigerator has been removed and recycled. Upon receipt of the234 paperwork, a rebate check would be mailed to the consumer by the utility funding the rebate.

• Backup Refrigerators . Some consumers may have secondary or backup refrigerators (or other appliances such as room air conditioners) that could be removed at the same time that the primary refrigerator is replaced. With a modest additional rebate, consumers could be motivated to relinquish these secondary refrigerators, which could be removed and recycled for a minimal additional cost and the benefits credited to the utility funding the rebate program.

• Reb ate Amount . The amount of the rebate may need further analysis and could vary from region to region, but commenters believed a rebate of $100 or more is likely to provide an effective incentive for purchase of new refrigerators and change consumer behavior more than current rebate levels, which are often significantly less than $100 in many state
programs. A somewhat higher rebate could be offered to incentivize purchases of ENERGY STAR products.

• Calculating Energy Savings and GHG Reductions . The energy sa vings and associated GHG benefits from linked purchase/recycling rebates would represent the difference in energy consumption between the new and replaced product, multiplied by the number of years that product would have remained in service in the absence of the rebate. Commenters believed that a straightforward formula is available to determine rebate

- related energy savings and GHG reductions using this approach. In their own analysis, described more fully in the appendix to their comments, commenters use d extensive available data on the efficiency of new and old appliances, the projected service life of older units and the likely age distribution of products that would be replaced to calculate an "average" energy saving and GHG reduction per unit. By mult iplying this value by the total number of replaced units, commenters then determined aggregate energy savings and converted them into GHG reduction credits that could count toward section 111(d) compliance. Commenters' methodology could be readily adapted to support ER programs used for section 111(d) compliance.

• Age of Eligible Units . There should be no restriction on the age of refrigerators eligible for rebate

- induced replacements. The absence of such a restriction would simplify implementation and recordkeeping and thus avoid complexity and confusion as well as reduce the significa nt amount of EM&V resources that are diverted from direct energy efficiency improvements to administrative requirements. It would also maximize the GHG reductions achieved: even recent model refrigerators are markedly less efficient than new 2014 models an d, because of their longer remaining useful lives, their replacement will yield significant energy savings that save consumers money and reduce GHG emissions.235 • Role of DOE Standards and ENERGY STAR Levels . Consumers should be eligible for a rebate whether the refrigerator they purchase bears the ENERGY STAR label or instead complies with the latest DOE efficiency standards. The difference in efficiency on an actual annual energy use basis between DOE

- compliant and ENERGY STAR products has narrowed significa ntly compared to earlier years as a result of the significantly more stringent DOE standards. Maximizing consumer choice by allowing rebates for both product classes will increase the number of replaced products and produce greater overall benefits. This i s because program participation will increase significantly with a broader range of products available for rebates and less complex, more inclusive eligibility criteria that encourage consumers to take advantage of these rebates. However, as noted above,
p urchase of higher efficiency ENERGY STAR products could still be encouraged by offering a somewhat higher rebate to purchasers of those products.

• Duration of Program . To maximize results, annual ER rebate programs should be continued for at least five con secutive years and perhaps longer to provide a full opportunity to reach consumers who could be influenced by rebates to purchase new products.

Commenters stated that, ultimately, the design of EE programs included in section 111(d) implementation plans i s a decision for states required to comply with EPA's guidelines. Nonetheless, commenters believed certain standard design features would enhance the effectiveness of appliance rebate programs and facilitate their consistent and successful implementation o n a national or regional scale. Commenters provided a number of recommendations for a model program, these are listed below :

• Verification . The rebate would be provided to the consumer upon verification that a new refrigerator had been purchased and the ol der refrigerator removed and recycled. In all likelihood, the retailer would arrange for the pick

- up of the old refrigerator when the new one is delivered, and the delivery service would complete a form documenting that the refrigerator has been removed an d recycled. Upon receipt of the paperwork, a rebate check would be mailed to the consumer by the utility funding the rebate.

• Backup Refrigerators . Some consumers may have secondary or backup refrigerators (or other appliances such as room air conditioners ) that could be removed at the same time that the primary refrigerator is replaced. With a modest additional rebate, consumers could be motivated to relinquish these secondary refrigerators, which could be removed and recycled for a minimal additional cost and the benefits credited to the utility funding the rebate program.236 • Rebate Amount . The amount of the rebate may need further analysis and could vary from region to region, but commenters believed a rebate of $100 or more is likely to provide an effecti ve incentive for purchase of new refrigerators and change consumer behavior more than current rebate levels, which are often significantly less than $100 in many state programs. A somewhat higher rebate could be offered to incentivize
purc hases of ENERGY S TAR products.

• Calculating Energy Savings and GHG Reductions . The energy savings and associated GHG benefits from linked purchase/recycling rebates would represent the difference in energy consumption between the new and replaced product, multiplied by the number of years that product would have remained in service in the absence of the rebate. Commenters believed that a straightforward formula is available to determine rebate

- related energy savings and GHG reductions using this approach. In their own analysis, described more fully in the appendix to their comments , commenters used extensive available data on the efficiency of new and old appliances, the projected service life of older units and the likely age distribution of products that would be replaced to calculate an "average" energy saving and GHG reduction p er unit. By multiplying this value by the total number of replaced units, commenters then determined aggregate energy savings and converted them into GHG reduction credits that could count toward section 111(d) compliance. The commenter' s methodology coul d be readily adapted to support ER programs used for section 111(d) compliance.

• Age of Eligible Units . There should be no restriction on the age of refrigerators eligible for rebate

- induced replacements. The absence of such a restriction would simplify im plementation and recordkeeping and thus avoid complexity and confusion as well as reduce the significant amount of EM&V resources that are diverted from direct energy efficiency improvements to administrative requirements. It would also maximize the GHG re ductions achieved: even recent model refrigerators are markedly less efficient than new 2014 models and, because of their longer remaining useful lives, their replacement will yield significant energy savings that save consumers money and reduce GHG emissi ons.

• Role of DOE Standards and ENERGY STAR Levels . Consumers should be eligible for a rebate whether the refrigerator they purchase bears the ENERGY STAR label or instead complies with the latest DOE efficiency standards. The difference in efficiency on a n actual annual energy use basis between DOE

- compliant and ENERGY STAR products has narrowed significantly compared to earlier years as a result of the significantly more stringent DOE standards. Maximizing consumer choice by allowing rebates for both prod uct classes will increase the number of replaced products and produce greater overall benefits. This is because program participation will increase237 significantly with a broader range of products available for rebates and less complex, more inclusive eligib ility criteria that encourage consumers to take advantage of these rebates. However, as noted above, purchase of higher efficiency ENERGY STAR products could still be encouraged by offering a somewhat higher rebate to purchasers of those products.

• Duratio n of Program . To maximize results, annual ER rebate programs should be continued for at least five consecutive years and perhaps longer to provide a full opportunity to reach consumers who could be influenced by rebates to purchase new products

.
PRIVATE S ECTOR EE PROGRAMS
Commenters stated the rule does not account for energy efficiency projects delivered outside of utility programs by private sector ESCOs and stated the market for ESCO energy efficiency was $4.8 billion in 2012, while utility efficiency p rogram budgets totaled $5.7 billion in the same
year. Commenters stated the work is done through performance

- based contracts (PCs) for energy savings, where the ESCO reduces the energy consumption of its customers by installing new energy efficient equipme nt at their facilities, and the investment is paid off over time with the resulting savings from the customers' utility bill. Commenters indicated the performance of the newly installed equipment, and the resulting energy savings for its customers, is cont ractually guaranteed by the ESCO, and the performance of the project is measured and verified (M&V) by professionals, using internationally established protocols. Commenters stated that accounting for the contributions of the well

- established PC market by incorporating PCs as viable tools for state emission reduction under the Clean Power Plan would result in an additional cumulative savings of 104 to 190 million MWh by 2030.

Commenters stated that for existing and prospective programs and policies, EPA s hould acknowledge, as it did with EERS and other ratepayer programs, that actions taken pursuant to existing state ESPC policies and programs provide a potentially substantial contribution for CPP compliance. Commenters stated it should also delineate what types of legal and policy tools will be viewed as sufficiently enforceable for purposes of including ESPCs in compliance plans and by whom. Commenters stated for example, laws, regulations or executive orders requiring public building efficiency enhanceme nts in a state should be deemed as sufficient for credibly projecting ESPC and broader public building energy savings. Commenters stated that inclusion of ESPCs under the umbrella of an EERS or other utility requirement or target may also be viewed in this way.
Commenters stated that EPA's proposed Clean Power Plan (CPP) will enable states and market actors to utilize the most cost effective options to reduce power sector greenhouse gas (GHG) emissions, including efforts to increase demand

- side energy effi ciency (EE). Commenters noted that demand

- side energy efficiency can be deployed in a variety of ways, through utility programs, state led programs and third

- party energy efficiency projects delivered by private

sector energy service companies (ESCOs). Com menters discussed the ways in which performance contracting (PC) projects can support compliance with the CPP. Commenters stated PC projects are one of many highly

- verifiable methods for implementing GHG

- reducing238 demand

- side EE and renewable energy project s. Commenters noted that much of the private

sector EE work is done through performance

- based contracts for energy savings, in which the ESCO reduces energy consumption of its customers by installing new energy efficient equipment at their facilities. Com menters stated that this investment is paid off over time by the resulting savings in the customers' utility bill. Commenters stated that the performance of the newly installed energy conservation measures, and the resulting energy savings for its customer , is contractually guaranteed by the ESCO. Commenters stated the performance of the project is measured and verified (M&V) by experienced professionals, using internationally established protocols. Commenters stated that this rigorous level of M&V is the f oundation of the performance contracting guarantee.

Commenters indicated that the energy efficiency elements of the Clean Power Plan appear to have been developed primarily with utility energy efficiency programs in mind, despite the fact that energy effi ciency investments through performance contracting approximate those made through utility programs. For example, commenters noted that performance contracting projects and utility programs saw around $12 billion of investment in 2012, with approximately ha lf coming from performance contracting projects. Commenters stated that expressly allowing performance contracting to be a compliance option in the Clean Power Plan would significantly enhance state options for low

- cost and rigorously verified GHG reductio ns. Commenters indicated it would also bring into the effort those companies most focused on producing energy efficiency results.

Commenters stated that including performance contracting projects as an allowable compliance option for state plans is straig htforward and consistent with the Clean Power Plan. Commenters stated it builds upon past inclusion of performance contracting projects in approved state implementation plans for National Ambient Air Quality Standards. In addition, commenters noted that al l 50 states have adopted performance contracting enabling legislation, which provides states with an excellent platform on which to build an effective compliance plan. However, commenters indicated that additional guidance is needed for states to have conf idence that EPA will recognize energy efficiency savings and distributed renewable energy generation delivered by performance contracting projects, and approve state plans that include them. Commenters said the guidance should provide states with needed cl arity on the following items:

• Identify Approvable Pathway. Without limiting state flexibility, EPA can offer clarifying guidance to enable states to include performance contracting project

- related emission reductions in their 111(d) compliance plans. (Furt her detail provided on page 41 of the comment.)

• Recognize All Existing Programs. EPA should acknowledge

-- as it did with energy efficiency resource standards, etc.

-- that existing state performance contracting activities provide a potentially substantial

con tribution to 111(d) compliance. (Further detail provided on page 42 of the comment.)

• Targeting Sources of Energy Savings. EPA should clarify how this requirement applies to performance contracting projects. Commenters recommended that the states be require d only to identify building types239 (e.g. state

- owned, hospitals, universities etc.) targeted for performance contracting and a reasonable estimate of savings to be achieved from anticipated PC projects. (Further detail provided on page 42 of the comment.)

• A ggregation of PC

- Created Emission Reductions. EPA should describe approvable approaches for aggregation of PC project

- related GHG reductions for use in 111(d) compliance. A national registry could serve this purpose, providing efficiency and the greatest d egree of consistency in all aspects of inclusion of project

- related GHG reductions in 111(d) compliance. Alternately, a state energy office (or another designated Agency) can collect (directly or via a third party) data from all PC projects in the state an d determine the avoided emissions achieved. (Further detail provided on page 42 of the comment.)

• Clarify Approvable Approach for Key Compliance Criteria. EPA can assist states by identifying approvable approaches for key compliance criteria that will facil itate inclusion of performance contracting project

related emission reductions. Key compliance criteria for which EPA should identify approvable approaches include M&V protocols, auditing requirements for state performance contracting projects, performance contracting program evaluation methods, and corrective measures. (Further detail provided on page 43 of the comment.)

• Existing Facilities/Installations. Emissions reductions from performance contracting projects that are validated by an approved M&V appro ach and persist into the compliance period should be eligible to contribute to 111(d) compliance regardless of when the measure was installed. (Further detail provided on page 44 of the comment.)

• Contributions to Future Avoided Emissions. Avoided electrici ty consumption should be allowed to count toward 111(d) compliance for performance contacting projects subjected to proper M&V. (Further detail provided on page 45 of the comment.)

Commenters recommended that EPA allow states to include the use of energy s avings performance contracts (ESPCs) as a compliance mechanism under building block four. Commenters stated that focusing on multiple ways to deploy demand

- side energy efficiency gives states additional options and flexibility in meeting their carbon reduc tion targets. Commenters also recommended that EPA allow states to include not only utility

- run and state

run programs in their state implementation plans, but also private

- sector projects in the form of ESPCs delivered by energy service companies (ESCOs).

Commenters stated that the energy efficiency initiative that their industry provides is known as guaranteed energy savings performance contracts. Commenters stated it is a procurement model available to federal, state, local government agencies, universi ties, elementary schools, and industry. Under this procurement model, commenters said building owners receive infrastructure240 replacement associated with energy consuming equipment, such as lighting, heating, and cooling. Commenters asserted that the replac ement of the older technology systems with new efficient systems creates the reduction in utility consumption, which translates into less need for generation, hence lowering GHG emissions.

Commenters stated that what makes energy savings performance contracting an ideal method of end use efficiency is that the reductions are measured, verified, and documented. Commenters stated these steps are necessary in every performance contract as the E SCO must guarantee to the billing owner that the energy consumption will be achieved each year of the contract. In this context, commenters recommended the following policy principles for energy efficiency as a compliance tool: (1) end use efficiency; (2) guidance to states on presumptive, approvable energy efficiency provisions in compliance plans; and (3) recognition and scaling of existing state utility programs.

Commenters discussed the importance of ESPCs as part of state implementation plans. Comment ers stated that ESPCs are comprehensive, self

- funded projects where the equipment and technology installed to modernize buildings and facilities are paid for by guaranteed energy and operational savings. Commenters said that ESPCs allow for a building owne r to make significant EE upgrades without upfront cost.

While Building Block 4 did not exclude ESPCs as a means of compliance that states can utilize, commenters contended that ESPCs should be explicitly called

- out in the final version of the rule, provid ing sufficient guidance to states so that they can determine if ESPCs should be included in their implementation plans. Commenters noted that their company is part of a coalition of other energy service companies (ESCOs) that has developed a technical docu ment to support this and other recommendations related to inclusion of ESPCs in the final CPP. Commenters stated that there are significant opportunities at the state level where ESPCs can be more widely adopted in the "MUSH" market

-- municipal and state go vernments, universities and colleges, K

- 12 schools, and hospitals

-- resulting in substantial decreases in energy consumption.

Commenters stated that there is a large market potential for Performance Contracting (PC) projects, with an estimated worth betwee n $71 and $133 billion dollars nationwide. Commenters stated that about one

- third of the electricity savings produced by PC projects have utilized ratepayer

- funded incentives or rebates. Commenters stated this means that the majority of electricity savings in PC projects will not be accounted for in state CPP compliance plans unless the plans specifically recognize PC projects as a unique delivery mechanism.

Commenters went on to say that they urge the EPA to provide specific guidance to states on how to i ncorporate performance contracting projects into state plans. Without specific guidance, commenters feared that many states will omit performance contracting from their compliance plans, because they thought it would be too difficult to understand or imple ment, and deprive the states of a resource that is both low cost and low in state administrative effort. Despite these challenges, commenters believe that PC can be a significant resource for many states in meeting their CPP targets, and the value of PC ca n be captured by states without the bureaucratic burden that is required for ratepayer

- funded programs.241 Commenters urged the EPA to consider that savings from almost all PC projects is now, and has been for the past two decades, enforceable by contracts w ith public agencies, and that these contracts are public record, available for inspection and/or audit by state air regulators and the EPA. Commenters believe that this enforceability makes PC projects a reliable resource for CPP compliance plans. Commente rs stated that almost 90% of PC projects are implemented by ESCOs for government agencies, pursuant to federal and state laws that permit PC projects as an exception to the normal process for procuring public construction projects. Commenters noted that, i n a PC project, a government agency is permitted to procure PC on a "best value" basis that seeks to minimize the government's life cycle costs, rather than just its first cost. Commenters stated that the quid pro quo is that the PC project contract includ es a savings guarantee by the ESCO that ensures that the energy savings will repay the full cost of the project retrofits.

Commenters understood that some EE "experts" denigrate the value of these savings guarantees, which are legally enforceable and have in fact been enforced hundreds of times. Commenters suggested that such denigration demeans the credibility of thousands of government contract officers who have signed PC contracts. Commenter s stated there is no comparable mechanism in ratepayer

- funded p rograms that guarantees that the customer will get the estimated energy savings. Commenters also indicated they were not aware of any record in ratepayer

- funded programs that is comparable to the 20

- year history of ESCOs making good on their savings
guaran tees, usually with additional retrofits that true up the savings, or, if that fails, with financial compensation to the customer. Commenters believe that this history of enforceable savings guarantees should reassure the EPA and state air regulators that P C projects are a reliable long term resource.

Commenters stated it appears that the energy efficiency elements of the proposed Clean Power Plan were developed primarily with utility energy efficiency programs in mind, despite the fact that energy efficien cy investments through performance contracts approximate those made through utility programs. Commenters stated that expressly allowing performance contracts to be a compliance option in the Clean Power Plan would significantly enhance state options for l ow

- cost and rigorously verified GHG reductions, and it would also bring to the effort those companies most focused on producing energy efficiency results.

Commenters stated additional guidance is needed for states to feel confident that EPA will recognize performance contracting projects and allow them to be included in state plans. Commenters recommended EPA: acknowledge that existing performance contracting projects could provide substantial contribution to 111(d) compliance; provide guidance to enable s tates to include energy savings performance contracting in their plans; clarify how the state plan requirement to identify affected entities applies to performance contracting projects; describe approvable approaches for aggregation of performance contract ing projects; identify approvable approaches for key compliance criteria to facilitate inclusion of emission reductions from performance contracting projects; identify measurement and verification protocols acceptable for determining energy efficiency savi ngs from performance contracting projects; allow avoided electricity consumption delivered by performance contracting projects, with proper measurement and verification, to count toward 111(d) compliance; provide states with flexibility to take credit for emission reductions resulting from performance contracting projects after the CPP was proposed and before the interim compliance period begins (2020); resolve the energy efficiency penalty created when energy efficiency projects are implemented in electric ity importing states;242 and support the development and use of single

- state and multi

- state credit programs and other market

- based systems.

Commenters stated the energy efficiency program industry, companies that offer services to utilities and other entiti es and run programs that save energy, is a robust sector that already operates to implement existing energy efficiency programs, and provided example services from this sector:

1. Energy efficiency portfolio management, Ameren Illinois Utilities contracts wit h Conservation Services Group to manage its portfolio of residential energy efficiency programs, including a lighting program, an appliance recycling program, an HVAC program, and a multifamily energy efficiency program;

Energy efficiency portfolio manage ment, American Municipal Power (a non

- profit wholesale power provider) invested $15 million in an environmental mitigation project and contracted with the Vermont Energy Investment Corporation to manage and implement a portfolio of energy efficiency progra ms offered to AMP's member utilities ; and (3) Energy efficiency program management, when customers purchase a new refrigerator, Jaco Environmental has worked with utilities and local governments in 28 states to remove and safely recycle refrigerators to a void customers continuing to operate the old refrigerator in another area of their home.

Commenters stated these types of companies either operate or carry out a significant portion of today's energy efficiency programs. Commenters stated that electric ut ilities are responsible for 89 percent of the total customer

- funded electric efficiency investments nationwide , but some states, have state government service as program administrators or use independent third

- parties (such as the Conservation Services Gr oup and the Vermont Energy Investment Corporation) to design and manage program portfolios . Commenters noted that for the majority of programs that utilities run, a large portion of program implementation, or the delivery of programs, is carried out not b y the utilities themselves but by third party companies. Commenters noted that this private sector efficiency service infrastructure is available to deliver the energy efficiency needed by EGUs whether or not states choose to implement or expand energy eff iciency programs through public service commissions. Commenters indicated that the energy efficiency program industry is sufficiently robust to have its own publications such as E Source and Greentech Efficiency; conferences such as the biennial ACEEE's En ergy Efficiency as a Resource Conference; professional organization such as the Association of Energy Service Professionals); and in California, a trade association, the California Energy Efficiency Industry Council. Commenters relayed that large businesse s have built or acquired energy efficiency program industry businesses.

Commenters discussed privately

- delivered, non

- ratepayer funded carbon dioxide emission reductions in the residential sector. Commenters asked EPA to consider non

- ratepayer funded solu tions to energy savings. Commenters stated private sector actors have played a driving role in developing a market for residential solar energy installations. Commenters stated HPC and EF believe that the private sector could play a similar role in residen tial energy efficiency installations if appropriately structured and sized incentives were provided. Commenters stated EPA's 111(d) regulation could provide this market by creating a monetary value for the carbon dioxide emissions reductions that result fr om the installation of energy efficiency measures.243 Commenters stated EPA has permitted energy efficiency to be included in state Clean Air Act implementation plans in the past. Commenters stated that during the late 1990s, EPA developed guidance along the se lines, which a few states followed in their NOx SIPS in that era, however, the efficiency retrofit projects developed under that guidance were virtually all in commercial or industrial facilities. Commenters stated residential retrofits were not able to compete well in such markets, because of transaction costs, lack of aggregation mechanisms, and similar issues. Commenters requested that EPA specifically encourage residential retrofits in any private

- sector credit mechanism provisions it includes in 111 (d) guidance.

In this case, commenters stated the private sector would be represented by for

- profit and non

profit firms that successfully deliver reductions in carbon emissions by taking actions that result in the installation of residential energy effi ciency measures in the residential sector that would not have taken place in the absence of their intervention. Commenters stated these firms might be private contractors or firms analogous to the "aggregators" in the solar industry. Commenters stated thes e firms would not necessarily be operating within the context of a ratepayer

- funded (utility

- sponsored) energy efficiency program. However, commenters stated to realize the potential of the private market to contribute to the creation of residential energy efficiency savings, EPA must:

• Permit states to set up market mechanisms that allow private parties to develop and sell energy efficiency projects into such markets;

• Provide specific guidance to allow states to encourage private

- sector undertaking or cata lyzing the installation of residential energy efficiency
measures;

• Provide details in 111(d) guidance on specifics of crediting and enforcement mechanisms and program implementation models that would be acceptable from an EPA perspective for purposes of me eting compliance requirements; and

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

- funded programs.

INDUSTRIAL ENERGY EFFICIENCY

Com menters generally supported inclusion of private sector energy efficiency programs. Commenters said that GHG reductions from Industrial EE (IEE) are surplus emissions reductions under section 111(d) of the CAA and the EPA should treat IEE

- derived GHG reduc tions in the same manner that the EPA proposes to treat GHG reductions created by utility

- scale renewable energy (RE) generation. Commenters noted that many RE projects were built prior to the EPA's proposed CPP was made public, and many more will be built and installed going forward. All244 installed IEE projects, once operational, will contribute verifiable reductions attributable to reduced demand for fossil powered electricity generation and commenters said that there is no basis for EPA to treat RE and IE E

- related GHG emission reductions differently.

Commenters said that without limiting state flexibility, the EPA can articulate in the final rule and technical support documents what will constitute an approvable pathway for states to include available IE E project

- related emission reductions in their 111(d) compliance plans, which is consistent with the EPA's intent to provide states as much flexibility as possible. Commenters added that the EPA can enhance IEE uptake if it clarifies how the state plan req uirement to identify affected entities applies to IEE resources. Commenters said that to the extent that a state has confidence that future IEE projects will be implemented (through supportive policies, collaboration with in

- state industrial facilities, et c.), the state may include a conservative forecast of IEE project

- related savings in its plan. Commenters stated that any EE savings or GHG reductions documented by IEE projects using appropriate M&V can be used to demonstrate compliance with state goals. Commenters said that since the EPA used utility EE programs as the basis for establishing BSER, any GHG reductions achieved through IEE can provide states with another compliance option that reduces the pressure to meet the standard using other more
expens ive emission reduction measures. For instance, commenters said, a state can use EE savings generated through IEE measures to mitigate the need to reduce utilization of coal units or construction of new gas powered generation and private sector IEE can also be a contingency or corrective measure that makes up shortfalls from other compliance strategies.

Commenters suggested that the states should view private

- sector delivered EE as "purchasable compliance" with the 111(d) goals. Commenters said that states or EGUs can "pay for savings," i.e., secure access to or use of the GHG emissions reductions delivered by IEE in a number of
ways:

• Through traditional ratepayer offerings (prescriptive incentives, custom incentives, etc.)

• Through binding contracts with p arties participating in the IEE initiative (at a whole

- facility level where multiple capital projects and operational improvements within a facility can be bundled together)

• Through the purchase of emission reductions credits in a GHG market

Commenters added that IEE can serve as an easily implementable EE mechanism in states that do not yet have robust ratepayer

- based EE programs. Commenters described the energy efficiency benefits in more detail and added that these IEE project activities re sult in quantifiable, additional GHG emission reductions that can contribute to 111(d) compliance. Should the EPA incorporate methods of accounting for emission reductions from these measures, commenters said that these methodologies can be applied appropr iately within IEE projects to allow GHG benefits to be used by the state for compliance purposes.

Commenters said that states will be more likely to include IEE projects as part of a state plan if the EPA clarifies that GHG emission reductions achieved as a result of private

- sector delivered IEE with appropriate M&V is allowed to be used for CPP compliance activities. Commenters245 said that the SEP M&V Protocol for Industry and International Performance Measurement and Verification Protocol (IPMVP) Option C are examples of an appropriate M&V protocol that establishes the electricity savings and GHG reductions from individual IEE measures as well as at the whole

- facility level leveraging the EnPI tool. Commenters said that the level of rigor provided by an IEE project using such an M&V approach is sufficient to enable GHG emission reductions from IEE projects to be considered an appropriate form of CPP compliance.

Commenters described several other actions that should be taken to facilitate the use of IEE

res ources including the following:

Clarify approvab le app roach for key compliance criteria.

Allow EE savings from IEE projects constructed prior to the 111(d) proposal and implementation be eligible to contribute to 111(d) compliance despite the fact that t hese projects were not purpose

- built for 111(d) compliance.

Create incentives for immediate action to reduce emissions. Identify remedies for the 111(d) state EE penalty.

Encourage the use of tradable credits.

Commenter s also described the elements of the elements needed for state programs including the following:

• State 111(d) compliance plan development should include IEE

• Purchasable compliance, e.g., paying to increase dispatch of natural gas

fired generation under a variety of mechanisms

• State 111(d) progress reports

• Enforceability

• Incentives.

Commenters summarized a report 12, "Assessing the Costs and Benefits of the Superior Energy Performance Program," Lawrence Berkley National Laboratory (LBNL) which included a methodology to quantify the costs and benefits of participation in the SEP program. Commenters stated that if the adoption rate of ISO 50001 (currently in its third year) mirrors the adoption rates of ISO 9001 and ISO 14001, it is expected that the numbe r of companies that will adopt ISO 50001 will increase rapidly in the next 5

- 8 years). Commenters stated that if IEE resources are adopted as part of state 111(d) plans and receive financial incentives and other policy support from states, it is likely tha t many ISO 50001 facilities will seek SEP certification. Commenters said that the potential savings from IEE is significant, and the SEP performance improvements can be converted into absolute kWh savings. Commenters noted that the EnPI tool can break out plant energy performance and energy use reduction by fuel/energy source and it also includes a GHG calculator that computes reductions in GHG emissions based on the validated energy savings. Therefore, commenters concluded, the potential EE savings from th e industrial sector2 46 can play a very significant role in helping states comply with section 111(d) goals. Commenters said that examples of additional benefits include substantial reductions in GHG emissions from fossil fuel use at facilities, avoiding or de ferring costly transmission and distribution upgrades, avoiding the electricity losses associated with transmission and distribution, comfort, health, productivity, energy security, limiting water use associated with electricity generation, lowering baselo ad and peak demand, and reducing the need for additional generation and transmission assets. Commenters added that IEE projects, in particular, benefit manufacturers by improving quality, reducing waste, increasing productivity and competitiveness, and hed ging against energy price spikes and volatility.

Commenters added that in Georgia and many other states, industrial customers are not part of commission certified EE programs and, due to the fact that many manufacturers compete with each other in a global market, many do not want to pay into certified DSM programs that will benefit their competitors. Because industrial customers implement EE measures on their own, commenters stated that the industrial sector represents a significant amount of savings
oppor tunity, and the EPA should encourage states to find ways to incorporate these savings into state plans even if they are not part of a certified DSM program. Commenters agreed that industrial energy efficiency programs, both rate

- payer programs and non

- util ity programs should be included in state plans, if those projects are using a tool that can measure and verify energy savings. Guaranteed Energy Savings Performance Contracting (GESPC). Commenters stated that Georgia's voters approved Guaranteed Energy Sav ings Performance Contracting (GESPC) for state agencies in a 2010 statewide referendum. Commenters stated the resulting program will save a significant amount of energy and money for Georgia's taxpayers, and it avoids a significant amount of carbon. By all owing GESPCs to count towards meeting the CPP, commenters stated that the EPA is encouraging states to grow programs that benefit both the environment and taxpayers.

Commenters stated that GESPCs are especially relevant because they are quantifiable and

ve rifiable. Commenters said that energy services companies (ESCOs) guarantee the savings and require annual evaluation, measurement and verification (EM&V). Because the savings are guaranteed and projects represent financial risk to the ESCO, commenters note d that the EM&V that goes into the projects is significant. Commenters stated that the EPA should work closely with states to determine how GESPCs can meet the goals of the CPP and ensure full credit for their related emissions reductions. Commenters noted that states (Virginia, Kentucky and Georgia) are already starting the process of evaluating how GESPCs can and should be counted for CPP compliance. Commenters added that the EPA needs to also recognize that local governments represent a significant oppor tunity for GESPC savings, and the EPA should allow for flexible and innovative systems that allow states to count GESPCs in the local government sector, in addition to state government.

Commenters agreed that ESPC projects provide economic and energy bene fits along with cost

effective emission reductions. Commenters were concerned that states will hesitate to pursue these options without clear EPA guidance regarding approvable methods for incorporating ESPC measures into CPP compliance plans.

PROGRAMS BY WHOLESALE ELECTRICITY PROVIDERS247 Commenters stated that their facility, which is the wholesale electricity provider for over 99 percent of Tennessee, offers the most substantial utility EE programming within the state through its EnergyRight Solutions progr ams. Commenters stated several EE programs targeted towards industrial, commercial, and residential customers are offered throughout their multi

- state service area through their EnergyRight Solutions umbrella. Commenters stated these include programs such as low

- interest, fixed

- rate financing and contractor assistance for heat pumps, in

- home energy evaluations, educational resources, rebates for energy

- efficient equipment and models, and access to their

- screened and

- endorsed professional and contractor net work. Commenters stated importantly, they are not a vertically integrated utility, and that with the exception of direct serve customers, their programs are typically available to local power companies (LPCs), which serve as their distributors. Commenters stated however, participation in EnergyRight Solutions programs is not required; it is optional. Commenters stated those LPCs who have opted to participate in and offer EnergyRight Solutions programs have established a more robust EE measure infrastructure than those choosing not to participate. Commenters stated however, given the sheer number and diversity of LPCs within Tennessee, the type and quality of end

- user EE metrics and reporting is determined by their needs and the individual LPCs and may or may not be consistent across programs and across LPCs.

Commenters stated Strategic Energy Management programs that follow the template laid out by the Consortium for Energy Efficiency should be credited to s tate plans. Commenters stated these programs can be operated by utilities, governments, or industrial companies; the savings can be calculated using the methods of ISO Standards 50001 and verified by third

- party audits as required by DOE's Superior Energy Performance program, and savings can be from behavi or and capital investments and process changes. Commenters stated that as these programs require a commitment by a company to improve its energy performance by a fixed target every year, the savings can compound strongly over 10 years.

BEHAVIORAL PROGRAMS

Commenters stated that EPA should define EE broadly to include all programs that promote behavioral changes by energy consumers should be considered. Commenters stated that the MWh saved as a result of behavioral changes should count toward compliance wit h the CPP. Commenters stated that some of their owner

- member distribution companies have implemented prepay programs. Commenters noted that customer usage under these prepay programs is regularly reduced by 12 percent as a result more energy consumption in formation provided to customers causing them being more disciplined and frugal of their use of energy. Commenters stated that MWh from prepay programs and other programs that promote customers using energy more responsibly should count for compliance. Comm enters stated that EPA is penalizing utilities and states that implemented EE and demand side management programs before the 2012 baseline. Commenters stated that the cost of EE programs increase exponentially once the most effective programs are in place. Commenters stated that this implies that utilities and states that have implemented EE programs before the baseline are now left to implement more expensive programs if they want to match the EPA assumptions for EE.

Commenters stated EPA must allow inclu sion of all EE programs and initiatives. Over the past several years, commenter has developed and grown a portfolio of EE programs that include more than twenty program offerings that fit into multiple categories. Commenters stated their portfolio248 of progr ams is designed to allow all customers to participate in EE programs to help manage energy usage and costs. Through the refinement of S alt R iver P roject 's SPP in 2011, commenter stated EE offerings were expanded to include behavioral programs and market tr ansformation initiatives, such as SRP's Energy Scorecard, building energy codes, and appliance standards. Commenters stated the intent of these additions is to capitalize on new, cost

- effective program alternatives and position SRP to meet more aggressive long

- term EE goals. Commenters stated for example, M

- Power is a prepay program that uses in

- home display monitors, smart cards, and a payment kiosk network to put consumers in control of many aspects of their energy use, payments, and budget. Commenters st ated as a result, analysis indicates M

- Power customers, on average, reduce their annual energy consumption by 12%. Commenters stated they are able to realize these reductions by: Monitoring electricity usage with real

- time information; managing the cost of consumption to meet personal needs; and using in

- home displays that provide positive reinforcement and immediate feedback about energy usage. Commenters stated M

- Power is unique in that few, if any, other utilities have similar participation levels and sa vings effects from behavioral programs of this type. Commenters stated roughly 40% of SRP's reported annual savings is currently attributed to the behavioral conservation impact of customers on M

- Power. Due to its significant contribution to SRP's EE portf olio and its extreme cost

- effectiveness, commenters stated programs like M

- Power must be recognized as legitimate options.

FEDERAL AND STATE CODES

Commenters stated that additionally, federal and state codes and standards (including appliances) should be considered in state compliance plans as they would increase the opportunities for EE.

Commenters stated that together with appliance efficiency standards, building codes and/or standards that are well designed, implemented and enforced can lead to signific ant energy savings at the time of building construction or total renovation, compared to past or prior year practices. Commenters stated that new building codes and appliance efficiency standards have the potential to reduce electricity consumption dramati cally. Accordingly, commenters stated that the final rule should be explicit that states can include reductions from codes and standards in compliance plans.

C ommenters stated that it is very important for EPA to encourage states to allow for energy effici ency (EE) savings from a wide variety of programs, including those outside of typical, certified demand side management (DSM) programs. Commenters stated that the draft CPP needs further clarification beyond acceptable EE programs.

Commenters stated that building energy codes are a significant way for states to reduce energy consumption and emissions, but noted the EPA's concern that building energy codes don't have the same track record of EM&V as typical utility DSM programs. Comme nters said that it is important that the EPA not use the lack of current standardized EM&V protocols for building energy codes as a reason to impede states' use of this tool in their compliance plans. Instead, commenters said, the EPA should work with stat es to develop fair and reasonable methods to account for building energy code improvements in their state implementation plans. Commenters agreed that building code programs should be eligible for compliance with the rule to the extent they comply with upg raded EM&V protocols. Commenters discussed an overall approach to improvements or changes to many sectors of New York City's infrastructure as part of a249 comprehensive $20 billion action plan consisting of 257 initiatives for rebuilding the communities impa cted by Sandy and increasing the resiliency of infrastructure, neighborhoods, and buildings citywide. Commenters said that it is possible to design a building today using modern building science that will reduce the energy load by about 90 percent. In othe r words, commenters said, to heat and cool your house, it will take about 10 percent of what a code

- built home would require. Commenters suggested that by coupling energy efficiency at various levels with various resources available to produce the energy a nd actually there may not be any need for regulation of future coal plants because we probably don't need what the industry is projecting.

Commenters stated that for the baselines for energy codes and standards in Block 4, States should be given credit fo r actions that go beyond federal baselines. Commenters stated baselines for appliance standards should be current federal standards. Commenters stated actions for products not covered by federal standards should receive emissions credits. Commenters stated a letter dated December 1, 2009 published by many of their sister organizations stated:

"By accepting State Energy Program funding and submitting letters assuring the Department of Energy that their states would comply with the terms of Section 410, all 50 states have committed to do three things:

• Adopt a residential building energy code that meets or exceeds the 2009 International Energy Conservation Code (IECC);

• Adopt a commercial building energy code that meets or exceeds the ANSI/American Society of H eating, Refrigerating and Air

- Conditioning Engineers (ASHRAE)/IESNA Standard 90.1

- 2007; and

• Develop and implement a plan, including active training and enforcement provisions, to achieve 90 percent compliance with the target codes by 2017, including measur ingcurrent compliance each year."

Commenters encouraged EPA to obtain the maximum environmental benefit for building energy efficiency programs. Commenters stated that buildings account for 74 % of electricity use, and the most cost effective way to reduce CO 2 emissions from the power sector is through effective building codes. Commenters stated that more work was needed on building codes and EM&V methods for evaluating the benefits of the programs. Commenters cautioned about not making the EM&V methods fo r building efficiency more rigorous than for other energy efficiency measures such that building efficiency is too burdensome and costly to use in the state plans. Commenters urged EPA to rely on protocols already developed by some states (e.g., California ), NEEP, and Pacific Northwest National laboratory, and DOE's Uniform Methods Project. By developing reasonable standards, commenters stated that the rule would encourage better building codes and an expanded universe of energy efficiency activities covere d by building permits.

Commenters stressed the significant potential for energy savings from existing buildings and stated that effective building energy codes are available today from ANSI and the International250 Energy Conservation Code. Commenters stated that even improved enforcement of currently adopted codes would create significant energy savings. Commenters stated that EPA might be discouraging the use of building energy codes as a compliance measure because the preamble states that EM&V are less wel l established for building energy codes. Commenters asked EPA to clarify that the status of current EM&V methods will not preclude approval of measures for building code adoption and enforcement in state plans.

REFRIGERATOR REBATE PROGRAMS

Commenters state d that they have modeled likely reductions in energy consumption and GHG emissions resulting from linked recycling and replacement rebates using data and methodologies developed by DOE and EPA, supplemented by extensive data from government and industry

so urces. Commenters stated this modeling was based on a prototype ER program conducted over a five year period with assumed rebates of $100 per unit. Commenters noted that the appendix to their comments describes their analysis in detail. Commenters stated t hat their modeling projects the following dramatic benefits:

• Assuming 3 million rebates per year over five years, total energy savings would be 52,400 GWh.

• This would represent avoided GHG emissions of 36.1 million metric tons carbon equivalent (MMt CO 2 Eq ), or approximately 1.8 percent of annual GHG emissions from power plants according to the EPA 2012 Inventory of GHG Emissions and Sinks.

• The cost per kWh saved would be 2.5 cents/kWh.

• Total energy savings to consumers would be $6.8 billion, greatly

exce eding the $1.5 billion costs of the rebates.

• The energy savings achieved by the program over five years would represent a significant portion of the cumulative EE targets that EPA has used to calculate state goals.

Commenters stated these projections con firm that large

- scale implementation of refrigerator replacement programs on their model will be a highly cost

- effective tool for meeting section 111(d) goals and will deliver sizable GHG reductions that utilities and states can credit toward section 111(d ) compliance. Commenters stated that extending replacement rebate programs to other appliance categories will multiply these benefits.

While the main driver for ER programs would be achievement of energy savings and GHG reductions, commenters indicated th at other benefits will be realized as well. First, commenters said consumers would see declines in their electricity bills that would increase their purchasing power. Second, commenters said reductions in power generation from lower electricity consumption would translate into declining emissions of conventional pollutants and thus lower ambient levels of particulate matter (PM), nitrogen oxides (NOx) and sulfur dioxide (SO 2 ), which are associated with known health effects and result in medical costs from m ortality and251 diseas e. As described in the appendix , commenters' analysis shows that the program would reduce SO 2 and NOx emissions by 9,620 million pounds and 17.8 million pounds over five years, resulting in avoided adverse health effects valued at $212 million

- $480 million. Finally, commenters said, because of the increased consumer demand for new appliances, the program will boost manufacturing output and retail activity, with accompanying growth in jobs.

BUILDING EFFICIENCY PROGRAMS

Commenter s supported allowing credit for increased building energy efficiency through the improvement and adoption of energy codes and the enforcement of energy codes. Commenter s supported the use of high efficiency appliances, building efficiency improvements, and energy savings accomplished through energy performance contracts under which the savings are measured and documented. Com menter s advocated that Federal appliance and equipment energy efficiency standards should not be included in state plans, but if states request to include them in state plans, they will need to work with EPA to tighten their rate or mass

- based targets

acco rdingly. Commenters stated that EPA's proposed rule does not include federal efficiency standards in setting state targets, and because federal standards are outside of the jurisdiction of states and are not enforceable by states, they should not be includ ed in targets nor used as a means of compliance. Commenter s stated that EPA should clarify how energy efficiency measures by federal entities (i.e. power distribution authorities like the Bonneville Power Administration) can be incorporated in state plans.

Commenters stated they have supported the development and adoption of building energy codes throughout its history. Commenters stated that confirmed by study after study, the energy codes and appliance standards are the most cost

- effective way to achieve CO2 reductions. Commenters stated that in fact, the U.S. DOE uses something called the "learning curve" to calculate how much money is saved by consumers when codes lead to less expensive technologies and methods to meet the code requirements. Commenters stated extremely cost

- effective energy savings are available through energy codes. Commenters recommended that State and city adoptions of the most recent model energy codes, state adoptions of the highest available appliance standards not
pre

- empted by fe deral law, and increased compliance levels should all qualify as a BSER. Commenters stated Building Block 4 savings levels should be adjusted to reflect the additional carbon reductions that can be achieved through codes and standards.

Commenters stated t hat they have worked with numerous states and cities to develop and implement stretch codes and utility code programs in support of stretch codes. Commenters stated both of these efforts have occurred in states that far exceed the requirements of the ARRA, and are leading to faster adoption of the most current model energy codes. Commenters recommended this is within the capacity of each of the 50 states, and their supporting utilities, to achieve this higher level of savings from codes, and that successful adoption of stretch codes and utility code programs should receive full emissions credits from these programs.

Commenters stated utilities can play an important role in the development, adoption, and enforcement of building energy codes. Commenters indic ated there is history of utility involvement in every stage of the building code process with established mechanisms for crediting energy savings from this activity. Specifically, utilities can:252 1. participate in the code development process to strengthen th e efficiency of building energy codes;

2. provide technical assistance to state and local agencies in both the adoption and implementation of building codes;

3. directly advocate for state and local adoption of codes;

4. conduct studies to assess compliance;

5. train building industry professionals to improve compliance;

6. directly support third

- party compliance.

Commenters stated that to achieve energy savings, adopted codes must be enforced and energy efficiency measures implemented in the field. Commenters sta ted that studies of compliance in the U.S. have found that compliance is significantly less than 100 percent: 2013 Institute for Market Transformation (IMT) study that surveyed existing compliance studies for 45 states and estimated energy savings from inc reased compliance found that compliance rates ranged from zero compliance to over 90 percent compliance. Commenters stated the compliance studies done to date and surveyed in the IMT report do not use consistent methodologies and therefore findings for com pliance rates across states are not necessarily comparable; in 2010, DOE published a methodology for determining compliance rates which should alleviate these inconsistencies for future compliance studies . Commenters also noted that the IMT study assessed potential [cost] savings from increasing compliance; based on a middle scenario that conservatively assumed 50 percent existing compliance rate, and found that every dollar spent to improve compliance yields $6 in energy savings.

Commenters stated EPA sh ould credit savings from state programs that advance building code compliance and enforcement. Commenters recommended that EPA work with states on savings measurement methodology for building codes. Commenters further recommended EPA work with the U.S. DOE 's Building Energy Codes Program, which is currently developing methodologies to advance building code compliance and savings verification. In Oregon, however, commenters stated robust EM&V methodology is in place to demonstrate incremental savings from bu ilding code compliance, and EPA should allow Oregon to credit resulting energy savings in its state compliance plan.

Commenters stated several states have undertaken work in recent years to estimate energy savings from code compliance resulting from activ ities undertaken by utilities and other efficiency program administrators. Commenters has published a report on the topic of attributing savings from code support activity by utilities that EPA should use as reference in understanding various methodologies available to assess savings from code compliance. Commenters stated following that report's publication, the states of Rhode Island and Massachusetts initiated new programs for attributing savings from code activities undertaken by utility programs, which provides further examples of methods for measuring and verifying savings from building energy code compliance.

NON

- AFFECTED COMBINED HEAT AND POWER (CHP)253 Commenters focused on non

- affected combined heat and power (CHP) projects, stating that, like other e nergy efficiency investments, non

- affected CHP reduces demand from affected EGUs and therefore emissions from affected EGUs. As such, the methodology used for crediting emission reductions caused by new and uprated non

- affected CHP should be equivalent to the methodology used for crediting other end

- use energy efficiency measures. Commenters did not take a position on which of the potential methodologies EPA should take in calculating the emission reduction impacts of energy savings, but urged EPA to provid e additional and clearer guidance on approvable methodologies in its final Clean Power Plan in order to provide greater certainty for the potential regulatory benefits of new and uprated non

- affected CHP.

Commenters questioned the rationale for crediting a ll of the electricity produced by CHP systems, but only 75 percent of their useful thermal output, as found in the "net energy output" definition. Commenters believed that in an "output based regulation" which EPA has agreed is appropriate for CHP systems, a full 100 percent crediting for electricity and thermal output is required. Commenters also expressed concerns with the possibility of EPA only considering emissions displaced from EGUs, and therefore only considering the electricity production of CHP sy stems. Commenters argued that this approach would artificially and unfairly discount the energy savings produced by unaffected CHP Systems because it would disregard the thermal energy produced simultaneously with the electric energy. Commenters stated thi s would then penalize CHP systems by attributing any additional gas that may be used to produce thermal product. Commenters stated that, if this electricity

- only approach is taken for CHP, then EPA should credit the 100% of the electricity production of th e CHP System, without discounting for the additional gas usage on

- site.

Commenters requested that EPA clarify the use of CHP and waste heat power (WHP) for compliance strategies under building blocks 3 and 4. Commenters stated that natural gas fired CHP un its provide end

- use energy efficiency carbon emission reductions and could therefore be a strategy for states under building block four and even CHP units below 25 MW should be eligible as part of state compliance strategies and given credits. Commenters s tated that WHP and biofuel

- fired CHP units are zero

- carbon generating resources and that these types of units that already meet air quality requirements should qualify as non

- hydro renewable resources under building block three.

Commenters commended EPA fo r including a line loss credit for CHP systems, but suggested some revisions. Commenters suggested that, to reflect the actual energy benefit of distributed generation, EPA should provide a 7.5% credit to distributed generation. Commenters stated that addi tionally, EPA should consider increasing the credit for distributed baseload generation operating during peak hours. Commenters believed that this would encourage the deployment of CHP systems that can provide reliable peak baseload power to off

- set baselo ad coal plant closings. Commenters also recommended that the final rule should make it clear that a similar line

- loss credit should be credited to generation from unaffected units.

TRANSPORTATION SECTOR

Commenters urged EPA to provide a mechanism to ensure that states are not penalized by efforts to reduce emissions from other sectors, particularly the transportation sector. Commenters noted that, as the electric sector decarbonizes and produces cleaner energy, electrification of more254 carbon

- intensive secto rs is an effective and economic action to reduce all GHGs. Commenters understood that compliance for out

- of

- sector reductions is challenging, but argued that they should not be excluded if reductions can be quantified, verified and repeated. Commenters

rec ommended that state plans do not dis

- incentivize clean electrification. As an example, commenters stated that by failing to give compliance margin to states that support electric vehicles, EPA is discouraging the production and implementation of electric t echnologies that could play a significant role in EPA's overarching goal of CO 2 reduction.

WATER AND WASTEWATER SECTOR

Commenters encouraged EPA to clarify that states should be able to account for RE and EE measures taken post

- 2012 across industries, incl uding specifically the water and wastewater industry, as they develop their state plans. In doing so, commenters believed that states would have more options to meet the goals of the proposed rule and would have the necessary guidance as to what measures a re appropriate for them to consider in their state plans. Commenters noted that pump efficiency and refurbishing efforts in the water and wastewater industry can produce significant energy and carbon emission savings, and that water and wastewater EE and RE efforts could serve dual purposes in state plans of both reducing GHG emissions, while also helping close the funding gap (through cost savings) that many water and wastewater utilities face nationwide.

Commenters stated that they and others in the indu stry are currently developing and testing many other promising technologies. Commenters stated that incentives to the water industry which can be provided through the state plans will help to foster such innovation. Commenters stated that for example, Amer ican Water has played a leading role in each of the following: using acoustic monitoring for more comprehensive and efficient leak detection in distribution system piping; optimizing pumping plant energy efficiency and performance by employing advanced ana lytic equipment and techniques for real

- time pump power monitoring; reducing leakage and corresponding electricity use for pumps by developing advanced pressure management systems that reduce pressure based on consumer demand; using advanced treatment tech nologies, aquifer storage and recovery, and other innovative water reuse solutions for areas with water supply limitations; and recovering energy from biogases as a renewable energy source and optimizing treatment of wastewater using advanced technologies. Commenters stated that they are a leader in leveraging technology and innovation for improving water and energy efficiency. Commenters stated that as state agencies develop policies and incentive programs to improve efficiencies, opportunities to deploy e merging technology should be encouraged and flexibility provided to spur innovation.

Commenters noted the EPA spends significant time in both the preamble to the proposed rule and in the associated Technical Support Document stressing the importance of qu antification, monitoring, and verification of demand

- side energy efficiency and renewable energy programs. Commenters stated that as large energy consumers who are already regulated by the states, water utilities such as American Water alleviate enforceabi lity and monitoring concerns. Commenters stated their recent history of energy efficiency and renewable energy measures provide compelling examples of success for policymakers and a viable template for states.255 As part of building block 4, commenters belie ved that water sector EE projects (post 2012) should be eligible to count towards state goals, provided the necessary monitoring and verification has been completed. Commenters stated the final rule should indicate that EE projects completed by non

- electri c organizations can be counted towards the overall emissions reductions. Commenters stated this would allow for states and the electric sector to run incentive programs to help foster improvements in the water sector and in other major electricity

consumer s. Commenters stated because water infrastructure is generally long lived, there are many pumps, motors, treatment facilities, pipes, and others systems within the water sector that are at several decades old. Commenters stated that in many cases, these sy stems are much less energy efficient than their modern equivalents. Commenters stated additionally, substantial amounts (in many cases, 15 to 20 percent or more) of treated drinking water is lost to distribution system leaks in many water utilities. Commen ters stated every gallon of water that does not make it to customers means that an additional gallon must be treated and pumped to replace it, adding to the sector's overall electricity consumption and associated greenhouse gas emissions. Commenters stated incentive programs to assist the water sector with the cost of the capital and/or ongoing monitoring and verification costs could help to accelerate the replacement of aging, less efficient infrastructure where it is appropriate to do so, and in some inst ances increase both water and energy efficiency simultaneously with water loss and leak control. Commenters stated there are also system optimization processes and end

- user water efficiency programs that can help to reduce electricity consumption if furthe r advanced through incentive funding.

Commenters stated water and wastewater utilities are particularly well suited to participating in EE programs. Commenters stated these organizations are ideal EE/RE demand side candidates because they have the ability to measure and verify actual energy savings and are professionally staffed, operated continuously, and present in almost every community nationwide. Commenters stated sourcing and conveying water, treating water to potable standards, distributing drinking water to the public, collecting wastewater, and treating wastewater for reuse or discharge are inherently energy intensive processes. Commenters stated there is considerable variability of the embodied energy within water or treated wastewater (the energy required to produce and deliver/collect it) based upon source, treatment, distribution, and collection factors. Commenters stated there are combinations of both relatively standard and straightforward efficiency upgrades (e.g., swapping out pumps or fixin g leaks) as well as larger custom efficiency solutions (e.g., instituting a system optimization program or installing new energy recapture equipment). Commenters stated both types of upgrades within the water sector should be eligible for state or ratepaye r funded voluntary efficiency programs, as well as any federal assistance or technical support programs. Commenters stated EPA should make sure that states are aware of these opportunities, and Commenters encouraged EPA to mention them in the final rule, i n guidance, and in conversation with the states.

Commenters stated that the water sector will need a financial incentive in order to comply with the great increase in RE/EE programs utilizing water sources. Commenters recommended $180 million, equal to 1 .8% of the $10 billion increase in EE/RE spending anticipated by the EPA. Commenters stated this number comes from the percentage of total U.S. electricity consumption attributed to water utilities (1.8%). Commenters also stated that numerous projects are likely to be both capital intensive and require ongoing costs to conduct the necessary monitoring and verification of efficiency gains.256 Commenters asked EPA to clarify in the final rule that measurable renewable energy and demand

- side energy efficiency me asures by drinking water utilities be allowed under the Clean Air Act Section 111(d) state plans; however, commenters explained, EPA should also be clear that CPP compliance decisions should not supersede water utility decisions on how to best achieve wate r supply reliability, operational goals and compliance with Safe Drinking Water Act (SDWA) regulatory mandates. Commenters believed that the day

- to

- day operational and planning decisions on how to best achieve water supply reliability, public health protec tion goals and regulatory mandates should be left entirely to the discretion of the drinking water utility, and no entity should be granted the ability to mandate specific actions or goals for drinking water utilities under the CPP. Commenters remarked the re is certainly potential for significant energy savings in the water sector from drinking water utilities and end users, but specific projects or goals should only be undertaken on a voluntary basis within the context of local operational necessities. Com menters offered that if a utility opts to participate in a CPP, then meaningful incentives should be provided for drinking water utilities to implement energy efficiency and renewable energy measures where feasible and practical from an operational standpo int

- measures such as those promoted by EPA in reports such as "Ensuring a Sustainable Future: An Energy Management Guidebook for Water and Wastewater Utilities" (January 2008).

BUILDING ENERGY LABELING AND BUILDING PERFORMANCE

Commenters stated that prog rams that focus on building energy labeling, benchmarking, disclosure, energy audits, commissioning, retro

- commissioning, metering, sub

- metering, and related measures will help close the gap between designed and actual performance, leading to increased ene rgy savings and reduced emissions. Commenters noted that while comprehensive EM&V of measures such as building energy labeling and disclosure are less available, there are indications of their success. Commenters noted in particular a case study of ASHRAE' s Building Energy Quotient (BEQ) Building Energy Labeling Program. Commenters encouraged EPA to issue specific guidance clarifying that building energy labeling, benchmarking, disclosure, energy audits, commissioning, retro

- commissioning, metering, sub

- met ering, and related measures may all be included in state emission

- reduction plans, and to publish a list of pre

approved measures for state plans that includes these items. In other statements, commenters also stated that building professionals who partici pate in training and obtain certifications result in buildings that are designed to and perform at higher levels, saving energy and reducing emissions. Consequently, commenters recommended that EPA issue guidance clarifying that workforce training and prof essional certification programs may be included as an emissions

reduction strategy in state plans.

Co mmenters requested that advanced energy codes should be included as an important way to achieve energy savings. Commenters noted that many of these enhance ments can also last well longer than 10 years. As an example, the commenters stated that passive energy efficiency improvements to homes and building envelopes, like insulation or air ceiling, will last for the life of the building and with little or no ma intenance.

PRINTING INDUSTRY

Commenters urged EPA to allow the printing industry the opportunity to create trade

- able demand

- side energy savings based on per

- unit of production energy use reductions. Commenters257 noted that the American commercial printing i ndustry is likely to face tremendous impacts under the CPP. Commenters explained that the printing industry is very energy intensive and has virtually no ability to outsource its more energy

- intensive operations. Because of this and in order to promote ene rgy efficiency in the commercial printing industry and many others, commenters requested that EPA allow companies the ability to generate demand

- side savings by reducing their use of energy and associated carbon footprint per page produced. Commenters beli eved that this would allow printing companies to attempt to grow their operations and, therefore, American job opportunities while contributing to producing overall carbon emissions and mitigating some of the significant costs they will face under the CPP.

RENEWABLE ENERGY FROM INDIVIDUAL CUSTOMERS

Commenters suggested that EPA afford a method for utilities which receive and manage renewable power from individual customers such as from solar systems on individual homes should be afforded a method for being credited with the associated emission reductions.

GROUND SOURCE HEAT PUMPS

Commenters noted that they are working on a potentially relevant methodology for quantifying ground source heat pumps (GSHPs) renewable components in heating and cooling (Building Block 3) and an acceptable baseline method of quantifying the avoided generation associated in GSHP and waste energy recovery (WER) (Building Block 4). Commenters further stated that once quantified into relevant energy units, avoided generation and renewa ble components can be converted into avoided emissions by the relevant state entity and reported as either kWh added to the denominator of the Proposed Rule metric (# CO 2 /kWh) or emissions subtracted from the numerator of the metric. Commenters stated that GSHPs, with their feature of around the clock reliability unaffected by the weather, help reduce utility peak loads, which in some cases may mean avoiding bringing on

- line generation capacity with higher CO 2 emission levels. Commenters urged EPA to consid er these features should develop policies that incorporate GSHPs into the overall energy framework for the nation. Also commenters noted the work being done by ASHRAE and suggested that EPA contact ASHRAE and incorporate their work into EPA's guidance for state plans.

WASTE TO ENERGY

Commenters requested that EPA should clarify in guidance that states retain discretion to count all waste

- to

- energy (WTE)

- produced electricity

- from biogenic MSW as well as anthropogenic MSW

- toward the renewable energy comp onent of their compliance plans. Therefore, commenters stated one MWh of electricity produced by a WTE facility must equal one MWh of compliance towards the state's carbon intensity reduction requirements. Commenters noted the costs of operating WTE are hi gher than landfilling, putting WTE at a competitive disadvantage. Commenters stated a state's decision to include all WTE

- produced electricity as renewable in its section 111(d) compliance plan could tip the balance in favor of continued WTE operation and preserving WTE technology's considerable carbon mitigation benefit. Commenters concluded that the requested clarification will also ensure that the final section 111(d) regulations are consistent with the broad array of state and federal laws that recogniz e all WTE

- produced electricity as renewable energy. Commenters also noted that because WTE prevents the258 generation of methane from waste otherwise destined for landfills, EPA has concluded that every ton of waste managed at a WTE facility actually reduces overall GHG emissions by a ton of carbon dioxide equivalents, largely as methane.

LOW INCOME EE PROGRAMS

Commenters stated the Wisconsin Focus On Energy program is just one delivery system for energy efficiency achievement and we should take advantage of o thers. Commenters stated some EE programs, such as certain behavior programs, lend themselves better to being run by the utilities themselves and we will work with the PSC and utilities to determine the most appropriate role for utility

- run programs in Wis consin. Commenters stated in addition, there are a number of opportunities for the state to increase electric efficiency that are currently being missed. Commenters stated a great example is the state building codes which have not been updated in many year s. Commenters stated Wisconsin's current codes are similar to the 2009 vintage of the International Energy Conservation Code. Commenters stated most states have adopted the 2012 version of that code and the 2015 version is, or will soon be, available. Comm enters stated Wisconsin, once a building code leader, has fallen behind. Commenters stated EPA should provide more guidance on how energy efficiency programs run by the state, particularly market transformation programs, including building code adoption an d enforcement, and efficiency standards for appliances and equipment should be structured to allow them to be part of a state's compliance plan. Commenters stated EPA should pay especially close attention to how low

- income weatherization programs and other efficiency programs aimed at low

- income communities can be included in state implementation plans. Commenters stated the final rule should create a strong incentive to increase investments in low

- income efficiency program to minimize the extent to which l ow

- income residents feel economic impacts resulting from the rule.

Comment 9 : C omment s stat ing that the EPA should not limit the types of EE measures that count towards EE savings to only " well

- established programs ."
Response 9 : The final rule allows t he use of a wide range of EE measures, provided the measures meet the general and specific eligibility requirements for resources used to adjust a CO2 emission rate, described in s ection VIII.K.1 of the final rule preamble of the CPP . The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects and the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings, as described in s ection VIII. K.3 of the final rule preamble

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

Commenter s stated that in the Proposed Rule, EPA states that it does not intend to limit the types of demand

- side EE measures an d programs that can be included in a state plan provided that supporting evaluation, measurement, and verification (EM&V) is rigorous, complete, and consistent with EPA requirements and guidance established for moderately or well

- established evaluation app roaches. Commenter s stated according to EPA classifications, most of SRP's EE programs appear to fall into the moderately or well

- established categories with the exception of259 the M

- Power and Energy Scorecard behavioral programs. Commenter s stated limiting eligible EE measures to a pre

- defined list of well

- understood program types would potentially eliminate significant savings attributable to SRP's current programs and would hamper future program growth strategies. Commenter s stated as such, EPA must not ex clude these types of programs.

In addition to including all existing programs and practices, c ommenter s stated EPA must establish an easy, straightforward, and timely method states can use to modify existing EE programs and add new programs to its state p lan without relying on EPA approval of these programs before they can be implemented. Commenter s stated otherwise, adoption of new technologies, measures, and programs will be constrained and could result in a state's inability to utilize EE programs to meet its CO 2 reduction requirements. Commenters stated t his flexibility will be especially importa nt as the existing EE programs are more fully subscribed in future
years.
California utilities request that EPA not limit the types of EE measures that count toward EE savings to only well

- established programs.

Commenters stated EPA should include energy efficiency opportunities such as building codes, state appliance standards, market transformation, transmission and distribution, voltage optimization, and combined heat and power as acceptable tools for delivering energy savings. Commenters stated EPA exp resses openness to including these non

- utility program savings opportunities if they can be adequately measured and verified (M&V). Commenters stated these savings markets are intrinsic to the Northwest's efficiency portfolio and the Regional Technical For um has M&V protocols in place that EPA should consider. Commenters stated in fact, the Northwest Power and Conservation Council and Bonneville Power Administration recently determined that by 2029 federal efficiency standards will save the Northwest almost 800 aMW (http://www.nwcouncil.org/media/7094803/Appliance

- ?Standards

- ?slides

- ?for

- ?review.pdf). Commenters stated given the strong history of verification of these non

- utility savings in the Northwest, EPA should be clear that all these available ener gy efficiency opportunities are acceptable for compliance under the rule. Commenters recommended that to remedy this problem, EPA should clarify that states can count energy savings from building codes, state appliance standards, transmission and distribut ion, voltage optimization, market transformation, and combined heat and power.

Commenters stated substantial EE savings have been realized at military installations in North Carolina and at state government buildings. Commenters stated for example, under the Utility Savings Initiative, State facilities have been using energy performance contracts and other means to reduce energy consumption, which in fiscal 2012

- 13 avoided an additional 431,211 metric tons of CO 2 air emissions. Commenters stated EPA bases the 1.5% savings rate on state programs for which there are reliable Evaluation, Measurement, and Verification ("EM&V") protocols. Whether Building Block 4 remains based on a nationally uniform incremental savings rate, or is refined to state

- specific rate s, commenters stated North Carolina should be allowed to count EE savings achieved by opt

- out customers, military installations, and state government facilities when those savings are established by reliable EM&V. Commenters stated for savings not yet quan tified, North Carolina should be allowed time to conduct appropriate EM&V and the results should be credited toward North Carolina's compliance with the EE savings goal of the Proposed Rule.260 Commenters recommended that EPA adopt a broad view of energy eff iciency and consider reported savings beyond well

- established programs. Commenters recommended that EPA adopt a broad view of energy efficiency and consider reported savings beyond well

- established programs, including: 1) changes in building codes and appl iance standards should count towards meeting a state's target because they can achieve the broadest adoption, can be very cost

effective, and provide energy efficiency benefits to both customers of large utilities that are running demand

- side programs and small utilities (and rural states) where programs are less prevalent, and 2) EPA should not limit the tools available to states for achieving energy efficiency savings to the tools and programs they are using in 2014 as technologies will advance between no w and 2030 and new opportunities for engaging customers will be available.

Commenters stated that as to the level of rigor for more innovative plan programs and strategies, EPA must avoid imposing onerous and burdensome requirements that inhibit developme nt of viable EE solutions. Commenters stated EPA should not restrict the eligible types of EE programs and measures that could be included in a state plan to a pre

- defined list of well

understood program types. While this may have appeal to some because of its relative simplicity to administer, commenters stated it would stifle innovation. Commenters indicated the states and other entities must have the flexibility and incentive to develop approaches that meet the program's goals.

Commenters stated that al l EE should be eligible for state compliance plans. Commenters noted that the EPA requested comment on the use of a variety of energy efficiency technologies as compliance tools in the proposed rule. Commenters recommended that all energy efficiency that i s additional and reduces carbon emissions should be eligible for state compliance plans, which includes building energy codes and appliance standards, combined heat and power, and more difficult to quantify efficiency, such as behavioral programs. Commente rs further recommended that the EPA not limit the energy efficiency resources that states can use in their compliance plans because the savings are difficult to quantify.

Comment 1 0 : Comments suggesting that the EPA should allow additional control measures in state plans.
Response 1 0 In the final rule, the EPA allows for a wide range of measures and resources to be used to adjust the CO2 emission rate of affected EGUs, provided they meet specific eligibility requirements as described in s ection VIII. K.1 of the final rule preamble of the CPP . In this section of the final rule, the EPA provides guidance regarding what measures are eligible and the appropriate accounting method that should be used.

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

Commenter s stated EPA requested comment on whether measures such as electricity transmission and distribution efficiency improvements, retrofitting affected EGUs with partial carbon capture and storage, the use of biomass

- deri ved fuels at affected EGUs, and use of new NGCC units are appropriate to include in a state plan to achieve CO 2 emission reductions from affected EGUs. Commenter s stated such alternative measures of reducing CO 2 emissions should261 be eligible for including in a state plan, and that EPA should develop guidance on how such measures should be included. The guidance should be issued concurrently with the final rule.

Comment 1 1 : Comments suggesting EPA allow credit fo r product recycling at industrial plants.
Response 1 1 : The final rule allows the use of a wide range of measures to adjust a CO2 emission rate, provided the measures are tied to a state plan, achieve quantified and verified MWh impacts and meet the general and specific eligibility requirements described in s ection VIII. K.1 of the final rule preamble of the CPP . The measures must also meet the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings, as described in s ection VIII. K.3 of the final rule preamble

. The following are summaries of the specific pu blic comments under this c omment:

Commenter s believed credit should be given for measurable and verifiable reductions in carbon emissions from increased recycling at industrial facilities. Commenter s stated while aluminum production is energy intensive, al uminum is a strong, lightweight, long

- lasting and recyclable product that has a net carbon benefit over its life cycle. Commenter s stated recycling aluminum saves 92% of the energy used to make primary aluminum. Commenter s stated their company has already taken action to reduce its GHG footprint. Commenter s stated that since 2005, their facility ha ve reduced the GHG intensity of their refining and smelting business globally by 23% and they have targeted reductions of 30% by 2020 and 35% by 2030 (from this 2005 baseline).

Comment 1 2 : Comments stating that the EPA should allow credit for EE programs administered by local, city, and regional organizations.
Response 1 2 : The final rule allows t he use of a wide range of EE measures, provided the measures meet the general and specific eligibility requirements for resources used to adjust a CO2 emission rate, described in s ection VIII.K.1 of the final rule preamble of the CPP . The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects and the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings, as described in s ection VIII. K.3 of the final rule preamble

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

Commenter s stated that savings from local, city, and regional efforts should be credited to state plans, as long as they are i ncluded in the state plan and coordinated with other programs so as not to double count savings. Commenter s stated that many cities and regions are innovators in tapping into energy efficiency as a resource (e.g., the City Energy Project is a joint initiat ive of NRDC and the Institute for Market Transformation262 Comment 1 3 : Comment suggesting establishing a baseline for EE credit.
Response 13 : The final rule allows the use of a wide range of EE measures, provided the measures meet the general and specific eligibility requirements for resources used to adjust a CO2 emission rate, described in s ection VIII.K.1 of the final rule preamble of the CPP . The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects and the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings, as described in s ection VIII. K.3 of the final rule preamble

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

Commenter s recommended that since each of the 50 states have committed in writing to these criteria of Section 410 of ARRA, on ly actions in states that have met this baseline (adoption of the referenced codes with active programs to achieve 90 percent compliance) by 2017 should receive credit for emissions reduction due to code activities that reach beyond those levels specified in Section 410. Commenter s stated the aggregate codes baseline upon which credit for codes is given should not in any case be calculated below these criteria. Commenter s stated baselines for adoption of state and local appliance standards, for each specifi c year in 2020 to 2030, should not be calculated below the current (in effect) federal appliance standards.

Comment 1 4 : Comments on promoting the incentive program.
Response 1 4 : The EPA appreciates commenters’ commitment to collaborating with utilities, recyclers and retailers to aggressively promote energy efficiency incentive programs as an action that will complement and enhance the overall CO2 emission reductions achieved thro ugh the final rule.

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

Commenter s stated that outreach and advertising will obviously be critical to publicizing the availability of rebates and motivating consumers to take advantage of them. Particularly if the above elements are included, commenter s said their association's members wou ld be committed to collaborating with utilities, recyclers and retailers to aggressively promote the incentive
program. C ommenter s stated these activities would include co

- op advertising, direct mail, in

store promotions and events, all designed to educate consumers about rebate opportunities, create excitement and drive refrigerator replacements and recycling. Commenter s indicated this multimillion promotional campaign could be conducted in partnership with EPA and/or DOE and will go far to help the EPA, s tates and utilities meet their GHG reduction goals. If state programs are well

- aligned and coordinated, commenter s said industry promotional efforts could be integrated at the national level, which would maximize their effectiveness.

While their initial f ocus ha ve been on refrigerators, the c ommenters indicated early replacement/recycling model is equally applicable to other appliance classes (e.g., dishwashers, clothes washers, dryers, and room air conditioners), and their inclusion would yield sizable ad ditional reductions in energy consumption and GHG emissions. As states develop rebate263 programs under section 111(d), commenter s asserted that expanding their scope to encompass additional appliances should be seriously considered.

Comment 1 5 : Comments su ggesting demand response as an approvable compliance strategy.
Response 1 5 : To the extent qualifying demand

- side management actions are tied to a state plan and avoid the use of electricity by an electricity end user, the quantified and verified MWh impact s of the measures may be used by an affected EGU or state to adjust a CO2 emission rate. However, actions that shift electricity demand from one time of day to another, as described in Section K.K.1.a.(4) of the final rule preamble of the CPP , are not eligible as these measures do not avoid electricity use from the grid.

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

Commenter s stated EPA should explicitly recognize demand response as an approvable compliance strategy. Commenter s stated demand response should be added to the list of available compliance options, as it can directly and indirectly reduce carbon emissions by as much as 2 percent , is proven to be technically feasible, is cost

- effective, and can smo oth the transition to a lower carbon electric power system. Commenter s stated demand response should be qualified as a compliance measure, as it meets all of EPA's criteria for BSER, and it could be considered for addition to Building Block 4 and at the ve ry least should be added explicitly to the list of compliance measures. Commenter s urged EPA to provide guidance for the inclusion of demand response in state compliance plans.

Commenters stated it is important that EPA, long a leader on traditional energ y efficiency through Energy Star and other programs, become a leader on creating an expanded and newly appropriate view and understanding of energy efficiency. Commenters stated it can start that leadership in its Clean Power Plan. Commenters stated EPA sh ould clearly and directly expand the discussion of energy efficiency in its Final Rule to include demand response and smart grid, and should provide clear direction and guidance to states that they can consider such options for inclusion in their complianc e plans.

Comment 1 6 : Comments on allowing credit for distributed generation

. Response 1 6 : In the final rule, the EPA recognizes the value of renewable energy as part of the Best System of Emission Reduction. Renewable energy measures

, including distributed renewable energy generation, that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO2 emission rate, provided they meet the general and specific eligibility requirements for resources u sed to adjust a CO2 emission rate, described in

s ection VIII.K. 1 of the final rule preamble of the CPP . The measures must also meet the eligibility requirements and provisions related to proper quantification and verification of MWhs from RE generation, as described in s ection VIII. K .4 of the final rule preamble

.264 The following are summaries of the specific public comments under this c omment:

Commenter s advocated that states be able to claim emissions reductions for distributed generation (DG). C ommenters advocated that for non

- renewable DG, utilities and states should be able to include emissions avoided as a result of DG activities in compliance plans as long as the avoided emissions reductions can be measured and verified. In the case of renewable DG,

co mmenter s urged that states and utilities should be able to treat DG generation like they would treat any other renewable resource, as a source of zero emissions electricity, without having to convert that generation into avoided emissions. Commente rs stres sed that it is important for EPA to issue clear guidance on how to incorporate DG into compliance plans.

Comment 17 : Comments regarding states crediting energy savings from market transformation
programs. Response 1 7 : In the final rule, EPA recognizes the value of energy efficiency as a low cost resource that can reduce CO2 emissions from affected EGUs

. Demand

- side EE and other non

BSER measures are not used in calculating the CO2 emission performance rates in the final emission guidelines but the final rule gives states the flexibility, to use zero

- and low

- emitting resources to achieve their CO2 emission performance rate. D emand

- side EE and other non

BSER measures that are tied to a state plan and achieve quantified an d verified MWh savings may be used to adjust a CO2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO2 emission rate, described in s ection VIII. K.1 of the final rule preamble of the CPP . Th e measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects, if applicable, and the requirements and criteria related to proper quantification and verification of MWhs from demand

- side EE savings ar e described in s ection VIII. K.4 of the final rule preamble

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

Commenter s stated the EPA appropriately recognizes that states may, in state compliance plans, credit energy savings from market transformation programs. Commenter s stated they have many years of experience to back up this statement. Commenter s stated on behalf of the four Nor thwest states, they have been leading market transformation programs to deliver energy savings on behalf of the region. In NEEA's case, c ommenter s stated the process of market transformation is best described by the theory of diffusion of innovation and ex pressed by a curve showing the increasing market share of a specific technology or practice in a market over time. Commenter s stated market transformation activities are designed to result either in increased market adoption compared to what would have hap pened without market intervention (baseline), acceleration in time of adoption, or possibly both. Commenter s stated this change in market adoption is ultimately what delivers energy savings. Commenter s stated the process of transforming the market for a si ngle product or service may take place over many years, culminating in incorporation of the energy

- efficiency result into codes and standards. For NEEA's work on behalf of the region, c ommenter s stated utility investment through NEEA early in the multiyear process yields energy savings several years in the future. Commenter s stated these savings derive from permanent changes to markets that have been independently measured265 and evaluated using best practices for tracking, measuring and verifying. Commenter s stated the Northwest Power and Conservation Council's Regional Technical Forum (RTF) is the regional authority that develops standardized protocols for the verification and evaluation of energy savings. Commenter s stated the RTF makes use of research and d ata generated by NEEA, Bonneville Power Administration, utilities and third party contractors. Within the Northwest,

c ommenter s stated these savings are counted as equal components of the regional energy efficiency effort alongside local utility programs, despite the difference in time of the early investments and the resultant energy savings. Commenter s stated the regional power planning process recognizes market transformation savings and proportionately offset generating resources in the same way as savi ngs achieved through utility end

- use efficiency accomplishments. Accordingly, c ommenter s stated savings from Northwest market transformation programs led by NEEA deserve full credit toward meeting utility energy

efficiency components of state compliance pl ans, regardless of the starting point of the long

- term effort that generated the market transformation. Commenter s stated the region depends on market transformation efforts to discover new opportunities, to test and assess market potential, and to work to remove barriers to adoption.

Comment 18 : Comments supporting the use of Combined Heat and Power and Waste Heat Power in their compliance plans.

Response 18 : In the final rule, the EPA recognizes the value of combined heat and power as a resource that can reduce CO2 emissions from affected EGUs. The EPA agrees with the commenter and allows for electric generation (MWhs) from CHP units to be used to adjust the C O2 emission rate of an affected EGU, provided that the units meet the eligibility criteria described under section K.1.a.(9) and the EM&V criteria described in s ection IV.D.8 of the preamble to the proposed Federal Plan . Quantified and verified electric ge neration from non

affected combined heat and power units tied to a state plan may be used to adjust the CO2 emission rate of an affected EGU provided that it meets the eligibility criteria described under

s ection VIII.K.1.a of the final rule preamble . Sinc e, in most cases, a CHP unit would be a low

emitting CO2 source, the MWh output would need to be prorated to account for the emissions using the method described in s ection VIII.K.1.a.(9) of the final rule preamble

. The measures must also meet the requirements and criteria related to proper quantification and verification of MWhs as described in s ection IV.D.8 of the preamble to the proposed Federal Plan

. When developing their plans, states planning to use waste

- to

- en ergy as an option for the adjustment of a CO 2 emission rate should assess both their capacity to strengthen existing or implement new waste reduction, reuse, recycling and composting programs, and measures to minimize any potential negative impacts of wast e

- to

- energy operations on such programs. See section VIII.K.1.a of the preamble to the final rule for more details.

In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines , and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting an d low

- emitting resource. Quantified and verified MWh impacts of qualifying266 zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation o r demand

side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, the MWhs impacts are added to the denomina tor of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the re gional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions from the numerator, such as those estimated by applying an emissions factor to the MWhs, would double count CO 2 emissions impacts across the grid and is, therefo re, not permitted under the general accounting approach. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

side EE, see section VIII.K of the final rule preamble of the CPP. The same sec tion also describes the eligibility requirements and conditions for resources to be used to adjust a CO 2 emission rate, including specific discussions regarding hydroelectric power, biomass and combined heat and power.

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

S everal commenters said that the EPA should encourage the states to incorporate CHP and WHP in their compliance plans and provide appropriate guidance and data (e.g., templates) supporting use of these technologies. Commenters said that this encouragement

a nd guidance will be particularly important in coal

- heavy states in the industrial Midwest.

C ommenters cited the potential economic and environmental benefits of including these technologies in state plans. For example, commenters cited a 2008 DOE Oak Ridg e National Laboratory study that assessed the benefits of a " high deployment strategy ," wherein CHP and WHP would provide 20 percent of U.S. electric capacity by 2030. Commenters provided several references supporting that this scenario is realistic and te nable given the right incentives and policies. Commenters added that the EPA properly recognizes EM&V protocols and procedures for CHP as " well established," further supporting its use as a compliance pathway for EGUs. Also, commenters stated that another benefit for states that include CHP and WHP as eligible
energy

- efficiency technologies is that they will be able to surpass the relatively modest 1.5 percent annual electricity savings reflected in the targets and have less difficulty complying with the ru le. Commenters also described the benefits of CHP and explained that states can play an important role in promoting CHP using strategies like Connecticut has done, including construction grants, standardization of interconnection protocols, low interest lo ans, and the establishment of a CHP portfolio standard.

Commenters added that CHP/WHP facilities would be distributed energy facilities, which would help support grid reliability.

Commenters said that CHP and WHP are proven and demonstrated approaches to lower emissions, make U.S. manufacturers more competitive, and enhance electric reliability. Commenters stated that the Administration has already recognized these benefits and has established a national goal to encourage greater deployment of CHP and WHP . Commenters267 concluded that the EPA should leverage the Administration's earlier action and allow states to include the use CHP and WHP in their utilities ’ reduction plans

. Because the WHP process " fuel " is simply waste heat, commenters said, there are ze ro fuel costs and zero additional emissions, carbon or otherwise. For example, commenters said, a typical Ormat REG facility rated at 6 MW will avoid the generation of approximately 50,000 tons of CO 2 annually. Commenters added that many WHP applications, including all of Ormat's units installed on natural gas pipelines, can continue operating and delivering power in the event of a grid outage. Commenters noted that this is an extremely important contribution to overall system reliability at a time when the U.S. electric grid grows increasingly vulnerable to cyber threats and extreme weather. Commenters said that the EPA has identified 10 GW of potential WHP opportunities, of which only a small portion has been realized to date. Commenters stated, industrial waste heat could provide enough emission

- free electricity to power approximately 10 million American homes, provide hundreds of thousands of new American jobs, and support critical U.S. manufacturing industries reduction plans.

Commenters described how e xisting state RPS address WHP and existing and pending incentives for WHP. Commenters said that explicitly listing WHP in the rule will confirm to those states that already include WHP in their renewable energy and energy efficiency policies and
programs, as well as states that don't yet have policies and programs supporting WHP, that WHP can be used to meet requirements of the state plan. While commenters understood from discussions with the EPA that the building blocks were used to establish state targets and are not meant to limit the technologies used for compliance, by explicitly including WHP in the rule, the EPA will send a signal that states should consider WHP deployment for their state plans. Commenters added that to incentivize additional construc tion of compressor engine waste heat generation in conjunction with ongoing natural gas development over the next several years, the EPA should specifically clarify in the final rule that this technology is a qualifying form of renewable energy.

Commenter s stated u nder what criteria can states utilize CHP for compliance purposes?

Commenters stated that bottoming cycle cogeneration, a type of CHP and also a type of WHP, should qualify, along with other WHP applications, as a way to avoid affected EGU emiss ions. Commenters stated that bottoming cycle CHP, like other WHP projects, generate electricity with no incremental emissions, thereby reducing the demand for electricity and associated emissions from EGUs. Commenters stated that in conclusion, they believ e EPA should explicitly list WHP

as a zero

- emitting power source states can use to offset emissions by utilities, clarify that zero

carbon generation sources of electricity, including WHP, installed at customer sites but not at affected EGU's, should be el igible to be counted toward the state's target, and include information on WHP resources in an appropriate section of the Clean Power Plan Toolbox for States or elsewhere as appropriate.

Commenter s commented that the EPA should clarify that CHP qualifies as an efficiency resource and that WHP qualifies as a low or zero

- carbon resource for the proposed rule. Commenters stated that the rule should explicitly acknowledge that the use of these technologies at unaffected systems is an eligible compliance strate gy for EGUs and should describe the environmental, economic, and reliability benefits associated with these technologies. Commenters added that268 explicit recognition of CHP and WHP will send a signal to states that they can and should include these technolo gies in their compliance plans, and, absent this, states are unlikely to look beyond the policies included in the building blocks. Commenter s stated that the EPA should consider CHP as an effective energy efficiency measure and encourage the use of this hi ghly efficient use of fossil fuel by allowing states to claim efficiency credit. Commenters explained that CHP is an efficient use of fossil fuel, and efficiencies close to 80 percent are not uncommon for CHP at facilities where the demand for thermal ener gy is high. Commenters added that reducing the use of a boiler, furnace, or even space conditioning units presents significant opportunities for emission reductions, and the 2011 Energy Master Plan for New Jersey set a goal for 1,500 MW of CHP capacity.

Co mmenters stated that EPA should make clear that adding CHP to an existing affected coal facility that results in efficiency gains beyond the 6 percent heat rate improvement used to calculate state goals is an important and approvable compliance opportunity

.
Commenters stated EPA should allow and encourage states to include CHP as a compliance measure in State Plans and added that the U.S. power industry is only 32.5 percent efficient and rejects around 24 quadrillion Btu (quads) of waste heat annually (25 percent of total U.S. energy use). Commenters stated that this waste heat from U.S. power generation exceeds the total national energy use in all but three of the world's 216 countries. Commenters presented a figure illustrating this comparison for the top 20 heaviest energy users as well as the average for the remaining 196 countries.

Commenters stated that EESI applauds EPA for including power plant efficiency as a compliance strategy. Commenters stated that most coal plants in the United States are only 34 percent efficient according to the Energy Information Administration, wasting two thirds of the energy used to generate power in the form of heat waste. Commenters stated that District Energy and Combined Heat and Power (CHP) are excellent ways to boos t efficiency in a power plant, which could allow existing plants to operate with greatly improved efficiency and reduced emissions. Commenters stated that CHP reclaims some of the waste energy in power plants by collecting vented heat in a pipe system and using it to provide heat and/or hot water to the plant. Commenters stated that the heated air or water collected in the CHP process can also be piped to nearby buildings, college campuses, urban areas, etc., in district energy systems and in combination, C HP and district energy can boost a power plant's efficiency to 90 percent. Commenters stated that there are many such examples of highly successful district energy/CHP systems across the country, with the potential for many more. Commenters stated EPA shou ld alert states to the great potential that CHP and district energy offer as compliance strategies.

Commenters noted that references to " industrial CHP " in the Proposed Rule ignore the significant potential for CHP in the institutional and commercial sect ors, particularly in district energy systems serving colleges, universities, downtown areas, hospitals, military bases and other multi

- building settings. Commenters recommended that the Final Rule refer to "CHP" rather than " industrial CHP " to make clear t o States that CHP systems beyond those at industrial facilities should be incorporated into State compliance plans.

Commenters stated that while EPA's system

- wide option should allow utilities and states to achieve their emission targets through investmen ts in CHP Systems at off

- site thermal hosts,269 such as hospitals, universities and manufacturing facilities, these off

- site hosts must be assured that they will not be disadvantaged later should EPA subsequently adopt a carbon NSPS for their sector. Commente rs stated that EPA should clarify that measures, such as CHP Systems, which are installed at an off

- site facility and are credited to the overall electric system under this rule will also be recognized as carbon emission reduction measures for the portion of the off

- site facility, i.e. the CHP System, which is considered a part of the electric system.

Commenters stated that a requirement that CHP units account for lifecycle, non

- EGU emissions would also be inconsistent with how EPA has directed states to c onsider other emission reduction measures. Commenters stated that EPA reasonably does not require emission reduction measures that displace EGU utilization via low or zero carbon generation or end

- use energy efficiency to account for the lifecycle emission s of those units. Commenters stated that for example, renewable energy developers are not required to net out the upstream emissions of steel production used to manufacture wind turbines. Commenters stated that the Clean Power Plan does not propose that bu ilding efficiency measures account for on

- site natural gas use. Commenters stated that nor does EPA account for upstream increases in methane emissions due to expanded use of natural gas at existing NGCC facilities. Commenters stated that non

- affected CHP units present no unique circumstances that would require or justify disparate treatment. This policy should be consistently applied.

Commenters stated that EPA should expressly state that CHP and WHP at unaffected units are eligible compliance technologies for EGUs. Commenters stated that by generating both heat and electricity from a single fuel source, CHP dramatically lowers emissions and increases fuel efficiency

- allowing utilities and companies effectively " get more with less." Commenters stated that CHP can use more than 70 percent of fuel inputs and presented Figure 2 which illustrates that total fuel use is significantly greater with conventional, separate heat and power generation (here 154 units) than it is with CHP ( here 100 units). Commenters s tated that savings are even larger with WHP, which captures waste heat that would typically be vented from an industrial facility and uses it to make electricity with no additional combustion and no incremental emissions. Commenters included Figure 1: Loss es from Conventional Power Generation (TWh) and Figure 2: CHP System Efficiency. Commenters noted that by producing both heat and power from a single fuel source (CHP) and by capturing otherwise wasted heat from industrial processes to generate additional electricity (WHP), CHP and WHP dramatically lower energy use and associated emissions. Commenters also stated that in fact, CHP can produce one

- half the carbon dioxide ( CO 2 ) emissions of the separate generation of heat and power to deliver the same
amount of useful energy (Figure 3 CHP Has Significantly Lower Carbon Dioxide Emissions than Conventional Generation). Commenters stated WHP produces electricity with no additional combustion and no incremental carbon emissions.

Commenters further stated that for these reasons, EPA should expressly identify CHP and WHP in the rule as a means of lowering emissions at unaffected units to help achieve our national goals. Commenters stated that EPA Administrator, Gina McCarthy has recognized CHP's GHG benefits and tha t for instance, upon awarding several industrial facilities for their investments in CHP, she recently explained, 'The CHP technology offers a strategy to help meet the goals of the President's Climate Action Plan for a cleaner power sector while boosting the efficiency and competitiveness for many U.S. manufacturers." Commenters stated that in August 2012, the Administration announced a goal of installing 40 gigawatts of new CHP by 2020 and that270 achieving this goal would annually save energy users 1 quadri llion Btu and reduce CO 2 emissions by 150 million metric tons. Commenters stated that under a more ambitious scenario, the Department of Energy estimates that increasing CHP from its current 8

- percent share of U.S. electric power to 20 percent by 2030 woul d reduce CO 2 emissions by more than 800 million metric tons per year

- the equivalent of removing more than half of the current passenger vehicles from the road. Commenters stated this amounts to a 10

- percent reduction in projected U.S. energy

- related CO 2 emissions in 2030. Commenters stated such full

- scale deployment would be equivalent to the power produced by more than 480 conventional power plants, displacing 5.3

- quadrillion Btus of fuel from conventional sources

- or half the total energy currently con sumed by U.S. households. Commenters presented Table 1: CHP/WHP Projections (2030) and Environmental Benefits and stated EPA should identify CHP and WHP's emission benefits in the rule itself.

Commenters stated that combined heat and power facilities reduc e overall fuel use and emissions by generating two energy sources

- heat and power

- with the same fuel. Commenters stated the EPA recognized the opportunity presented by CHP in its Clean Power Plan, noting that large energy users might independently see o pportunities for self

- generation using CHP, and indicating that " states can structure their plans to allow the CO 2 reductions achieved at affected EGUs through such actions to assist in reaching compliance ." Commenters stated EPA also asked for comment on " whether industrial CHP approaches warrant consideration as a potential way to avoid affected EGU emissions, and whether the answer depends on circumstances that depend on the type of CHP in question."

Commenters further stated that allowing compliance via combined heat and power presents a win

- win opportunity to lower compliance costs for covered EGUs while encouraging efficient use of energy at industrial, commercial and institutional facilities. Comme nters stated that CCAP undertook a modeling study earlier this year to assess this opportunity. Commenters stated this study (attached) linked ICF International's CHPower and Integrated Planning Models to assess how much CHP would be economical under the e lectricity, fuel and carbon prices in our forecasted 111(d) rule policy scenario. Commenters stated that while the specifics of their study differed from EPA's proposal, the level of stringency on a national basis was comparable. Commenters stated that usi ng conservative assumptions about the technical and economic potential of CHP, as well as conservative assumptions on the rate at which users opt to invest in economic CHP and the rate of CHP deployment, they found that a total of 10 GW of CHP would be dep loyed by 2030. Commenters stated that CHP was an important 111(d) compliance option in Midwest and Southern states that both had CHP potential and faced a higher carbon price due to the regulation. Commenters further stated that allowing CHP as a means of compliance also helped lower overall system

- wide compliance costs. Commenters stated that EPA's final rule should encourage this win

- win solution.

C ommenters stated they strongly believe that CHP should be allowed and facilitated as a means of compliance t o the degree that they displace electric generation and reduce emissions from affected electric generating units. Commenters stated they also believe that EPA should take into account the fact that most CHP facilities (other than waste heat to power) produ ce at least some incremental emissions to generate electricity. Commenters stated that to avoid emissions leakage through compliance via CHP, it is necessary to consider any incremental emissions at the CHP unit that can be attributed to electric generatio n. Commenters stated that EPA should specify271 methodologies for quantifying any incremental emissions related to electricity generation that are additional to the business

- as

- usual emissions from heat production. Commenters stated such methodologies could b e based on heat rates and should not require use of continuous emissions monitors for small CHP units. Commenters further stated that to facilitate CHP's participation in state compliance markets using a standard currency (e.g., CO 2 reduced), they recommen d that emissions reductions from CHP and other clean energy sources be reflected in the numerator of the lbs/MWh emissions rate, not the denominator.

Commenters stated they would like to suggest EPA consider modifying the rule to encourage affected EGUs t o partner with a non

- affected facilities in adding new (or enhance existing) combined heat and power ("CHP") generation capacity as an acceptable way to avoid affected EGU emissions. Commenters stated that the form of the CHP could be either a standalone

n atural gas fired combustion turbine with heat recovery steam generation (" CT/HRSG ") or added turbine generators powered by a plant's existing steam header.

A commenter stated that the EPA should clarify that CHP qualifies as an EE resource in the proposed rule, and that WHP produces no incremental carbon emissions . Commenters noted that there is a single mention of CHP as an example of "demand

- side energy efficiency" and no mention of WHP. Commenters stated that the rule should explicitly acknowledge that t he use of these technologies at unaffected units is an eligible compliance approach that states may include in their compliance plans. Commenters suggested that the rule's preamble and any relevant TSDs or guidance should elaborate on CHP and WHP's environ mental, economic and reliability benefits. Commenters stated that explicit recognition of these techniques will send a signal to states that they can and should include these technologies in their compliance plans. Absent this, Commenters explained that va rious states are unlikely to look beyond the policies explicitly included in the building blocks.

Commenters stated that as a specific example, despite existing installed generation capacity, Purdue University's utility plant (a non

- EGU) is a net purchase r of electricity to satisfy the total demands of the growing campus and as the University grows, but does not install commensurate CHP generation capacity, utility generated power demands increase for the campus. Commenters stated that if the increased pow er demand could be met with efficient on site CHP capacity rather than offsite less efficiently produced and transmitted power, then each MW of power required by campus would be supplied with a decreased associated CO 2 emissions rate due to the efficiencie s of CHP. Commenters stated that if an affected EGU could get compliance "credit" CHP capacity installed at non

- utility facilities, this could lay the groundwork for creative partnering between affected EGUs and non

- affected industrial facilities to bring more production capacity on line without increasing CO 2 emissions overall.

Commenters stated that in addition to the carbon reduction benefits, adding capacity to existing CHP could lend itself to better coupling with intermittent renewable assets that are located near the CHP site for better grid stability/reliability.

Commenters said that the EPA should permit industrial CHP units to participate voluntarily alongside other energy sources that can reduce net GHG emissions, because such an exclusion would further incentivize the adoption and maintenance of efficient, reliable, and low

- emission distributed generation. Commenters echoed the remark from other commenters stating that CHP272 should be recognized as a voluntary compliance measure by the EPA. Comment ers stated that adding or expanding CHP to existing fossil

- fuel fired EGUs can reduce the emission rate of those EGUs. Commenters also noted that adding CHP to existing affected facilities reduces pollution by using the energy potential of the fuel input t wice or three times, yielding half to a third of the emissions from separate applications. Commenters said that adding or expanding CHP at facilities other than affected EGUs (such as food processing, hospitals, industrial production and manufacturing, and commercial buildings) can measurably reduce demand for and therefore emissions from affected EGUs. Commenters said that the proposed rule needs to provide more clarity that CHP at a facility other than an affected EGU, qualifies as an efficiency

resource.
Commenters said that GHPs can be effectively integrated into institutional CHP systems and supported the ability of states to consider institutional CHP approaches in their state plans. Commenters recommended that the EPA encourage states to recognize indu strial, commercial and institutional CHP and WHP as appropriate means to avoid affected EGU emissions. Given the complicated process and tight timeline surrounding state plan development, commenters were concerned that states may be reluctant to include op portunities for CHP owners and operators in compliance plans without a clear signal from the EPA that CHP is an approvable compliance tool, and without additional guidance from the EPA on the permissible methods of calculating the emission reduction benefi ts of CHP.

Commenters stated that the main policy question that EPA must resolve regarding CHP in the final rule is whether states must account for lifecycle emissions of non

- affected CHP or whether only the emission impacts at affected EGUs should be con sidered. Commenters stated that EPA should not require states to include the CO 2 emitted by CHP units located at a non

- affected facility. According to the commenter, a policy of calculating the impact based only on the avoided emissions of affected EGUs is consistent with EPA's legal justification for the approvability of "beyond

- the

- fence" abatement activities, its treatment of the lifecycle emission reductions of other measures that reduce EGU emissions, and principles of administrability, and CHP promoti on . Commenters offered the following points in justification:

• Commenters stated that while EPA has considered the availability of emission reduction measures that occur "beyond

- the

- fence" of fossil fuel

- fired electric utility generating units

- both for t he purpose of setting state emission rates and for allowable compliance measures

- it has done so only to the extent those measures reduce emissions at affected EGUs. Commenters stated that EPA does not allow states to count emission reductions in sectors other than utility EGUs when determining a state plan's expected compliance with its emission goal. By the same logic, Commenters stated that EPA is constrained from requiring states to account for emission increases at out

- of

- sector entities.

• Commenters s tated that EPA reasonably does not require emission reduction measures that displace EGU utilization via low or zero carbon generation or end

- use energy efficiency to account for the lifecycle emissions of those units (e.g., renewable energy developers are not required to net out the upstream emissions of steel production used to273 manufacture wind turbines). Commenters stated that non

- affected CHP units present no unique circumstances that would require or justify disparate treatment of CHP.

• Commenters state d that accounting only for displaced emissions would be more administratively efficient than an approach that required "netting" the CO2 emitted by a non

- affected CHP unit. Commenters stated that properly evaluating the net emission impacts of new non

affe cted CHP would prove challenging and expensive, and that there is no widely accepted methodology for fairly attributing emissions between electric generation and the steam utilization that would have occurred in absence of CHP.

• Commenters stated that this approach is also consistent with the Federal Government's general policy of promoting CHP.

• Commenters noted that EPA retains authority to directly regulate industrial boilers and other categories of existing sources of CO2 emissions under Section 111 some time in the future if EPA determines that such emissions contribute to air pollution that endangers public health and welfare.

Commenter s advocated that the methodology for determining the compliance contribution of new and expanded non

- affected CHP should not require accounting for the direct emission of CO 2 from that facility. However, if EPA determines that the methodology must account for such emissions, Commenters urged EPA to develop a netting methodology that accounts only for the emissions from the non

- affected CHP unit directly associated with incremental electric generation. Commenters further urged EPA to provide the maximum possible assurances that such incremental emissions are not also regulated under a future Section 111 rulemaking for industr ial or institutional sources, otherwise it would constitute double regulation of these CHP units.

• Commenters suggested that if EPA requires an accounting for lifecycle emissions of non

- affected CHP units, it should do so in a precise and appropriate way. F or example, Commenters pointed out that waste heat to power systems have no net emissions associated with electricity generation. Similarly, for combined cycle systems, the facility would have combusted some fuel to produce thermal heat even if no electric ity was produced. Therefore, Commenters stated that it would be incorrect to count all CO 2 emitted by CHP units when determining the net emission impact of new or expanded non

- affected CHP.

• Commenters stated that EPA does not currently have a published

me thodology for calculating the net CO 2 reduction benefits of CHP systems. Commenters stated that while the CHP Savings Calculation Methodology and associated online emission calculator. [EPA, CHP Emissions Calculator, http://www.epa.gov/chp/basic/calculator .html] are274 useful tools for analyzing the total net emission savings from CHP compared to separately producing thermal heat and procuring electricity from a utility EGU, the methodology is not designed to calculate the net CO 2 savings specific just to avoi ded generation in the electric sector.

• Commenters stated that if EPA determines that the CO 2 emitted by a CHP unit located at a non

- affected facility must be accounted for, the EPA must provide a specific methodology by which owners of CHP units and state regulators can predictably and easily calculate net emission savings from CHP. According to the commenter, this methodology should include only the CO 2 emitted by a non

- affected CHP unit that is additional to what would have occurred purely for thermal he at production purposes; i.e., only those emissions solely associated with the addition of electric generation should be subtracted from the emissions saved through the reduced utilization of affected EGUs.

• Commenters stated that any methodology EPA develop s should maintain state flexibility to account for non

- affected CHP emission reductions by adding MWhs to the denominator of an affected EGU's emission rate or by subtracting emissions from the numerator of the affected EGU's emission rate. Commenters stat ed, for example, if a state translates energy savings to emission reductions by adding MWhs of savings to an EGU's denominator, the number of MWhs can be discounted to account for CO2 emitted by the non

- affected CHP unit; whereas if a state uses a "numerator approach," the CO2 directly emitted by CHP unit can be subtracted from the avoided emissions.

• In addition, Commenters stated that if EPA determines that the contribution of a non

- affected CHP unit must account for the CO2 directly emitted by the non

- affected CHP unit, EPA should take this into account in any future CO2 regulation addressing emissions from that unit's source category. Otherwise, Commenters stated that imposing an additional regulatory burden on those same emissions would constitute double regulation and would discourage the use of new and expanded CHP. Commenters stated that EPA should therefore provide assurance that these units will not be subject to double regulation. To do this, Commenters stated that EPA should clearly signal that the CO2 emitted by non

- affected CHP units credited under this rule are effectively emissions associated with the EGU source category and so will not be considered emissions associated with another industrial or institutional source category if EPA issues future regulations under Section 111(d) for that category.

Commenters recommended that EPA provide speci fic guidance on how to incorporate CHP into compliance strategies and provide model rules. Commenter s recommended that EPA establish a 5th building block for miscellaneous reductions so that states do not overlook the potential275 emission reduction opportuni ties from CHP, and allow credit for equivalent emission reductions for process heat generated by CHP.

Commenters recommended approaches for calculating emissions reductions from CHP for five circumstances, as follows:

• For purposes of determining complianc e with the State Goal, if an affected EGU under Section 111(d) converts from power

- only operation to CHP, thereby falling under regulation per Section 111(b), the reduction in emissions rate below the Section 111(b) requirement should be creditable in Stat e Plans under Section 111(d). The most appropriate methodology is to:

− reduce the numerator by an amount equal to the CHP electricity output (adjusted for line losses) plus 100% of the useful CHP thermal output, multiplied by the reduction in emissions rate for the CHP plant compared with the relevant NSPS emission rate; and

− increase the denominator by the CHP electricity output (adjusted for line losses) and 100% of the useful CHP thermal output.

• For purposes of determining compliance with the State Goal, i f an affected EGU under Section 111(d) that is a CHP plant increases utilization and/or converts to a lower

- carbon fuel, the numerator (metric tons of CO 2 ) should be increased or decreased by the incremental change in EGU CO 2 emissions and the denominator (MWh of total useful energy) should be increased by the incremental increase in electricity output (adjusted for line losses) and 100% of the increase in useful thermal output.

• If an existing CHP plant that does not qualify as an affected EGU under Section 111(d) increases utilization, the denominator (MWh of total useful energy) should be increased by the incremental increase in electricity output (adjusted for line losses) and 100% of the increase in useful thermal output. Although this approach does not account for some emissions increases at the CHP plant, Commenters believe d this approach is warranted for simplicity to encourage CHP and to avoid making these small plants subject to onerous EM&V oversight. If EPA want to account for these emissions, then Commenters included a recommendation for an alternative calculation methodology.

• If a new CHP plant is constructed which qualifies as an affected EGU under Section 111(b) and will be regulated under Section 111(b), but has a lower emissions rate than requ ired under Section 111(b) the reduction in emissions rate below the Section 111(b) requirement should be276 creditable in State Plans under Section 111(d). The most appropriate methodology is to:

− reduce the numerator by an amount equal to the total useful ene rgy output of the CHP plant multiplied by the reduction in emissions rate for the CHP plant compared with the relevant NSPS emission rate; and

− increase the denominator by the CHP electricity output (adjusted for line losses) and 100% of the useful CHP ther mal output.

• A new CHP system that does not qualify as an EGU under either Section 111(b) or Section 111(d) should be credited by increasing the denominator by an amount equal to the total useful energy output of the CHP plant. Although this approach does n ot account for some emissions increases at the CHP plant, Commenters believe d this approach is warranted for simplicity to encourage CHP and to avoid making these small plants subject to onerous EM&V oversight. If EPA want to account for these emissions, t hen Commenters included a recommendation for an alternative calculation methodology.

Commenter s offered specific recommendations for how to account for the benefits of CHP for states the use the rate

- based approach:

• For CHP systems that are not covered by the rule, Commenters stated that credits should be given just like energy savings from end

- use energy efficiency improvements. Commenters suggested that a utility or state that offers incentives for CHP be given credits for the energy savings. Emissions re ductions would be applied to the numerator in a state's emissions rate calculation; electricity savings would be added as a credit in the denominator (analogous to other energy efficiency credits proposed by EPA). Commenters also recommended a negative adjustment for the increase in the on

- site CO2 emissions at the CHP facility. The recommended adjustment, along with strategies for accounting for the efficiency effects of CHP is described in Appendix A to their lett er and illustrated in a table with several examples.

• For CHP units that are subject to 111(d), commenter 23962 recommended use of the Avoided Emissions approach because it most accurately recognizes the CO2 reductions offered by a CHP system. For
a rate

- b ased plan, if EPA chooses to use the equivalency approach, then Commenters stated that crediting only 75% of the thermal output undervalues the emissions benefit from CHP, but supported the use of 75% if EPA chooses to pick a single, fixed percentage. Appe ndix A to the comment letter contained example calculations to illustrate their points.277 Commenters discussed how the EPA should allow states to receive credit for the electricity generated by unaffected CHP units.

Commenter s said that emissions reductions resulting from end users who install systems that take load off the central power plant and associated transmission and distribution systems should be credited to the state, noting that WHP projects will generally not be installed at the affected EGU, but rather at a location that is the source of the waste heat as well as the consumer of the electricity generated from the waste heat. In addition, commenter s said, because WHP is distributed generation, located on

- site where the waste heat is produced and t he electricity is generated and used, WHP projects alleviate burdens on and minimize line losses associated with power transmission and distribution systems. According to commenter s , the more distributed generation like waste heat to power is available to industry, the less need for additions and upgrades to transmission infrastructure. Commenters stated that, given the scope of the proposed rule, the EPA may be required to only consider the displaced emissions from the affected EGUs.

Commenters stated t hat the full electricity output of unaffected, efficient CHP systems should be credited in the same manner as any other beyond

- the

- fence energy

- efficiency measure, without regard to the modest increase in emissions that may result at the facility installin g the CHP unit. According to commenters, this approach is consistent with the way a number of states such as Massachusetts, Maryland and Illinois have incorporated CHP into their Energy Efficiency Resource Standards (EERS). Where states include unaffected CHP units in their compliance plans, all of the electricity generated by such units should be treated as a kilowatt hour displaced from the grid and commenters urged the EPA to prepare guidance for states to this effect. Commenter s said that the generatio n of useable energy from cogeneration is a direct capture of energy that would otherwise be lost to the atmosphere, and use of this energy represents a quantifiable reduction in demand for energy that would otherwise be generated through increased consumpt ion of carbon

- based fuel at the facility. Commenter s said that the reduction in demand is equally valid whether the generating facility is new or old, modified or operating as originally built. Commenter s recommended that heat generated in these faciliti es, in cases where the heat energy is used in product manufacture or to meet other in

- house energy needs, or to produce electricity that is supplied to the grid for distribution to other consumers, should be specifically allowed in the proposed rule as an offset to CO2 emissions in a state's compliance plan. Commenter s said that this should include existing and future cogeneration, both at affected EGUs and at other EGUs. Commenters stated t o incentivize the addition of new cogeneration to existing faciliti es, 100% of the energy so used should be allowed as a compliance measure. Commenters said that the benefits of CHP coupled with the Administration's goal of deploying 40 gigawatts of new CHP by 2020 support treating CHP at unaffected units in this manner.

Commenters added that, while CHP at unaffected units may result in modest on

- site emission increases, these units remain subject to strict standards for criteria pollutants and must often meet minimum efficiency requirements to ensure they are operating cleanly and efficiently. Commenters suggested that states should establish minimum performance requirements for unaffected CHP units to ensure there are creditable savings. For example, commenter s said that many state CHP regulations require at least 20 p ercent of the fuel's recovered energy to be thermal and an overall CHP system efficiency of 55 to 60 percent. If the EPA determines that electricity produced by unaffected CHP units should be discounted to account for incremental278 on

- site emissions at the C HP host facility, commenters said that the calculation must be simple, accurate and understandable.

Commenters said that the EPA should provide guidance to states on the application of the avoided

- emissions approach, which would calculate an effective e missions rate for unaffected CHP units based on measurement of (or reasonable assumptions about) the usable thermal output and characteristics of displaced onsite boilers. Commenters added that the credit awarded such facilities would be determined by pror ating the electric output of the CHP system by comparing the CHP effective emissions rate to the area's 2012 average fossil emissions rate. Commenter s said that an equivalency approach to accounting for CHP benefits cannot adequately consider all of the po tential CHP configurations. Further, commenter s noted, the equivalency approach requires that a separate heat and power base case be developed, but in many cases an accurate base case cannot be established. For Great River Energy's two CHP facilities, comm enter s stated that the base case would have been to not develop the CHP relationship because the other potential thermal sources were not economical. According to commenter s , this base case would have resulted in no net gain in employment, no direct econom ic gain for the steam hosts, and no indirect economic gain for the communities that support the steam hosts' operations.

Commenter s added that the EPA's equivalency approach is predicated on the assumption that the steam host would have installed new equip ment subject to an NSPS. In the case of the Spiritwood Station CHP facility, commenter s stated that the thermal energy we export will be used in lieu of one host producing process heat with older, low

- efficiency, high

- emitting process heaters. Commenter s n oted that the Coal Creek Station sells thermal energy in the form of hot flue gases in addition to steam and that flue gas losses are approximately 20 percent of the energy losses at coal

- fired power plants. Commenter s stated that the environmental benefit s of a CHP recovering and beneficially using thermal energy that would otherwise be wasted are indifferent to whether the thermal energy is recovered from steam or flue gases. Commenter concluded that the variable (Pt ) PS is defined to only include the the rmal output of steam, and it is not clear if (Pt ) HR would allow for flue gas thermal sales as part of the CHP's gross energy output.

Commenter s added that the EPA's logic is not clear for deducting the electric energy used to power boiler feed pumps from the definition of gross power output. Commenter s said that deducting the boiler feedwater pump's electric energy consumption is a step that woul d be involved in a net energy output not a gross output. Furthermore, commenter s stated, it appears that a facility with steam driven feedwater pumps would get to add, under (Pt ) HR or (Pt ) IE , the thermal energy in the steam used to drive the pump. Allowi ng the addition of steam energy to drive a boiler feedwater pump to the facility's gross energy output, while requiring the deduction of electric energy, double penalizes facilities with electric driven pumps commenter s stated.

Commenter s said that another approach could involve setting a de minimis threshold below which minimal incremental emissions would not result in discounting the electricity produced by unaffected CHP units. For a compendium of approaches suggested in the EPA's previous publications, see the list and URL addresses provided in Appendix E (DCN 23014

- A9)

. Whichever approach the EPA follows, commenter s urged the EPA to provide clear guidance to the states so that states are encouraged to use CHP and WHP as compliance options in their plans

.279 Commenter s said that some states, such as New Mexico, have many rural areas where costs for connection to the grid make distributed generation with storage capacity (off

- the

- grid) the most economic option for both residential and some commercial facilit ies. Commenter s stated that New Mexico offers tax incentives for such applications. According to commenter s , these resources, while small, still reduce the usage of fossil generation that otherwise would have been necessary without the installations. With proper evaluation, monitoring and verification,
commenter s said that these should be valid resources for crediting in a state plan.

Some c ommenter s stated that it is not clear whether CHP would be subject to the same rules as energy efficiency (for example , in terms of timing and recommended approach to addressing double counting) or whether the rules would be more similar to those for renewable energy. Commenters explained that, while the proposal indicates that states can allow CHP to count towards compli ance, it is not included in the main discussion of alternative compliance options in the proposed rule.

C ommenters commented that new CHP systems (not covered under existing rule) installed by industrial facilities, commercial and institutional office buil dings, and campuses should be considered as compliance measures in state compliance plans. Commenter s stated that such systems significantly reduce the electricity demand from the utility distribution system and, therefore, the emissions associated with el ectricity production at affected EGUs. Commenter s added that this fact forms the basis for the 2012 Executive Order, Accelerating Investment in Industrial Energy Efficiency, which directed executive agencies, including the EPA, to use existing Federal auth orities, programs, and policies to support investment in industrial energy efficiency and CHP to improve the competitiveness of U.S. manufacturing, lower energy costs, free up future capital for business to invest, reduce air pollution, and create jobs. Co mmenter s explained that these systems should be eligible for credit through a mechanism, such as an Energy Efficiency Resource Standard (EERS), that recognizes end

- use energy efficiency gains and overall emission reductions. Commenter s suggested that credi t should only be given for the effective energy savings or emission reductions provided by these systems and not for their entire electrical output. The commented stated that, although under the scope of the proposed rule, the EPA may be limited to conside ring only the displaced emissions from affected EGUs and may not be able to consider the increased emissions resulting from a CHP installation beyond the fence, providing credit for full electric output of a CHP system without taking into account an increa se in onsite emissions creates leakage and the potential for gaming the system. Commenter s added that an acceptable approach to crediting CHP for reducing electric generation at the central station should account for any incremental increase in onsite emis sions. Commenters described two possible approaches: (1) calculate a prorated credit for the CHP unit compared to the 2012 average fossil emissions rate of the compliance area, and (2) include CHP in a state's overall energy efficiency programs by adding t he energy savings from new CHP systems to the savings of other energy efficiency measures implemented as part of the state program. Commenter s also noted that the calculation of the energy savings from a CHP system could be determined by deeming a certain percentage of a CHP system's electric output as net energy savings. In addition, Commenter s stated that a tiered system that ties the portion of electric output eligible to the CHP system's overall efficiency would allow systems with higher efficiency to r eceive more credit, would be simpler to implement, would provide an estimate of electricity savings, would encourage the installation of a more efficient CHP system design, and would have the added benefit of not requiring the consideration of emissions ou tside of the280 power sector. Commenter s noted that CHP can significantly increase the efficiency with which the required energy at an industrial facility is generated

Some commenters stated that the avoided emissions approach should be used for CHP systems when calculating an emissions rate that factors in both the electric and thermal outputs of the CHP. Commenters explained that the avoided emissions approach is more directly tied t o the environmental benefit of the CHP system because the calculation is directly tied to the emissions displaced by the unit, and thus, is the preferred method for calculating an adjusted emissions rate under the CPP because it provides the most accurate representation of GHG benefits from CHP. Commenters noted that the EPA has already published a tool that can help states account for CHP under output

- based standards and should direct states to these or other tools to help them account for the emissions be nefits of CHP. Commenter s noted that, if the equivalence approach is used for CHP, the EPA should provide full thermal credit for affected systems because 100 percent thermal credit on a typical CHP system results in an effective CO 2 emissions rate that

mo re closely approaches the emissions rate determined by the avoided emissions method, whereas discounting the thermal output does not fully account for all of the benefits provided by CHP systems. Commenters explained that, in previous use of the equivalenc e approach, the EPA has applied a range of credits to CHP thermal output, ranging from 75 percent in the NSPS for Electric Utility Steam Generating Units to 100 percent in the NSPS for Stationary Combustion Turbines. Commenters also pointed out that a 100 percent credit has likewise been applied in several states that have used the equivalence approach in state regulations. Commenters noted that the EPA has already published a tool that can help states account for CHP under output

based standards and should direct states to these or other tools to help them account for the emissions benefits of CHP. Commenters strongly advocate for the use of the avoided emissions approach for reasons of accuracy, reasonable simplicity, and potentially greater relevance in t he particular regulatory context of the proposed rule. Commenters pointed out that, if the EPA wishes to provide guidance for the equivalence approach (for instance, if states adopt this approach), Commenters encouraged using a thermal credit that matches the actual design and operation of a particular CHP system, which has a strong bearing on system performance. Commenters also noted that the system

- specific thermal credit could exceed the proposed 75 percent value. In addition, one c ommenter stated t hat, for assessing performance by either the equivalence or avoided emission approaches, the same measurements of fuel input and useful electric and thermal outputs would be needed. Commenters remarked that robust evaluation, measurement and verification of CHP system performance would increase confidence in the efficiency benefits of the systems and that the thermal output from CHP systems should not be wasted or dissipated, but actually put to productive use. For this reason, Commenters strongly supported the use of independent verification (as done in other energy efficiency contexts) to develop an accurate picture of the realized emissions benefits from CHP systems.

A nother commenter n oted that CHP facilities should not be discriminated against, and that, assuming the sole metric for measuring carbon reductions is based on full fuel

- cycle/carbon emissions allowances and that programs are in place to support the direct use of natural gas

, natural gas fueled "topping

- cycle" cogeneration plants should be supported rather than limited cogeneration from "bottoming

- cycle" applications powered by waste heat.

C ommenters recommended that the Agency issue guidance on how states could obtain credi t in their 111(d) compliance plans for CO2 reductions from CHP. A c ommenter explained that there281 may be multiple viable methods for a state to obtain credit for CHP, depending on whether the CHP system is new or existing and whether it is large enough to b e covered by GHG regulations. Commenters added that CHP systems may be eligible for credit for reducing an overall emissions rate for power generation or as an end

- use energy efficiency measure by contributing energy savings. Commenter s also pointed out th at specific guidance is needed to help states account for the benefits of the thermal energy output of CHP. Commenters suggested that the EPA specify examples of how CHP can qualify for credit for achieving emission reductions and should describe scenarios in which CHP is an eligible pathway to compliance, both for CHP systems that are regulated power plants under a 111(d) rulemaking and for CHP systems that are
not.
Several commenters stated that if the final rule continues to apply a system

- wide approach, states will seek to achieve their emission targets through off

- site energy

- efficiency investments, hospitals, universities, manufacturing facilities, and others could help reduce emissions throughout the air shed by installing CHP and WHP systems. The com menters stated that while these investments will reduce regional emissions, because these facilities are now producing electricity on site, their own emissions will modestly increase. The commenters recommended that to encourage these investments, EPA shou ld find a way to assure hosts that actions taken by facilities that are not directly covered by the rule to help states comply with the Carbon Guidelines will not adversely affect them under any potential future carbon pollution NSPS for another sector.

Co mmenters stated that EPA should structure the rule to better encourage the use of CHP, and provide specific guidance on how to incorporate the energy savings benefits of CHP into the building blocks. Commenter 23860 stated that EPA should provide guidance on CHP measures as to how they should be treated for calculations to provide states a clear path for taking advantage of these opportunities. Commenters 18400

- 18, 22758, and 24030 stated that because CHP accomplishes significant emission reduction, that th e rule should be designed to encourage the use of CHP. Commenter 22758 stated that the State of New Jersey Energy Master Plan
sets 1,500 MW goal for CHP capacity. Commenter 24030 urged EPA to issue clear guidance about how to incorporate CHP and waste heat to power into the building blocks. Commenter 23962 stated that a recent study the American Council for an energy

- Efficient Economy estimated that about 20 GW of new CHP capacity could be installed by 2030 if states would adopt good CHP policies under the CHP. This capacity would correspond to an energy savings potential of 0.15 % of retail electricity sales per year. Commenter 23341 expressed dismay and shock that EPA had not specifically addressed how to credit CHP in the building blocks.

Commenter state d that given that EPA is required to set a BSER for each major source of stationary emissions it is important that EPA not require or allow one source to count reductions in another source that is yet to be regulated. Commenters stated that there may be li mited exceptions to this general rule, such as CHP. Commenters stated that the proposed rule is somewhat vague on the treatment of CHP and Commenters would argue that the emission reductions achieved by reducing fossil heating that is replaced with the was te heat from a CHP unit is integral to the EGU. Commenters stated that in the case of CHP units owned by utilities this rule seems to clearly be the best opportunity to capture those emission reductions but even in the case of an industrial self

- generator. Commenters stated that they view this rule as an opportunity that such potential projects do not fall between the regulatory cracks. Commenters282 recommended that the final rule allow states to fully count the carbon emission reductions resulting from the d isplaced fossil fuel thermal load.

Commenters presented a study to determine the viability of CHP for some states to meet their emission goals using ICF International's IMP and the CHPower model. Commenters found that CHP can offer a cost

- effective solutio n towards achieving 111(d) compliance. Commenters said that a system

- based 111(d) policy design puts these efficiency investments " over the top ," shortening payback periods to the point that companies will choose to undertake projects at a number of indust rial, commercial and institutional facilities. Commenters noted that allowing incremental combined heat and power to participate in 111(d) compliance alongside other clean energy sources will help ensure the full amounts of CHP deployment forecasted under the CHP Base Case and CHP 111(d) Policy Case are realized. Commenters stated that states wanting to foster this technology will need to consider how to fairly apportion emissions between the thermal and electricity energy outputs. Depending on the chosen d esign of the system

- based approach, commenters said that methods may also be needed to fairly quantify emissions and emissions reductions. Commenters stated that additional solutions are needed to improve the attractiveness at the state level by lowering i nterconnection, standby and other costs for CHP units to access the grid. Moreover, commenters said that education and risk mitigation measures could be helpful in improving the likelihood that economical CHP will be developed.

Commenters stated that whil e the EPA's draft rule encourages the use of energy efficiency and renewable energy as compliance options, it provides little guidance and limited support for the inclusion of non

- ratepayer compliance options operated outside of conventional investor

- owned utility programs overseen by state public utility commissions. Commenters stated concern that in not adequately addressing these options, the EPA is making it extremely difficult for states to recognize emissions reductions resulting from the billions of dollars in annual energy investments in private and public

- sector investments in CHP. Commenters stated that low natural gas prices and resilience concerns are driving new CHP investments by manufacturers, local governments, and educational institutions. C ommenters stated State Energy Offices and others have worked to ensure barriers to installing CHP units are removed so that private market operators can advance this highly efficient, reliable heat and power option. Commenters stated, in fact, during Hurri cane Sandy and other natural disasters, CHP systems allowed major hospitals and universities, for example, to operate independently of the electricity grid. Commenters stated the market opportunity for CHP was estimated at 130 GW in 2012.

Commenters said that while 86% of existing U.S. CHP capacity is located at industrial facilities, CHP can also be an attractive resource for schools and hospitals, in district energy systems, and in military installations. Commenters stated that such on

- site generation av oids the transmission and distribution (T&D) losses associated with electricity purchased via the grid from central stations and defers or eliminates the need for new T&D investment. Commenters said that CHP's inherent higher efficiency and elimination of transmission and distribution losses from the central station generator results in reduced primary energy use and lower greenhouse gas (GHG) emissions. Commenters described how distributed CHP Systems located at energy intensive industrial sites, large com mercial buildings, and large institutional and government facilities are "supply side" resources with energy efficiencies of 60

- 80% compared to the 33% energy efficiency of traditional centralized electric power production.283 Commenters noted that tapping th e potential of utility

- owned or third party

- owned CHP Systems at these Distributed CHP Systems are proven technologies that provide both supply

- side capacity and demand

- side reductions to the electric system. Commenters added that they provide baseload
cap acity with 95% reliability to the electric system that displaces load on existing "electric only" EGUs that would otherwise be dispatched in the regional electric system.

Commenters noted three ways that voluntary actions involving CHP technology can redu ce emissions at affected EGUs :

• Installation or uprating of CHP at an affected EGU reduces the EGU's emission rate by more efficiently using combusted fossil fuel.

• Construction of new or uprating of existing CHP at facilities that are not affected EGUs (" non

- affected CHPs ") displaces electricity demand, and therefore emissions, from affected EGUs similar to other end

- use energy efficiency measures.

• Existing, as well as new, non

- affected CHP facilities that primarily use renewable power as a fuel source (" renewable CHP ") displaces emissions at affected EGUs similarly to other renewable energy

measures.

Commenters described how CHP satisfies BSER because it

1. R educes CO2 emissions,

2. I s cost effective,

3. E nhances electric reliability, and

4. Is adequately demonstrated. Commenters stated that the remaining potential for CHP and WHP is great and evaluation, measurement and verification protocols for these technologies are well established. Commenters asked the EPA to highlight these benefits in th e proposed rule and expressly state that CHP and WHP are valuable and acceptable compliance tools for unaffected units, notwithstanding their omission from the building blocks. Commenters provided extensive documentation demonstrating these points, especia lly cost ef fectiveness; reliability and the potential of the technologies Commenters provided documentation to support assertions that CHP can provide CO 2 emission reductions at a lower cost than many RE technologies as well as technologies such as carbon capture and sequestration (CCS) that are discussed in the Proposed Rule as potential strategies in State Plans.

Commenters stated that allowing CHP as a compliance mechanism will reduce the costs of compliance, especially in states projected to see higher than average compliance costs. Commenters added that CHP provides flexibility to states in cost

- effectively achieving total emission reduction goals. Because there are significant disparities between states relative to renewable energy, which are not acco unted for in the regional approach by the EPA in setting state goals for Building Block 3, commenters stated that CHP can be a useful element in any284 state's Clean Power Plan, and it can play a particularly important role in states with low renewable potent ial.

Commenters also addressed the cost

- effectiveness of CHP and provided several studies to document their conclusions including a Center for Clean Air Policy (CCAP) study in May 2014 that concluded that " combined heat and power can offer a cost

- effective solution towards achieving 111(d) compliance ." Commenters also provided information on CHP and WHP.

Commenters said that many energy

- intensive industries must compete in a global market. By reducing and stabilizing energy costs, commenters said that CHP c an help U.S. industrial companies thrive and continue to provide jobs and tax revenue. Commenters also described how CHP enhances energy security and resiliency compared with large interconnected grids and described the economic consequences of grid failur es.
Commenters said that CHP units are capable of providing overall efficiencies of 60 to 80 percent, leading to improved environmental performance, reduced energy consumption, and improved grid reliability compared with conventional generation. Commenter s stated that CHP creates less pollution per unit of energy by using the energy potential of fuel inputs twice or three times, yielding half to a third of the emissions that would otherwise result from separate applications.

Furthermore, commenters said th at the EPA should incentivize these highly efficient units by allowing facilities to include 100 percent of useful thermal output from CHP when calculating emission compliance. Commenters added that local applications of CHP also avoid transmission and dis tribution line losses, which should be consistent with average line losses for the state in which a particular CHP unit is located.

Some c ommenters stated that EPA should explicitly recognize CHP as a voluntary compliance option under Section 111(d),

Comme nter said that the EPA must provide additional guidance for how carbon emissions from cogeneration facilities should be calculated because it is important that the carbon emissions and carbon emission rate be calculated based on the percentage of total cog eneration facility energy used that is directed to electricity generation. Commenter said that the percentage of carbon emissions associated with thermal energy used at a cogeneration facility should not have to be reported and should not be used in calcul ations for the cogeneration facilities or the state's carbon emission rate.

Commenter s commented that the EPA should provide appropriate and comprehensive guidance on how CHP can serve as a valuable compliance option towards meeting the goals of the Clean Power Plan. Commenters noted that CHP systems may be directly affected or non

- affected, which would result in different practical considerations (e.g., how to account for onsite emissions of non

- affected CHP systems).

Commenters agreed that states will need guidance on how to value and count emission reductions from CHP. In particular, commenters said, states will need model rules detailing the best way to include CHP in renewable portfolio and energy efficiency standar ds and guidance on how to appropriately credit CHP output. Commenters added that these written materials could be285 supplemented with a CHP webinar for states and other stakeholders involved in developing compliance plans. Commenters said that the EPA should issue a policy guidance memorandum from the EPA HQ to the regional offices and states that allows new industrial CHP facilities to perform air quality impact analyses that takes credit for regional air quality improvements due to offsetting emissions from EGUs. Specifically, commenters said that the EPA should allow the CHP units to reduce its modeled emission rates by the relative amount of avoided emissions when compared to electric grid emissions within the nearest sub

- region of EPA's E

- GRID database.

Commenters recommended that the EPA allow utilities and states to receive CHP credits based on the net CO2 emissions reductions from a CHP system. As an alternative, commenters said, states could calculate an equivalent amount of net electricity savings fr om CHP, again based on the CO2 emission reductions. Commenters provided detailed recommendations about how these calculations could be made in separate comments on CHP, and in short, suggested that 60

- 80% of the total electrical output of the CHP system wo uld be counted as " net electricity savings ", with the exact value based on the type and efficiency of the overall CHP system.

Commenters stated that CHP is considered by some states to be a renewable energy resource under certain circumstances and an ener gy efficiency resource in others. Commenters added that there are accepted methods for calculating the net CO2 emissions reductions from CHP systems, and 13 states currently permit electricity savings from CHP systems to contribute to achievement of energy efficiency resource standards in some manner.

Commenters also recommended that a utility that provides CHP incentives or a state that has a CHP standard or incentive, financing or technical assistance program be eligible for energy efficiency credits, as long as the state includes the CHP policy or program in the state's section 111(d) compliance plan. Commenters stated credits should not be provided to individual CHP projects, but rather to a utility or state program. Commenters suggested that the credit s could either be CO2 emission reductions or electricity savings from a CHP system. Commenters explained that emissions reductions would be applied to the numerator in a state's emissions rate calculation; electricity savings would be added as a credit in the denominator (analogous to other energy efficiency credits as proposed by EPA).

Commenters agreed that it will not be difficult for states to set up CHP incentive programs to include CHP in their Clean Power plans, because there are many existing progra ms, including those catalogued in the EPA's 2014 report on GHG reduction programs

. Commenters noted that states may also consider adopting other complementary policies to increase CHP and WHP deployment, and the EPA should provide concrete examples of these policies along with guidance about how they can be made enforceable, so that sta tes can consider them when developing their state plans. In addition to encouraging states to utilize microturbine technologies, commenters said that EPA's standard should not inadvertently create disincentives to build or expand CHP. Instead, commenters s tated that the rules should encourage the expansion and deployment of CHP facilities to the greatest extent practicable because using clean, efficient distributed generation provides secure power for critical facility loads, allowing some sites to eliminat e or avoid using traditional backup diesel generators.286 Commenters suggested that the regulatory benefit of new and expanded CHP at non

- EGU facilities can be treated similarly to EPA's proposed accounting for end

- use energy efficiency. Commenters said that the electric and thermal output of such facilities can easily be quantified and included in the compliance calculation in the same way as energy efficiency or other clean generating resources. Commenters said the EPA should provide clear guidance to the st ates that expanding CHP at facilities other than affected EGUs is an approvable and cost effective compliance tool. Commenters said that the Final Rule should refer to " CHP " rather than

" industrial CHP " to make clear to states that CHP systems beyond those at industrial facilities can and should be incorporated into State compliance plans. Commenters added that five categories of CHP should be creditable in State Plans:

• Type 1. Existing power

- only plant that is currently an affected EGU under Section 111(d ). An existing power plant that is an affected EGU under Section 111(d) may be converted into a CHP plant, thereby providing useful thermal energy that had been previously wasted. Such a conversion would likely trigger regulation under Section 111(b) as a

" new, modified or reconstructed " source. The increased energy efficiency and associated reductions in emissions in comparison with the Section 111(b) requirements should be creditable in State Plans.

• Type 2. Existing CHP plant that is an affected EGU unde r Section 111(d). Some CHP plants are affected EGUs under Section 111(d). Increased utilization of such plants, or switching to a lower carbon fuel (such as switching from coal to natural gas or from coal or gas to renewable fuels such as biomass) for such plants, should be creditable in State Plans.

• Type 3. Existing CHP plant that is not an affected EGU under Section 111(d). Most existing CHP plants do not meet the threshold for regulation under Section 111(d). Increased utilization of such plants should be creditable in State Plans because the increased generation will result in reduced output from affected EGUs.

• Type 4. New CHP plant that is an affected EGU under Section 111(b). New CHP plants may be constructed that will qualify as affected EGUs under Section 111(b) and will be regulated under Section 111(b). However, to the extent that such plants have a lower emissions rate than required under Section 111(b), the reduction in emissions rate below the Section 111(b) requirement should be creditable in State Plans under Section 111(d). Such highly efficient new CHP plants can be expected to displace generation, and thus emissions, from less efficient units that are affected EGUs under 111(d).

• Type 5. New CHP systems that is not an affected EGU under Sec tion 111(b). A new CHP plant may be constructed that does not meet the criteria for an affected EGU. These new systems should be treated as energy efficiency measures, and State plans should be able to recognize287 the reduction of generation and associated e mission reductions from affected EGUs that these new CHP systems provide.

Commenters said that the EPA should allow states to include the full impact of non

- affected CHP on affected EGUs without " netting " of emissions from non

- affected CHP. Commenters

rec ommended an approach for CHP plants that are not regulated under Sections 111(b) or 111(d) of the Clean Air Act (Types 3 and 5) that does not account for marginal unregulated increases in CO 2 emissions at the CHP plant. Although it creates a small potentia l for "leakage," commenters believed that this approach is warranted for simplicity of regulatory administration, to encourage CHP as a highly energy

- efficient practice, and to avoid making CHP plants, many of which are small facilities, subject to onerous regulatory oversight beyond the existing regulations governing criteria pollutants. Commenters concluded that it is extremely important that if the output of a non

- affected CHP plant is to be discounted based on CHP plant emissions, the EPA must take this into account in any future CO 2 regulations relating the CHP plant's source category.
Commenters stated that the proposed rule needs to expressly state that CHP qualifies as an efficiency resource at unaffected units, and the EPA should also clarify that WHP qualifies as a

zero

- carbon generation resource. Commenters described how, with limited exception, CHP is not expressly included in the four building blocks. Commenters stated that while CHP and WHP were generally not considered when setting the state e mission targets, these technologies can and should be used to achieve them. Commenters stated that CHP and WHP can be used to reduce emissions at the affected facilities themselves (Building Block 1); by substituting generation at EGUs with expanded use of biomass CHP and WHP by other unaffected sources in the region (Building Block 3); or by displacing central generation by deploying CHP and WHP at hospitals, universities and factories (Building Block 4). Commenters were concerned that states will view the building blocks as a roadmap to achieve their targets and that they will not look beyond the limited policies that EPA expressly included therein. Commenters urged the EPA to expressly state the role of CHP and WHP in helping affected units achieve state emission targets and to provide examples of how these cleaner and more efficient power

- generating systems might be included in state plans.

Comment 19 : Comments suggesting that states be given credit toward state's EE goals for other
measures or programs.
Response 19 : In the final rule, to the extent RE generation and demand

- side EE measures are tied to a state plan, the quantified and verified MWh impac ts of the measures may be used by an affected EGU or state to adjust a CO2 emission rate, regardless of whether the RE generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO2 emi ssion performance rates and state rate

- based CO2 goals in the emission guidelines, the MWhs impacts are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The reported CO2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO2 emissions, such288 as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double count CO2 emissions impacts across the grid. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect RE and demand

- side EE, including specific geographic eligibil ity requirements and limitations, and the eligibility requirements for resources that can used to adjust a CO2 emission rate, including but not limited to renewable energy and demand

- side EE, see s ection VIII.K.1 of the final rule preamble of the CPP

.

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

Commenters requested that the proposed rule allow states to take credit for other programs or actions to meet their Clean Power Plan goals. In this regard, Commenters made four po ints. First, commenters stated that the state that implements an energy efficiency measure should be able to claim the emission reduction value of that measure, regardless of where the emission reduction occurs. Commenters explained that this approach prov ides the proper incentives for states and individual utilities to pursue the most cost

- effective emissions reductions throughout the country and helps mitigate the proposed rule's inherent penalties against states, such as Oregon, that have decades of expe rience in energy efficiency. Second, commenters remarked that states should receive credit for energy efficiency measures that reduce the demand regardless of the type of generation serving the load. Commenters explained that the principles of economic dis patch demonstrate that fossil resources are generally the first resources to be curtailed as a result of energy efficiency, and even if an end

- user's power is fully provided by the hydro

- electric system, the end

- user's reduced demand will extend the hydrop ower system and reduce output from fossil resources and, as a result, reduce emissions. Commenters added that the same should be true for energy efficiency gains that displace other types of renewable and/or non

- emitting generation. Commenters noted that, in establishing Oregon's goal, the proposal counts energy efficiency from all of the state's electricity customers, even those who receive their power exclusively from the hydropower system, and accordingly the EPA should clarify that Oregon can take full credit for energy efficiency investments made by all customers, regardless of whether their power is provided in whole or in part by emissions

- free generating resources. Third, commenter stated that the emission reduction value of energy efficiency measure s should be equal to the emissions rate of the regional power pool's marginal resources. Commenters explained that energy efficiency reduces the demand for marginal resources within the regional power pool due to the interconnected nature of the electric g rid and individual power pools; therefore, each state should be allowed to use the marginal hourly emissions rate (averaged over a year) from its power pool when assigning an emission reduction value to energy efficiency. Finally, commenter stated that
sta tes should be able to take credit for savings from demand response, enforcement of building codes, federal and state appliance standards, and market transformation efforts. Commenters explained that, while use of such measures may require further developme nt of evaluation, measurement, and verification methodologies, states, such as Oregon, that lead the nation in energy efficiency uniformly point to such measures as the most cost effective and reliable means of reducing the demand for power and emissions.289 Comment 2 0 : Comments supporting the inclusion of EE as a component of the BSER and state use of expanded EE measures.

Response 2 0 : In this final rule, EE is no longer included in the determination of the best system of emission reduction. However, demand

- side EE and other non

- BSER measures may be included as a part of a state’s plan to meet the emission guidelines. To the extent demand

- side EE measures are tied to a state plan, the quantified and veri fied MWh impacts of the measures may be used by an affected EGU or state to adjust a CO2 emission rate, regardless of whether the demand

- side EE savings occur inside or outside the state or territory. This adjustment results in a lower adjusted CO2 emissio n rate. For more detail on the BSER, refer to section V of the preamble. For more information about specific methods to adjust the CO2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources used to adjust

a CO2 emission rate, including but not limited to demand

- side EE, see s ection VIII.K.1 of the final rule preamble of the CPP

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

Commenters stated that in light of the uncertainties associated with Building Block 4, demand

side EE requirements should be included as an optional means of compliance with a performance standard grounded in the statute. Commenters agreed that EE is an important goal and supported use of deman d

- side EE as a means of reducing demand for electricity. Commenters stated it is not appropriately incorporated as a requirement into a CAA section 111(d) standard of performance, but rather, EPA should consider EE programs, along with other measures that reduce emissions of CO2 discussed in the following section, as an optional means of compliance with a CAA section 111(d) standard. Under this scenario, commenters stated they would be able to adjust the emission rate based on avoided MWh across its members by adding the avoided MWh to the denominator of the pounds per CO2 /MWh emission rate.

Commenters stated EPA should encourage states to develop a clear path for inclusion, crediting, and administrative review and oversight of non

- utility

- delivered energy efficiency activities providing emissions reductions included in state plans. Commenters stated this may include energy savings performance contracts, low

- income weatherization programs, industrial energy efficiency and other privately contracted and deliv ered energy efficiency historically unaccounted for in ratepayer and state programs.

Comment 2 1 : Comments suggesting that EPA consider a centralized EE registry to facilitate accounting consistency.
Response 2 1 : The final rule allows for the use of the quantified and verified MWhs from demand

- side EE measures tied to a state plan to adjust a CO2 emission rate, provided they meet the general eligibility requirements outlined in s ection VIII.K.1 and the MWh electri city savings are properly quantified and verified in accordance with s ection VIII.K.3 of the final rule preamble of the CPP

.290 Consistent with the EPA’s calculation of the CO2 emission performance rates and state rate

based CO2 goals in the final emission g uidelines, the MWhs impacts are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower, adjusted CO2 emission rate. The MWh accounting method corresponds with the use of MWh

denominated Emission Rate Credits (ERCs) in the rate

- based emission trading framework specified in this rule. ERCs can be issued for qualifying measures as discussed at section VIII. K.2. (a

- b) of the final rule preamble , and include RE, demand

- side EE, and other measures, such as DSM, CHP and incremental nuclear generation.

State plans with rate

- based emission trading programs must include specific provisions in their state plan and trading program to ensure that ERCs are properly tracked from issuance to submission by affected EGUs for compliance and to ensure they are only used once to meet a regulatory obligation. This is addressed through specific requirements for tracking account holders, ERC issuance, ERC transfers among accounts, compliance true

- up for affected EGUs, and an accompanying tracking system infrastructure design based on business rules specified in the emission trading program regulations. Each issued ERC must have a unique identifier (e.g. serial number) and the tracking system must provide for traceability of issued ERCs back to the program or project for which they were issued.

In response to comments about the value of the EPA’s support in developing and/or admin istering tracking systems

– either on a regional and/or national basis

- to support state administration of rate

- based emission trading systems, the EPA is exploring options for providing such support and is conducting an initial scoping assessment of trac king system support needs and functionality. For more information about the general accounting approach for adjusting a CO2 emission rate, see s ection VIII.K.1.a.(1). For more information on requirements for rate

- based emission trading approaches and track ing requirements, see s ection VIII.K.2.

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

Commenters stated EPA should not limit EE measures to those with well

- understood savings potential. Commenters stated instead, EPA should consider a centralized EE registry to facilitate accounting consistency. Commenters stated presumably, the purpose of having EE as a compliance measure is to promote its use and spur innovation. Commenters stated that limiting allowable measures wou ld reduce the incentive for innovation and ultimately reduce possibilities for saved generation. Commenters stated however, they recognize that the principles of consistency, transparency, accuracy, and the avoidance of double counting are very important. Commenters stated an established centralized registry or regional registries for RECs could serve to standardize and verify EE savings across states.

Comment 22 : Comments on crediting energy code adoption and compliance programs.
Response 22 : The final rule allows for the use of the quantified and verified MWhs from demand

- side EE measures, potentially including building energy code and compliance programs, to adjust a CO2 emission rate, provided they meet the general eligibility requirements o utlined in section VIII.K.1 and the MWh electricity savings are properly quantified and verified per the EM&V requirements in the final rule. For more information regarding EM&V requirements and291 the draft EM&V guidance for demand

- side EE which is being rel eased in conjunction with the proposed model rule, see S s ection VIII.K.3 in the final rule preamble

. The following are summaries of the specific public comments under this c omment:
Commenters stated as a compliance mechanism under building block four, they encouraged EPA to explicitly allow states to count the incremental energy savings from energy code adoption and compliance programs. Commenters indicated States that adopt the most recent version of the energy code on a regular, three

- year cycle reduce energy waste in both commercial and residential buildings. Commenters stated for example, the 2010 version of the model energy code ASHRAE 90.1 is 30 percent more energy efficient tha n the 2004 version of the same model code.

Commenters stated that because energy codes only save energy if they are enforced, EPA should also allow states to count energy savings that result from code compliance beyond the status quo. Commenters stated ac cording to the Institute for Market Transformation (IMT), energy code compliance can be as low as 50 percent. Commenters stated in Rhode Island, the electric utility National Grid conducted a survey that found energy code compliance rates for specific ener gy systems to be as low as 7 percent for bi

- level lighting controls and 50 percent for lighting occupancy sensors. Commenters stated despite a state

- wide compliance average of 70 percent, they found that no single building was in full compliance; in other words, buildings in Rhode Island are performing 30 percent worse than the code requires of them.

Comment 23 : Comments on energy code compliance.

Response 23 : The final rule allows for the use of the quantified and verified MWhs from demand

- side EE meas ures tied to a state plan , such as building energy codes, to adjust a CO2 emission rate, provided they meet the general eligibility requirements outlined in s ection VIII.K.1 of the final rule preamble and the MWh electricity savings are properly quantified and verified per s ection VIII.K.3.

The following are summaries of the specific public comments under this c omment:
Commenters stated that IMT estimates that programs targeting energy code compliance have a 600 percent return on investment, $6 in energy savings for every $1 invested. With code compliance hovering around 50 percent, commenters stated there is a large opportunity for states to better enforce their energy codes, which will result in addi tional energy savings and CO 2 reductions. How states approach the enforcement challenge should be decided by each state based on local circumstances, but commenters recommended that states focus on the following ways to improve energy code compliance:

• Educate and outreach to the architects, contractors, and builders with the responsibility to design and build and retrofit code

- compliant buildings;292 • Combine both classroom and on

- the

- job energy code training for code officials with regular follow

- up and co ntinuing education, especially when new versions of the code are adopted;

• Provide tools for code officials to be more productive with their time so that they can assess energy code compliance without spending additional time on a job site;

• Require tests of newly constructed buildings by third

- party experts to boost compliance by builders; and

• Hire additional code officials to support existing officials who do not have sufficient time to adequately inspect all of the buildings that they are required to inspe ct.

• Simply improving compliance with existing energy codes would have a major impact on reducing CO2 emissions for a relatively small investment. We recommend that EPA explicitly recommend that states focus on energy code compliance as a cost

- effective way to drive investments in energy efficiency as a tool to comply with building block 4.

Commenters s tated data from EPA's ENERGY STAR Portfolio Manager shows that buildings that benchmark their energy use reduce their energy consumption by seven percent over three years. Commenters stated that around the country, two states (i.e., Washington and Californ ia), one county (i.e., Montgomery County, Maryland), and ten cities (i.e., Austin, Boston, Cambridge, Chicago, Minneapolis, New York City, Philadelphia, San Francisco, Seattle, and Washington, DC) have enacted mandatory benchmarking ordinances that require certain buildings to measure their energy performance using ENERGY STAR Portfolio Manager. Commenters stated EPA's own analysis of 35,000 buildings showed that those buildings that benchmarked their energy use reduced their energy consumption by 2.4 perce nt per year on average with the least efficient buildings reducing their energy consumption by the greatest amount (12 percent over three years). Commenters recommended that EPA allow states to count energy savings from mandatory benchmarking programs unde r building block 4, so long as those energy savings cannot be double counted under a separate program (e.g., utility rebate program).

Regarding building energy codes, commenters recommended that the EPA indicate that the 2009 International Energy Conserva tion Code (IECC) was the national baseline code as of 2014, and allow states to receive energy savings credits for new homes and commercial buildings built to meet a code that is more stringent than this baseline. Commenters stated that the 2009 IECC was
t he code in effect in about 25 states as of mid

- 2014, with only a handful of states having already adopted the 2012 IECC.4. Commenters recommended that energy savings credits should begin in 2020 for new buildings constructed starting in 2017 that meet an e nergy code that is more stringent than the 2009 IECC. Commenters stated that the credits would be independent of date293 of adoption (i.e., states that adopted the 2012 or 2015 versions of the IECC prior to 2017 would not be penalized for doing so).

Commenter s noted that states that are home rule states adopt building codes at the local level. Commenters noted that these states should also be allowed to receive energy savings credits, as long as the state includes a building energy codes initiative in its stat e Section 111(d) plan and tracks construction levels in local jurisdictions that have adopted these up

- to

- date codes. In addition, commenters recommended that the EPA allow states to receive energy savings credits for efforts that improve energy code enfor cement and compliance rates, as measured through code compliance studies that are conducted in accordance with the EPA

- approved protocols on the topic.

Commenters estimated that moving from the 2009 International Energy Conservation Code (IECC) to the 2015 IECC would save about 614 GWh per year in the region served by the commenters (AZ, CO, NM, NV, UT and WY) during 2017

- 2025, given projected construction rates and energy savings potential state

- by

- state. Commenters stated that this is equivalent to about 0.25% savings per year given projected electricity use in the region during this time period (which is approximately 250,000 GWh per year). Commenters stated that the 2009 IECC

" baseline " is the building code now most prevalent in the region, although some jurisdictions recently adopted the 2012 IECC. Likewise, commenters noted that ACEEE estimates that adopting state

- of

- the

- art building energy codes nationwide could provide incremental annual savings of 10,900 GWh per year in 2020 and 12,100 GWh per year i n 2030 Commenters stated that this is equivalent to about 0.25% savings per year based on the most recent Energy Information Administration (EIA) forecast of future electricity consumption.

Commenters noted that States can adopt minimum efficiency standard s on products not regulated by the federal government under the National Appliance Energy Conservation Act (NAECA) legislation. Commenters stated that California and other states have adopted state efficiency standards in recent years on televisions, batte ry chargers, and other electronic products. Commenters stated that according to the Appliance Standards Awareness Project (ASAP), twelve states currently have state appliance efficiency standards in effect [see State Adoption of Energy Efficiency Standards . Boston, MA: Appliance Standards Awareness Project. http://www.appliance

- standards.org/states.] Commenters stated that ASAP suggests that there are ten products including battery chargers, commercial dishwashers, quartz halogen lamps and room air cleaners that are good candidates for state appliance standards at this time, and that adopting these standards would provide substantial net economic benefits for consumers and businesses. Commenters stated that other products, including televisions, set

- top boxe s, and commercial and industrial fans and pumps, may be candidates for state appliance standards in the future as well.

Comment 24 : Comments on energy savings from federal government programs.

Response 24 : The final rule allows for the use of the quantified and verified MWhs from demand

- side EE measures tied to a state plan to adjust a CO2 emission rate, provided they meet294 the general eligibility requirements outlined in s ection VIII.K.1 and the MWh electric ity savings are properly quantified and verified per s ection VIII.K.3 of the final rule preamble of the CPP. Federal measures are not tied to a state plan and therefore the associated MWhs cannot be used to adjust a CO2 emission rate.

The following are su mmaries of the specific public comments under this c omment:

Commenters stated that credit should not be given for energy savings that result from federal appliance and equipment efficiency standards or other federal mandates. Commenters argued that, althou gh these programs are worthy efforts that are reducing CO 2 emissions, they are not occurring as a result of state or local initiatives. However, commenters recommended that programs that are jointly funded by states or utilities and the federal government should be eligible for energy savings credits for the portion of the programs that are not federally funded, with energy savings pro

- rated on a funding share or some other appropriate basis.

Comment 25 : Comments supporting the use of demand response.

Response 25 : In this final rule, EPA provides states with the flexibility to use the quantified and verified MWhs from demand

- side EE measures tied to a state plan to adjust a CO 2 emission rate, provided they meet the general eligibility requirements outli ned in s ection VIII.K.1 and the MWh electricity savings are properly quantified and verified per s ection VIII.K.3 of the final rule preamble of the CPP

. In the final rule, a voided MWh of electricity use that result from demand

- side management (DSM) may be used to adjust a CO 2 emission rate. Eligible DSM actions are those that are non

emitting and avoid, rather than shift, the use of electricity by an electricity end

- user, as discussed in VIII.K.1.a.(4) of the final rule preamble

. Actions that shift e lectricity demand from one time of day to another are not eligible, as these measures do not avoid electricity use from the grid. Use of emitting generators as a DSM measure are also not eligible. The MWh that may be used for such an adjustment are determi ned based on the MW of demand reduction multiplied by the hours during which such a demand reduction is achieved (MW of demand reduction x hours = MWh avoided). DSM measures must be appropriately quantified and verified, in accordance with requirements in the emission guidelines, as discussed in section VIII.K.3 of the final rule preamble

. Energy storage may not be directly recognized as an eligible measure that can be used to adjust a CO 2 emission rate, because storage does not directly substitute for elec tric generation from the grid or avoid electricity use from the grid

. However, the final rule acknowledges the value of energy storage as an enabling measure that facilitates greater use of RE. Additional information regarding energy storage is in s ection VIII.K.1.a.(5) of the final rule preamble

.
The final rule does not allow measures that reduce CO 2 emissions outside the electric sector to be counted toward meeting a CO 2 emission performance levels for affected EGUs or a state CO 2 goal as discussed in s e ction VIII.K.1.c.295 The following are summaries of the specific public comments under this c omment:

Commenters stated demand response is demonstrably " technical feasible " based on its use today; FERC's recent data show there were over 28,000 MW of demand response participating in wholesale markets that cover the majority of the country in 2012, equaling 6 percent of total peak demand , and it reliably delivers over 90 percent of expected capacity. Commenters stated demand response's role as an ancillary re source will become increasingly valuable as more renewable generation comes online, and demand response becomes a means of balancing variable supply. Commenters provided an example where an Alcoa aluminum smelter in Indiana consistently provides nearly 10 percent of the spinning reserves used by the Mid

- Continent Independent System Operator (MISO). Commenters stated that while demand response has become a relied

- upon and widely

- integrated resource, its potential remains largely untapped; the 2009 FERC Natio nal Assessment of Demand Response Potential reported that under an

" Expanded Business as Usual " Scenario, there will be 82 GW of peak demand reduction potential by 2019, and under the " Achievable " Scenario, there would be 138 GW of reduction.

Commenters stated demand response reduces emissions the following ways: (1) directly through load reductions during peak periods (0.05 to 0.35 percent); (2) directly by providing ancillary services otherwise supplied by fossil

- fueled generation (0.3 to 0.8 percent); and (3) indirectly, by facilitating increased penetration of renewable resources and the displacement of generation from older, inefficient sources (approximately 1 percent). Commenters stated that under
emergency

- based programs, instead of dispatching ine fficiency units to balance supply with demand, grid operators and utilities can dispatch demand response and reduce demand by hundreds or thousands of MWs at a time. Commenters noted an example during a September 2013 dispatch, where demand response reduce d reliance on fossil

- fueled units by nearly 6,000 MW across PJM , which " represents over 1.1 million electricity customers reducing load as a wholesale market resource "

. Commenters also noted that when electricity demand is high, transmission and distribut ion equipment tends to be less efficient, resulting in greater overall system losses. Commenters indicated that Navigant estimated that direct emissions savings from load curtailments during demand response dispatches range from 0.05 to 0.35 percent of ove rall emissions even after accounting for onsite backup generation. Commenters stated demand response can directly reduce system CO 2 emissions by 0.3 to 0.8 percent from existing EGUs by providing " spinning reserves ," i.e., when generators are generating el ectricity in an amount that is less than their full capability so they can ramp up quickly as grid operators call on them, and when generators are running at these lower capacity factors, they are also less efficient and have higher emission rates. Comment ers stated demand response can serve the same function by quickly ramping down demand instead of ramping up generation, given that demand response is in many cases capable of reducing load in 30 minutes or less. Commenters indicated that Navigant noted tha t plants run less efficiently when turned down and thus emit more CO 2

. Commenters stated DR

- provided ancillary services can reduce CO 2 emissions due to more efficient dispatch of generation units. Commenters stated demand response can have a large indirect impact on emissions in the following ways:

a. facilitating the use of renewable resources to maximize their emissions impact, and296 b. contributing to the retirement of older, inefficient generating units and replacing them with demand resources. Commenters stated that during periods of low electric load and high renewable output, demand response can reduce emissions by as much as 10 percent, noted that Navigant indicated there may be situations where renewables need to be curtailed such that sufficient fossi l fuel generation is available to provide ancillary services, and in these circumstances, DR can instead provide the ancillary services, thereby preventing the curtailment of renewable resource. Commenters noted an example for the Bonneville Power Administ ration (BPA) that has demonstrated that fast

- acting demand response can also offset fluctuations both up and down in wind power output

, where BPA controls were connected to half a dozen frozen food warehouses and the chillers were able to increase operatio n when wind power suddenly increased, and the chillers could be shut off in response to a sudden decrease in wind generation. Commenters stated that as the penetration of renewable generation increases, reserve requirements will likely increase; demand res ponse can be deployed far
more cost

- effectively than other resources to provide reserves, rendering the economics of renewables more attractive.

Commenters stated emission reductions resulting from Demand Response measures should be an acceptable componen t of a State Compliance Plan. Commenters stated EPA should give special attention to demand response and separate its treatment for emission reduction credit from energy efficiency under the broad category of demand

- side measures. Commenters stated demand response is a category and not a single type of demand

- side measure; it can be used for the development of several types of measures capable of reducing load at specific times. Commenters stated demand response is capable of reducing peak demand; moving lo ad from a time of higher incremental emissions to a time when emissions are lower so that overall emissions are reduced; and increasing shoulder hour energy use and is capable of supplying load drop, load balancing, and spinning reserves for ramp up or ram p down requirements. Commenters stated EPA should initially work with a range of Independent System Operators, Regional Transmission Operators, and the FERC to better understand the emission reduction opportunities presented by using this unique demand sid e measure. Commenters stated that where a state can demonstrate its demand response programs offset fossil

- fueled balancing resource within the power pool serving the state, or where demand response shifts loads to a time of lower marginal carbon dioxide e missions, EPA should give credit for the carbon dioxide reductions from those measures.

Commenters offered specific recommendations for the agency's consideration, including the following:

• Support the development of state plans that anticipate a role for energy storage.

• Develop evaluation criteria that help states demonstrate the role that storage will play in the accelerated introduction of non

- emitting technologies.297 • Require states to conduct ongoing monitoring and evaluation of the role of energy storag e in their electricity systems and introduce corrective measures where possible.

• Consider how emissions reductions in other sectors (such as transportation) might be facilitated by the introduction of technologies, such as electric vehicles.

• Consider the c alculation of net emissions changes, including changes in other sectors, in state plans.

• Assist states in accounting for the potential role of electric vehicles in the determination of activity levels that are used in the transition from
rate

- to mass

- bas ed standards.

5.2. 5 Other

This section discusses on the effects the rule will have on developing CHP systems and conversion of coal towards natural gas and nuclear energy sources, reduction opportunities available to EGU owners, defining enforce ment and compliance measures, non

- numeric emission limitations, and adding safety valve when cost and grid reliability becomes an issue.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. R esponses are also provided for these topics.

Comment 1 : Comments regarding the general discussion of the spectrum of reduction opportunities available to EGU owners and a summary of California's carbon reduction
programs.
Response 1 : The EPA agrees that there are many opportunities for affected EGUs and states to reduce their CO 2 emissions and the final rule provides states and affected EGUs with significant flexibility in choosing the most appropriate measures for them to achieve their CO 2 emission rate. For more information about the MWh accounting approach states and affected EGUs can use to adjust the CO 2 emission rate of an affected EGU, and the eligibility requirements for measures and resources they can use, see s ection VIII. K .1 of t he final rule preamble of the CPP

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

Commenter s strongly supported EPA's belief that owners of units operating across a wide range of corporate, institutional and market structures can take advantage of a broad range of reduction opportunities included in the building blocks. In support of this finding

, Commenters discussed various forms of actions that can be and are taken by EGU owners and operators that allow the EGU to reduce utilization and ensure that foregone EGU output is replaced by lower

- emitting298 generation or offset by demand reductions. Comm enters discussed a list of actions , which included the following topics:

• Owners and operators of EGUs regularly procure renewable energy generation and have the capability to do so in the future. Many fossil fuel

- fired EGU owners also own or contract for r enewable energy and can control the dispatch mix among these sources. Integrated utilities can and often do own or contract for a portfolio of generation resources, which can include a combination of fossil fuel

- fired EGUs and low

- and

zero

- emitting genera tors. In other instances, EGUs are owned by generation and transmission companies that operate integrated electric systems that directly serve retail utilities. These utilities also have the ability to shift generation among resource types. In addition to developing and owning renewable generation facilities, these providers have the flexibility to sign bilateral contracts in the form of power purchase agreements (PPAs) for renewable generation.

• EGU owners participating in organized markets retain sufficien t control to substitute fossil fuel

- fired generation with renewable generation. The replacement of fossil fuel

- fired EGUs with renewable generation can be accomplished by EGU owners, even when those EGU owners revolving determine dispatch among energy sour ces. This situation is most likely to occur in states where utilities are participants in a regional transmission organization (RTO). Independent power producers (IPPs) also can and do own both renewable energy generation and fossil generation. When an IPP commits to shifting its generation portfolio, it can do so at reasonable cost and without reliability impacts.

• EGU owners can ensure that the interconnected electric system has sufficient renewable energy to accommodate reductions in the utilization of th eir own assets is by purchasing and retiring renewable energy credits or other environmental attributes associated with low

- or zero

carbon electric generation. By purchasing and retiring RECs for each MWh of reduced utilization, the IPP can ensure that a MWh of renewable power has been generated. To date, there has not been significant need for merchant generators to purchase RECs. However, there are no legal or technical obstacles that would prevent this action.

• Owners and operators of EGUs regularly procure energy efficiency and have the capability of doing so in the future. EPA's determination of the amount of achievable, cost

- effective energy efficiency as part of Building Block 4 serves as a quantification of the amount that fossil fuel

- fired EGUs can reduce utilization at reasonable cost and while meeting energy requirements.

• EGU owners with retail customers have clear opportunities to offset fossil fuel

- fired generation through reduced demand. Utilities that own299 EGUs and that directly serve end

- us e customers provide the most straightforward example of the ability to pair reduced CO2 emissions from reduced EGU utilization with end

- use energy savings. Federal utilities also invest in end

- use energy efficiency to reduce the utilization of their fossil fuel

- fired assets. The operation and contracting of energy efficiency programs and services is adequately demonstrated for a wide range of utilities.

• Non

- utility EGU owners also provide energy efficiency services that can complement reductions in their fo ssil fuel

- fired unit utilization. IPPs that do not directly serve customer load are still able to take actions that result in end

- use energy savings. If they have not already invested in complementary business lines to provide energy efficiency directly, I PPs also have the legal and business flexibility to contract with third party energy efficiency service companies.

• EGU owners can demonstrate demand reductions through purchase and retirement of energy efficiency credits. Non

- utility entities, including IP Ps, can purchase and retire credits representing energy savings. This market is not as established as the market for RECs; however, markets for these credits (called " energy savings credits ", " energy efficiency certificates " or " white tags ") are developing and certainly meet the threshold for being " adequately demonstrated ."

Commenter s p rovided a general discussion of the State of California's carbon reduction programs including energy efficiency programs, renewable energy programs and a multi

- sector cap an d trade program. Commenters noted programs demonstrating the state's small renewable energy systems.

Comment 2 : Comments with concerns that the EPA's CPP rule incentivizes conversion of coal towards natural gas over wind/solar power and energy efficiency (EE).

Response 2 : In the final rule, the EPA recognizes the value of renewable energy as part of the Best System of Emission Reduction and energy efficiency as a low cost resource that can reduce CO 2 emissions from affected EGUs

. Demand

- side EE is not used in calculating the CO 2 emission performance rates in the final emission guidelines, however, the final rule gives states the flexibility to use zero

- and low

- emitting resources to achieve their CO 2 emission performance
rate. Rene wable energy and demand

- side EE measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adj ust a CO 2 emission rate, described in S s ction VIII.K.1 of the final rule preamble of the CPP

. The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects, if applicable, and the requirements and c riteria related to proper quantification and verification of MWhs from demand

- side EE savings are described in s ection VIII. K.3 of the final300 rule preamble . Since states and affected EGUs will need to rely upon a system of measures to achieve their CO 2 emis sion performance rates or state CO 2 emission goal, the final rule provides them with the flexibility to implement a suite of measures, including renewable energy and demand

- side EE.

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

Commenter s argued that the EPA's proposed rule incentivizes conversion of coal towards natural gas and nuclear energy sources, over conversion to wind or solar power and energy efficiency. EPA's proposed plan only lists energy efficiency as an opti on and not a mandate. Commenters
note d specific concern with the efficiency factor and difficulties for states that do not have a diversified energy portfolio.

5.3 QUANTIFICATION, MONITORING, AND VERI FICATION OF DEMAND

- SIDE ENERGY EFFICIENCY PR OGRAMS AND MEASURES

This section addresses comments on Quantification, Monitoring, and Verification of End

- use Energy Efficiency Programs and Measures, and includes discussion on EM&V for demand

- side EE programs, ISO forward capacity m arkets, accuracy of energy savings estimates, technical considerations, use of EM&V protocols and guidance, review of EM&V plans, and CHP. We have organized the comments in this section under eleven subsections, 5.3.1 through 5.3.11. Responses to the comme nt topics of these subsections are discussed below along with summaries of the specific public comments.

5.3.1 EM&V for demand

- side energy efficiency programs overseen by state PUCs

This section summarizes comments on the requirements for EM&V for EE pro grams overseen by state PUCs.

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

Comment 1: In developing EM&V requirements, commenters urged E PA to continue communicating with PUCs, DOE, and any other entities charged with oversight of demand reduction programs.

Response 1: The EPA recognizes that there are many established EE programs with PUC oversight. The EPA’s approach, as proposed in the Federal Plan, leverages existing state oversight, approval, and certification processes, as well as industry protocols. The EPA also recognizes the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the cost s associated with project performance evaluation on the other.301 Another objective for the EPA’s model rule criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the EPA’s proposed F ederal Plan approach establishes a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions. The flexibility in EPA’s proposed approach would allow many states to leverage their existing EM&V infrastructure wit h minimal additional effort. The EPA recognizes that excessive EM&V will discourage the implementation of EE
programs.

The EPA thanks you for sharing North Carolina’s EM&V experience for RE and EE programs. Renewable energy and demand

- side EE and other non

- BSER measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO 2 emission rate, d escribed in Section VIII.K.1.a.(2) of the final rule preamble. The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects, if applicable, and the provisions related to proper quantification and

v erification of MWhs from demand

- side EE savings, described in section IV.D.8 of the preamble to the proposed Federal Plan.

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

Commenters urged EPA to continue communicating with PUCs, DOE, and any other entities charged with oversight of demand reduction programs. Commenters stated that if the EM&V methods required by EPA for compliance are significantly different from the EM&V methods already approved by a state PUC for establish ed EE programs, there will be implementation delays. Commenters advocated that EM&V should not be required for any existing programs that are subject to PUC oversight because these programs are subject to public review, which leads to protocols with a high degree of certainty for EM&V results. Commenters stated that excessive EM&V sill discourage the use of emerging energy efficiency measures.

Commenters stated that a new EM&V process is not needed for any energy efficiency programs using building codes and standards, because the impact of codes and standards are reviewed by the PUC as part of the load forecasting requirements. Commenters advocated that the only energy efficiency measures that should be allowed for compliance are those supervised by the elec tric utility (even if actually implemented by a third party), because the effect of these programs have been tracked and reported to EIA.

Commenters stated there are various sources for EE data. Commenters stated that it is generally reported on a program by program basis and is reported as both incremental and cumulative, depending on the data source. Commenters stated that North Carolina requires extensive EM

- V of each MWh of electricity generated using RE or avoided generation using EE and that each MWh must be certified by a third party prior to the credit being issued. Commenters stated that the RE and EE data is reported, tracked, banked and retired using NC RETS, their tracking system for RE and EE under REPS.

Commenters stated that the utilities and service providers must compile the data for submission to the PUC for an annual report. Commenters stated that this report is now part of the IRP for the302 major utilities in NC and that the PUC reviews the submitted data and compiles a report for the publi c.
Commenters stated that in order for the service providers and utilities to recover costs associated with EE and RE, the RE and EE generation data, along with the associated cost data, is reported, reviewed and approved through the PUC docket system. Co mmenters stated that it allows for public review, comment and intervention in establishing the cost recovery riders for each EE program established by the utilities and service providers. Commenters stated that each EE program operated by the service provi ders has its own docket where the data is reported and reviewed.

Comment 2: Comments stating that the EPA should not require a certification process for EM&V evaluators because this would be duplicative and unnecessary for utilities that are regulated by the PUC.
Response 2: The EPA is requiring the use of independent, third party verification for EM&V for EE/RE used to adjust a rate. Separately, the EPA recognizes that there are qualifications and certification options for EM&V evaluators of utility prog rams, and the EPA encourages states to leverage these existing certification processes.

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

Commenters stated that EPA should not require a certification process for EM&V evaluato rs because this would be duplicative and unnecessary for utilities that are regulated by the PUC. Commenters stated that if a regulated utility does not seek out qualified independent evaluators, then the performance of the utility is at risk.

Commenters s tated as the volume of EE activities increase, it will be necessary to develop new EM&V workforce talent. Commenters stated that requiring certification of qualifications may discourage people from entering the EM&V field due to additional costs and regula tory requirements. Commenters stated there already exists an extensive industry serving EM&V needs and a competitive RFP process for selection of EM&V vendors helps to ensure that only vendors with the highest qualifications are selected to do EM&V work. C ommenters stated the EPA has expressed a need for consistency in state reporting and planning requirements. Commenters stated this may be feasible, and even desirable, at a high level so that accurate

cross

- state comparisons can be made. Commenters stated however, the exact reporting and planning structure should contain a degree of flexibility as many states with a long history of EE programs have established EM&V, reporting, and planning procedures that are open and transparent, and have consistently been found acceptable to public utility commissions and independent system operators (ISOs). Commenters stated that radically changing these requirements for states with established procedures may impose undue resource burdens on program administrators without necessarily improving transparency.303 Comment 3: Comments suggesting that Arizona utilities already have rigorous EM&V methods to determine energy savings from efficiency programs and demand

- side management, and so additional federal EM&V should not be re quired.

Response 3: The EPA recognizes that there are many states with established EM& V methods for quantifying energy savings from demand

- side EE programs using existing protocols, guidelines, and guidance documents. The EPA heard overwhelmingly from commenters that such protocols, guidelines, and guidance documents are currently in wide u se, and that this use should be continued and encouraged in the context of state plans. The agency agrees with this observation and therefore supports their use in generating ERCs in emission standard plans and adjusting rates in state measures plans. The EPA’s proposed Federal Plan approach provides flexibility to states on EM&V approaches as long as EM&V meets a minimum level of credibility, and the EM&V approach is robust, transparent, and systematic.

The following are summaries of the specific public c omments under this c omment:

Commenters stated that Arizona utilities already have rigorous EM&V methods to determine energy savings from efficiency programs and demand

- side management, and so additional federal EM&V should not be required, because the Ariz ona's energy efficiency programs meet EPA's criteria for being quantifiable, surplus, enforceable, and permanent.

Comment 4: Comments advocating that PUCs should determine the level of documentation needed for their jurisdictions rather than the EPA speci fying a nationwide protocol.

Response 4: The EPA agrees that excessive EM&V documentation should be avoided. By establishing a minimum level of documentation needed for EM&V that largely aligns with existing state EE and RE programs, the EPA’s proposed Fe deral Plan is intended to ensure a minimum level of credibility and transparency without overburdening states.

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

To avoid excessive EM&V documentation, commenters advocated that PUCs should determine the level of documentation needed for their jurisdictions rather than EPA specifying a nationwide protocol.

Comment 5 : Comments expressing concerns over the availability of EE credits due to uncertainty about the EM& V requirements, including enforcement.

Response 5 : Commenters expressed concerns over the availability of EE credits. Commenters stated that the EM&V requirements should be described in adequate detail for EPA and stakeholders to assess the rigor of estab lishing savings. The EPA’s proposed Federal Plan approach states that EM&V must be rigorous, credible, and consistent with industry

- standard304 practices. By laying out requirements at a higher level, the EPA is able to guide states in developing their plans while giving states flexibility, especially where state programs already exist.

The EPA supports the concept of states acquiring EE or RE credits through a tradable system. In states implementing emission standard type plans with rate

- based trading, affected EGUs adjust their reported emission rate using emission reduction credits (ER Cs), which represent MWh that are quantified and verified according to the EPA’s EM&V criteria. Providers of EE and RE who seek to earn ERCs must develop EM&V plans outlining how they will quantify and verify the results of their efforts. These providers a re then required to submit EM&V plans as part of their application to the state regulatory body for project approval. Whether EE and RE credits are tradable or not, states or trading program administrators must implement tracking systems to avoid double

- co unting. By establishing minimum criteria for EM&V, the EPA’s proposed Federal Plan approach ensures a credible basis for generation of credits and avoidance of double

counting. For more information on EM&V provisions, see section VIII.K.3 of the preamble t o the final rule, section IV.D.8 of the preamble to the proposed Federal Plan and the draft guidance document.

The EPA’s proposed approach requires an independent entity to maintain and certify an EE and RE registry with project level identification for e ach credit in order to provide assurance that there is no double counting of either the credits themselves or the projects that make up each credit. Clear and transparent attribution and ownership of each credit is also required, however, project level tra cking is not required for building energy codes or product standards programs. The EPA’s draft EM&V guidance document provides more details on minimum requirements for an EE registry.

The following summarizes the specific public comments under this c ommen t:

Commenters stated that enforceability is a key question for energy efficiency components of a state plan. Commenters stated that while some energy efficiency programs are implemented by vertically integrated utilities that also own and/or operate affect ed EGUs, others are implemented by distribution

- only utilities, by third

- party administrators, or by state agencies. Commenters noted that states have landed on different strategies for implementing their EERS, resulting in a wide variety of entities havin g obligations under state law. However, commenters stated that the common feature of all of these programs is that they are funded by ratepayers, and therefore supervised by the state public utility commission or other governing body (in the case of munici pal utilities and electric cooperatives implementing their own EE programs).

Commenters stated that the operators of the affected EGUs in a state must be collectively responsible for fully achieving the state goal and that the measures to ensure complianc e must be federally enforceable against those EGUs. Commenters stated that entities implementing the EE programs can but need not be subject to federal enforceability under the Clean Power Plan, unless that entity also happens to own or operate an affected EGU (i.e., a vertically integrated utility). Commenters stated that to the extent that the compliance entities use energy efficiency avoided megawatt

- hours in order to achieve their emission target, they can acquire those EE credits from the EE program ad ministrator, under guidelines established by the state and approved by EPA. Commenters stated that whether the state chooses to allocate non

- tradable305 credits, or set up a tradable crediting system is its choice based on its existing state laws and consider ations.

Commenters stated that the details of the EE program must be specified in the state's plan so that EPA can ensure that adequate EE savings credits will be available. Most critically, commenters stated that the EM&V requirements must be described i n adequate detail for EPA and other stakeholders to assess whether they are sufficiently rigorous to establish savings attributable to the program. Commenters stated that to ensure the availability of efficiency credits, state EE standards must contain pen alties for non

- compliance and self

- correction mechanisms. Commenters stated that some ratepayer

- funded energy efficiency programs allow the implementing utility to make up for shortfalls in one year with over

- performance in the next. Commenters stated that allowing EE program administrators too much flexibility within a plan period could lead to inadequate EE credits being available in a given year; states must consider how these plan periods align with the Clean Power Plan's two

- year check

- in schedule.

Co mmenters stated that the allocation of energy efficiency credits to affected EGUs will require more active state involvement than the distribution of renewable energy credits, at least in the early years. Commenters stated that currently, there is no platf orm for verification and trading of energy efficiency credits, equivalent to the REC trading systems for renewable energy. Commenters asserted that the EPA must establish standards to ensure that EE savings are demonstrated through EM&V meeting the best st andards and are not claimed by multiple parties.

Commenters stated that a REC equivalent for energy efficiency has been discussed over the years, but has never taken hold in the same way as RECs. Commenters stated that some REC tracking systems, including NEPOOL

- GIS, NAR, and NC

- RETS, track energy efficiency savings, but the other systems have not incorporated this feature. Commenters noted that there was substantial interest in developing a tradable market for EE credits in the late 2000s. Commenters note d that the state of Connecticut had a limited intrastate EE trading market for several years, but it is not clear whether that market remains active. Commenters stated that some barriers to a viable market for energy savings credits have been identified, i ncluding: (1) high transactions costs, including the cost of EM&V, and (2) the absence of a nationwide standard

- setting body for certification of ESCs (as exists for RECs).

Commenters stated that the Climate Registry, a nonprofit organization of states, p rovinces and tribal governments, has proposed that an energy efficiency registry be established to facilitate the use of EE for Clean Power Plan compliance. Commenters stated that this registry would serve as a platform for consolidation of EM&V tools, agg regate data for consistent reporting to EPA, and would "provide clear and transparent attribution and ownership of energy savings" to serve as the foundation of a trading platform for energy efficiency credits among states. Commenters supported creation of such a registry, which will ease the administrative burden on states, facilitate stakeholder review, and allow trading of energy efficiency credits which will ultimately expand the market for energy efficiency. Commenters stated that regardless of what sy stem is used, EPA must adopt rules to specify minimum criteria to ensure that EM&V procedures are fully adequate and enforceable and reflect the best demonstrated system.306 Comment 6 : Comments on administration of EE programs.

Response 6 : Many EE programs are administered by other agencies. These include building codes and appliance standards. There are also many EE programs that are funded by rate

- payers but administered through state agencies or independent organizations set up by the state

. The followin g are summaries of the specific public comments under this c omment:

Commenters commented on a statement in the GHG Abatement TSD indicating that EE programs are administered by a variety of entities and that most such programs are overseen by state public utility commissions. Commenters asked that the Agency explain which EE programs are not overseen by public utility commissions.

Comment 7 : Comments stating that the EPA should work with states to operationalize EE crediting in states that take a rate

- based with trading approach.
Response 7 : While the EPA is providing states with flexibility to tailor programs to their specific needs, states that utilize a rate

- based emission trading approach will have the opportunity to harmonize their EM&V approa ch across all participating states.
Regarding double counting, it is proposed that EM&V plans must address how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure (for example, two EGUs claiming savings from the same lighting retrofit). Other types of double counting must likewise be considered and avoided. For more details on EM&V provisions, see section VIII.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Federal Plan, and the draft guidance document.

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

Commenters stated the EPA should work with states to o perationalize EE crediting in states that take a rate

- based with trading approach, including harmonizing and assuring the quality of EM&V protocols across states to enable regional trading. Commenters stated responsibility for the application of EM&V proto cols should be a component of the states' enforcement of the performance standards. Commenters stated similarly, that states should have the responsibility for designation of EE programs as a component of their compliance. Commenters stated in accordance w ith best emissions tracking and accounting practices to ensure appropriate crediting and to avoid double counting, the EPA should expressly allow states to credit reductions that are accomplished by private actors such as performance contracting projects c onducted by private energy service companies (ESCOs) in addition to reductions resulting from utility programs and
state

- mandated programs, provided that these projects are subject to EM&V protocols.

Comment 8 : Comments stating that states should be requ ired to put in place explicit procedures to allocate savings between utilities and energy service companies and prevent double counting,307 and, and that impact evaluations could be conducted on a sample of projects at the vendor (ESCO), state, or even region al level, and particularly for projects without savings guarantees.
Response 8 : The EPA appreciates the suggestions for EM&V for ESCOs. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Fe deral Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. EPA welcomes stakeholder input on the draft guidance. For more details on EM&V provisions, see section VIII.K.3 of the preamble to the final rule, section IV.D.8 of the preamble to the proposed Federal Plan, and the draft guidance document.
For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see section VIII.K .1.a.(2). Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VI II.K.2. Section IV.D.8 of the preamble to the proposed Federal Plan describes the provisions related to proper ex post quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings to avoid overestimation as sugges ted by commenters. These final provisions are intended to leverage and/or closely resemble those already in routine use, including those by energy service companies engaging in energy savings performance contracts.

Regarding the issue of double counting, i t is proposed that EM&V plans must address how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure (for example, two E GUs claiming savings from the same lighting retrofit). Other types of double counting must likewise be considered and avoided.

The following are summaries of the specific public comments under this c omment:
Commenters stated energy performance contracting can be a source of large energy savings that states should be able to count, and most of these savings have been in institutional facilities, with smaller amounts in commercial and multifamily buildings and in industrial facilities. Commenters indicated th at performance contracts often include savings guarantees, where a specific amount of savings is guaranteed for a specific period of time, usually measured in years. Commenters stated that some performance contracting efforts use utility incentives and oth ers do not; in states where plans include both utility and performance contracting programs, states should be required to put in place explicit procedures to allocate savings between utilities and energy service companies and prevent double counting.

Comm enters stated the various IPMVP protocols are used to trigger payments under performance contracting, so periodic impact evaluations should be conducted to verify these savings estimates, and if there are discrepancies between the results of the impact eva luation and previous savings claims, then prospective adjustments should be made to the methods used to estimate savings. Commenters stated impact evaluations could be conducted on a sample of308 projects at the vendor (ESCO), state, or even regional level, a nd particularly for projects without savings guarantees. Commenters stated that savings estimates should be based on one of two methods: option 1 is to establish baselines based on Table 7.1 of the SEE Action Energy Efficiency Program Impact Evaluation Gui de , and option 2 is to use the impact evaluations to adjust savings estimates for all ESPCs in a state (or even in a region) as a class. Commenters indicated impact evaluations should include control groups of similar customers who do not have ESPCs or do not participate in utility or other state programs, and the control group will capture business

- as

- usual savings such as from normal equipment replacement at end of equipment life, and also the effects of weather and the overall economy, allowing the impac t of the ESPCs to be isolated.

Comment 9 : Comments recommending that stand alone pricing

- based policies such as inverted block rates or time

- of

- use rates not be allowed in state plans or be eligible for savings credits.

Response 9 : Renewable energy, dema nd

- side EE, and other eligible measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adju st a CO 2 emission rate, described in Section VIII.K.1.a.(2) in the preamble. The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects, if applicable, and the provisions related to proper quantification and verification of MWhs from demand

- side EE savings are described in Section IV.D.8 of the preamble to the proposed Federal Plan.
The following are summaries of the specific public comments under this c omment:
Commenters recommended that stand alone pric ing

- based policies such as inverted block rates or time

- of

- use rates not be allowed in state plans or be eligible for savings credits because the energy savings impacts of these policies are uncertain and inherently difficult to evaluate with accuracy. How ever, commenters stated that pricing policies that are implemented along with enabling technologies, such as time

- of

- use rates or prepay meters implemented in conjunction with in

- home energy information displays, should be eligible for energy efficiency cr edits as long as appropriate EM&V procedures and protocols are followed.

5.3.2 EM&V for Energy Efficiency Measures used in ISO Forward Capacity Markets

This section summarizes comments on the EM&V requirements for EE used in ISO Capacity Markets.

Comment ers have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.309 Comment 1: Commenters stated the rule provides little guidance and limited support for the inclusio n of non

- ratepayer compliance options operated outside of conventional investor

- owned utility programs overseen by state public utility commissions.

Response 1: The EPA’s approach provides flexibility, through the state measures or rate

- based emission trading approaches, for non

- ratepayer mechanisms for delivering EE savings to be included in state plans.
In the final rule, quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or te rritory. This ensures that affected EGUs receive full recognition for their investments even if the impacts occur elsewhere and it removes the need to determine exactly which EGUs reduced and changed power generation in response to the zero

- emitting or low

- emitting resource. This also ensures that quantified and verified MWh impacts of qualifying

zero

- emitting and low

- emitting resources are applied consistently across all affected EGUs. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect demand

- side EE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of EE savings and RE MWhs that are eligible, see Section VIII.K.1.a.(2). Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying measures, programs or projects, addressing the potential for interactions between ERCs and RECs or EECs, are addressed in section VIII.K.2.

Th e following summarizes the specific public comments under this c omment:
Commenters stated the rule provides little guidance and limited support for the inclusion of non

ratepayer compliance options operated outside of conventional investor

- owned utility pr ograms overseen by state public utility commissions. Commenters were concerned that in not adequately addressing these options, EPA is making it extremely difficult for states to recognize emissions reductions resulting from billions of dollars in annual e nergy investments.

5.3.3 EM&V for Programs and Policies Not Typically Overseen by PUCs

This section summarizes comments on the EM&V requirements for EE programs not subject to state PUC oversight.

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

Comment 1: Comments on measurement and verification issues related to T&D Improvements310 Response 1 : In the final rule, the EPA acknowledges the value of measures that increase transmission and distribution (T&D) efficiency or reduce electricity use, strengthening the transmission system and facilitating the transition to a new resource mix that includes more low and zero

- emission resources. The final ru le allows that the verified and quantified MWhs of avoided losses or reduction in end use electricity that result from T&D measures installed after 2012 to be used to adjust a CO 2 emission rate. For more information on the accounting approach for adjusting a CO 2 emission rate and specifics on eligible transmission and distribution measures, see section VIII.K.1. For more detail on the provisions for proper quantification and verification of MWhs, see section IV.D.8 of the preamble to the proposed Federal Pl an.

The following summarizes the specific public comments under this comment:

Commenters made the following points:

• Grid modernization technology, such as Advanced Metering Infrastructure (AMI), can play a substantial role in collecting data and thereby facilitating the accounting, and related monitoring and verification (M&V), of identifying where clean energy and redu ctions in energy consumption, and so on, are occurring.

• Grid modernization technology, such as Dynamic Line Ratings (DLR), allows existing transmission infrastructure to carry more power over the existing transmission footprint, thereby helping to maximiz e the value of existing transmission lines in integrating low

- and zero

- emitting carbon generation.

• With the help of such enhanced grid modernization technology, the EPA, presumably in partnership with other appropriate federal, regional, and state entiti es, should develop the requisite M&V rules, protocols, and/or guidelines to determine actual energy savings and GHG emission reductions. The EPA then will be able to determine where and how to accomplish this interstate accounting in the most equitable and effective manner possible as well as the ways in which to effectively and fairly allocate emission reduction credits, accordingly.

• Such technology similarly can play a significant role in helping to eliminate double counting of emissions reductions.

• Pro cedures for auditing the M&V results should also be developed, as
necessary.
Commenters supported points made by the Business Council for Sustainable Energy (BCSE) in its November 2014 comments with respect to energy efficiency and M&V. Commenters agreed that while private sector delivered efficiency initiatives, including projects implemented under Energy Service Performance Contracts (ESPCs), which take place outside of the regulated utility currently do not appear to receive the same methodological guid ance, that such private sector311 efficiency initiatives should be taken into consideration and receive such guidance, as this Rule becomes finalized. Commenters noted that in instances pertaining to efficiency as well as to renewable energy, ensuring a means by which to accomplish the EM&V and, ultimately, of avoiding double counting of GHG emissions reductions will be essential. Thus, commenters urged the EPA to consider using grid modernization technology to facilitate accounting, monitoring, and verificati on in all of these regards.

• Regional/State/Local Codes and Standards: States should have the flexibility to pursue energy efficiency through building codes and appliance efficiency standards rather than just traditional utility conservation programs.

• Distr ibution Efficiency: Reducing losses on the electrical distribution system saves energy just like an end

- use conservation program. Such programs are reflected in Washington State's "RPS" (RCW 19.285). The state should recommend EPA clarify that states may u se distribution

system efficiency enhancements to comply with the emission rate targets.

Comment 2: Commenters pointed out that adequate EM&V tools are already available for quantifying energy savings for efficiency programs.

Response 2: Thank you for pointing out existing tools that can be used for EM&V. The EPA’s proposed approach to establishing EM&V provisions and guidance leverages existing industry practices, protocols, and tools. The EPA will review the EM&V plans that states submit, and provide guidance to states administering emissions trading approaches that rely on EE savings and RE generation to adjust a rate.
In response to comments about state policy and analytic needs, the EPA, in consultation with U.S. DOE and other federal agencies, cont inued to refine its toolbox of decision support resources at: http://www2.epa.gov/ www2.epa.gov/cleanpowerplantoolbox. The site includes information on regulatory requirements, including state plan guidance and state plan decision support. The state plan g uidance section serves as a central repository for the final emission guidelines, RIA, guidance documents, TSDs and other supporting materials. The state plan decision support section includes information to help states evaluate different approaches and

me asures they might consider as they initiate plan development. This section includes, for example, a summary of existing state climate and RE and demand

- side EE policies and programs, information on electric utility actions that reduce CO 2 , and tools and in formation to estimate the emissions impact of RE and demand

- side EE programs, including the AVERT model. For more information about Resources for States to Consider in Developing Plans, see Section VIII.H.

The following summarizes the specific public comme nts under this comment:312 Commenters stated that Adequate EM&V tools are already available for quantifying energy savings for efficiency programs. Commenters recommended that EPA approve a tool by the North American Insulation Manufacturers Association to es timate energy savings from building insulation programs. The tool is " 3E Plus

- Insulation Thickness Computer Program ." Commenters also supported the use of other EPA

- developed tools, and stated the EPA should allow states flexibility to use any of these a vailable tools, e.g., AVERT, " Creating an Energy Efficiency and Renewable Energy Set

- Aside in the NOx Budget Trading Program: Evaluation, Measurement, and Verification of Electricity Savings for Determining Emissions Reductions from Energy Efficiency and R enewable Energy Actions ," " Energy Efficiency and Renewable Energy Roadmap Manual, " and Power Plant Emissions Calculator ("P

- PEC").

Comment 3: Comments suggesting that the EPA provide guidance on quantifying available EE credit for power supplied to rural areas. Response 3: In the final rule, the EPA provides a clear approach for demonstrating that renewable energy and energy efficiency project reductions are creditable. Consistent with EPA’s calculation approach in the final emission guidelines, quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources can be added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reduct ions from the deployment of qualifying non

- emitting and low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions estimated by applying an emissions factor to the MWhs, would double c ount CO 2 emissions impacts across the grid.

For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, the timing and the eligibility requirements for resources used to adjust a CO 2 emi ssion rate, including renewable resources such as wind, solar, biomass and nuclear, see Section VIII.K.1.a.(2) of the preamble. The provisions related to proper quantification and verification of MWhs from renewable electricity generation or demand

- side EE savings are described in Section IV.D.8 of the preamble to the proposed Federal Plan.

The following summarizes the specific public comments under this comment:
Commenters suggested EPA provide guidance on quantifying available EE credit for power supplied to rural areas. Commenters stated that affected rural electric EGUs have suggested that certain EE projects in these areas be given special consideration and credit because of the increased energy savings in reducing transmission losses.

Comment 4: Comm ent stating that states should be allowed to include the energy savings of building codes and appliance standards measures in state compliance plans

. Response 4: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the final rule preamble, and that supporting EM&V is rigorous,313 complete and consistent with the criteria provided in the proposed Federal Plan . All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. The EPA welcomes stakeholder input on this guidance.

The EPA’s approach allows for building codes and appliance standards to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include specific guidance on building codes and appliance standards. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D .8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters indicated states should be allowed to include the energy savings of building codes and appliance standards measures in their state compliance plans if they can demonstrate robust development and application of EM&V standards for enforcement of building codes and for state appliance standards.

Comment 5: Comments stating that the EPA should provide further clar ification in its final CPP ruling as to how states will need to demonstrate evaluation, measurement, and verification on this process.

Response 5: EM&V guidance for building codes will be presented in the draft guidance that will be released with the propo sed Federal Plan. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters stated with regard to energy code compliance and enforcement, aggregate compliance studies have indicated 'staggering rates of non

- compliance, as high as 100 percent in some jurisdictions." Commenters stated EPA should provide further clarification in its final CPP ruling as to how states will need to demonstrate evaluation, measurement, and verific ation on this process. Commenters stated in doing so, states incorporating this compliance pathway in their SIPs will be able to direct appropriate resources to energy code compliance to achieve dramatic decreases in building energy usage.

Comment 6: Com ments stating the EPA should allow states to claim credit for savings produced by active participation in development of federal standards.

Response 6: Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria proposed in section IV.D.8 of the preamble to the proposed Federal Plan. The EPA welcomes stakeholder input on the draft guidance.314 The following summarizes the specific public comments under this comment:

Commenters stated the EPA should allow states to claim credit for savings produced by active participation in development of federal standards. Commenters stated a key exit strategy of many market transformation efforts is to provide accurate, timely data in support of the federal standards process. Commenters stated the Northwest, through NEEA, has deliberately designed and implemented programs that can provide real market data demonstrating real market acceptan ce, performance and cost

- effectiveness of EE measures. Commenters stated NEEA and the Northwest also have partnered with other large national organizations and U.S. DOE Labs to collect this data and represent these perspectives in the processes establishin g federal standards. Commenters stated the U.S. DOE frequently has cited Northwest data and comments in its final record

- of

- decision documents in numerous proceedings. Commenters stated NEEA evaluates the success of these efforts to address the attribution of changes relative to the level of involvement by the Northwest. Commenters stated NEEA in partnership with the RTF and NWPCC measures savings that accrue from changes in standards and incorporates these into base load forecasts for integrated resource p lanning purposes. Commenters stated the Northwest states should get credit for the energy savings resulting from standards changes where documentation exists of the effects of the direct intervention of Northwest states and utilities.

Comment 7: Comment stating that the states should have the ability to count EE savings from federal and state buildings and standards for appliances and lighting.

Response 7: The EPA position is that any demand

- side EE program and project that results in MWh savings is poten tially eligible, provided that it meets the criteria for eligibility described in section VIII.K. 1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the proposed Federal Plan. Additional impl ementing EM&V guidance will be provided in the draft guidance that will be released with the Federal Plan. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan in section IV.D.8. Th e EPA welcomes stakeholder input on the draft guidance.

Regarding using gross rather than net savings, for all EM&V submittals addressing demand

- side EE, the applicable metric is electricity savings, which is defined as a reduction in electricity consumpti on. EE savings must be determined and reported in units of gross MWh, except in cases where gross savings values are not available (e.g., randomized control trials). In these instances, net savings can be reported.

The following summarizes the specific pub lic comments under this comment:
Commenters stated states should have the ability to count EE savings from federal and state buildings and standards for appliances and lighting. To this end, commenters stated EPA should allow states to credit for gross rat her than net energy savings from EE measures.315 Comment 8 : Comments stating that the EPA should allow savings achieved by market transformation organizations like NEEA that continuously demonstrate best practice EM&V to count toward meeting the emissions r eduction targets.
Response 8: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K. 1.a.(2) of the final rule pre amble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the propose d Federal Plan in section IV.D.8. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. The EPA welcomes stakeholder input on this guidance.

The following summarizes the specific public comments under this comment:
Commenters stated the Northwest Energy Efficiency Alliance (NEEA) is a leading market transformation organization made up of over 100 Northwest utilities that has accelerated the adoption of energy efficiency measures th rough the introduction of emerging technologies and practices, as well as codes and standards. Commenters stated NEEA forecasts at least 145 aMW, or 1,270,200 MWh, of total regional energy savings between 2015 and 2019, at a cost of 3.5 cents per kWh. Commenters stated that for many of the small utilities in the region, NEEA savings account for over half of their energy efficiency savings. Commenters stated as a result of a large and diverse membership structure, its EM&V protocols use the best practice s in the industry, providing the public and its funders with regular evaluations of its programs. Commenters stated EPA should allow savings achieved by market transformation organizations like NEEA that continuously demonstrate best practice EM&V to count toward meeting the emissions reduction targets.

Comment 9 : Comment indicating that states should use as their baseline code conditions the building energy code in force and rate of compliance with code at the time of the CPP proposal.
Response 9: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must ad dress the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:

Commenters indicated state s should use as their baseline code conditions the building energy code in force and rate of compliance with code at the time of the CPP proposal. Commenters indicated States can perform studies of code compliance, use historic compliance rate data or use conservative assumptions of current compliance as baseline compliance conditions against which to establish energy savings. Commenters indicated that states that opt to include building energy316 codes in their compliance plan could be required to perform per iodic evaluations to establish compliance rates and energy savings.

Comment 10: Comments stating that the EPA should modify wording of the proposed rule at Section 60.5750 (" Can I include existing requirements, programs, and measures in my state plan? ") t o clarify that for building energy codes the baseline or " business

- as

- usual " condition is meant to be the code in force and its compliance rate at the time of the CPP proposal.

Response 10: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the provisions established in preamble to the proposed F ederal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters stated EPA should modify wording of the proposed rule at Section 60.5750 ( "Can I include existing requirements, programs, and measures in my state plan?") to clarify that for building energy codes the baseline or " business

- as

- usual " condition is meant to be the code in force and its compliance rate at the time of the CPP proposal. Comm enters indicated this section states that emissions reduction " actions taken " after the date of rule proposal pursuant to existing

" requirements, programs and measures " can be counted for rule compliance. Commenters stated this is an important and benefici al section that would allow projects and actions taken under an existing EERS, ESPC authority or other policy or program to be credited for savings that are achieved during the compliance period. Commenters stated however, that a particular concern with re spect to building energy codes is that construction or renovation of a building under an existing (and perhaps old code) could be construed as an "action taken" pursuant to an existing "requirement." Commenters stated in other words, the current wording of Section 60.5750 can be interpreted as allowing a state with a weak building energy code now on the books to count energy savings from building to that weak code as compared to building to an even weaker earlier code or no code at all. Commenters stated EP A should modify wording of the rule to assure that states should only be able to count code savings that come about from improving code compliance and/or increasing code stringency over baseline code compliance and stringency at the time of the CPP proposa l.

Commenters indicated that savings from building codes can be determined by comparing a baseline of energy consumption in buildings to the energy consumption under new building codes; savings can be quantified by multiplying the average savings under ne w codes by building type and the number of new homes (residential sector) or square feet (commercial sector) of each building type built in a state each year; typically the major building types are included and minor building types are grouped with the mos t similar major building type; and adjustments will also need to be made for code compliance, as discussed later in this section. Commenters stated that for further assurance of savings from newly

- adopted building energy codes, EPA can also reference analy sis done by the Department of Energy and Pacific Northwest National Laboratory (PNNL) for specific states to determine energy savings from the 2012 IECC and ASHRAE 90.1317 2010 standard, and EPA should authorize states to use this analysis in determining thei r savings estimates from code.

Comment 11: Comments suggesting options for baseline evaluations related to building codes.
Response 11: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcome s stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters suggested a simple option for baseline would be to evaluate building code savings relative to the 2004 ASHRAE 90.1 standard for commercial and high

- rise residential buildings and relative to the 2006 IECC for low

- rise residential buildings. Commenters noted that approximately 45 states have codes at this level or higher, in some ca ses through local jurisdictions . Commenters noted t hat most states have stronger codes, and thus this baseline would allow many states to count savings from their existing codes. Commenters stated that because the baseline code is less stringent than what most states now use, for evaluation purposes 100 p ercent compliance with the 2004/2006 codes should be assumed in the baseline.

Comment 12: Comments suggesting additional options for baseline evaluations related to building codes.
Response 12: The EPA’s approach allows for building codes to be counted t owards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters indicated another option for baseline would be to evaluate building cod e savings relative to the 2007 ASHRAE 90.1 standard for commercial and high

- rise residential buildings and relative to the 2009 IECC for low

- rise residential buildings, as these codes are in common use, with about 40 states employing their equivalent or be tter, in some cases through local jurisdictions. Under the ARRA of 2009, commenters stated that all states signed certifications that they planned to update their codes to the IECC residential 2009 code and the ASHRAE 90.1

- 2007 commercial code, or equivale nt, making this a logical national baseline. Commenters noted that for this approach, an allowance would need to be made for less than perfect compliance; thus the commenters are researching this issue now, and as a preliminary estimate would suggest incre asing baseline energy use by about 5 to 7.5 percent relative to the 2007/2009 codes, (i.e., a compliance rate that results in energy savings of 92.5 to 95 percent of the total318 savings anticipated). Commenters also indicated that for this stronger base code , a state could alternatively conduct its own compliance study to develop a more accurate baseline. Commenters stated the second approach to setting a baseline would limit the savings that states could claim more than the first, and it is more complicated, but it may better reflect the average efficiency of new homes and commercial buildings being constructed today.

Comment 13: Comments recommending that EPA reference specific DOE and PNNL studies and methods for data on commercial building floor area in the United States.
Response 13: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:

Commenters recommended EPA make reference to DOE's "Residential Energy and Cost Analysis Methodology " and "Commercial Energy and Cost Analysis Methodology, which together account more than 80 percent of the commercial building floor area in the U nited States. Commenters noted EPA should reference and explicitly authorize use of DOE (and its contractor, PNNL) state

- specific analyses of building

- level energy savings available from various model building codes such as the 2012 version of the IECC and the ASHRAE 90.1

- 2010 standard; reference when completed the savings from the 2013 ASHRAE standard; and reference DOE's Building Energy Codes Program online calculator.

Comment 14 : Comments regarding second tier of EM&V requirements.
Response 14: The EPA’s approach allows for building codes and appliance standards to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will in clude specific guidance on building codes and appliance standards. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:

Commenters recommended the EPA establish a second tier of EM&V standards for EE measures that are less susceptible to the highly detailed EM&V, such as building and energy codes. Because these codes do provide energy savings at a low cost, commenters stated EPA should encourage states to include these efforts in state compliance plans. Commenters stated EPA should adopt some minimum criteria for evaluating the impacts of building, energy, and appliance codes. Commenters stated these criteria should include: difference in insulation, lighting, ventilation, and air infiltration between the current and new code; details on the319 enforcement of code compliance; and a measure ment of buildings using the new code standards during each year. Commenters stated EPA should also adopt an uncertainty metric states must apply to these second tier EE measures. By adopting a tiered EM&V approach with associated uncertainty levels, commen ters stated EPA can promote a wide array of efficiency measures in order to support a lower emissions target, provide more flexibility for state compliance plans, and provide clarity for states that compliance plans which include EE will be acceptable to E PA.

Comment 15: Comments stating that energy codes do not account for occupant behavior, and asking the EPA to specifically reference energy and resource saving building codes in the list of acceptable state strategies for compliance with clean power re gulations.
Response 15: The EPA’s approach allows for building codes and appliance standards to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Pla n. This guidance will include specific guidance on building codes and appliance standards. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters stated energy codes do not account for occupant behavior. Commenters stated furthermore, a building's actual annual energy consump tion is not wholly a result of the building design. Commenters cited the following: " Under realistic assumptions, the energy

- use impact of items purchased by the occupant after a home is built can be twice as large as the items typically installed by a bui lder. " Commenters stated additionally, occupant behavior is a significant indicator of energy use. Commenters stated the most energy

- efficient home, as designed and built, can waste a tremendous amount of energy if the occupant does not subscribe to the co ncept of efficiency. Commenters stated accordingly, the potential dissonance between a building's design and the actual energy use over time could impede demonstration of permanent emissions performance. Commenters stated verification and enforceability of emissions performance due to building energy codes may also prove problematic, as parties responsible for emissions reductions from building energy codes cannot and should not be held accountable for performance of buildings upon occupancy. Commenters sta ted as one of the twelve components of a complete state plan is " d emonstration that each emission standard is quantifiable, non

duplicative, permanent, verifiable, and enforceable ," this would reinforce NAHB's argument that building codes should not be a p ermissible measure for states to include in their state plans.

Commenters asked EPA to specifically reference energy and resource saving building codes in the list of acceptable state strategies for compliance with clean power regulations. Commenters
stat ed in the proposed rule, EPA expressed concern as to whether there are sufficient measurement and verification protocols available to accurately capture the energy and carbon savings from building energy codes. Commenters noted the work performed by PNNL a nd DOE to assess the savings attributable to DOE's Building Energy Codes Program, which was published in October, 2013. Commenters stated in addition, ten states have included building energy code programs in their utility EE programs with different M and V protocols.320 Commenters stated there have been several research based M and V protocols, including two recent ones, specifically on M and V of energy codes by the Pacific Northwest National Lab, and a joint study by the Northeast Energy Efficiency Partnerships, the Edison Foundation, and the institute for market transformation. Commenters stated that in conclusion, building energy and resource codes are a proven way of achieving energy, carbon and resource savings cost effectively, using legal and e nforcement processes that already exist throughout the country.

Because green building codes and standards can help increase demand

- side energy efficiency, protect the environment, and catalyze economic growth, commenters encouraged EPA to issue guidance in its final rule which clarifies that green building codes and standards may be included in state emission

- reduction plans, and to publish a list of pre

- approved measures for state plans that includes green building codes and standards. Commenters stated such a list would provide states with greater certainty when developing their emissions reduction plans.

Comment 16: Comments stating that since compliance with codes is imperfect, it is necessary to evaluate the portion of the savings that is lost.

Res ponse 16: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include specific guidance on building codes. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summariz es the specific public comments under this comment:
Commenters stated that since compliance with codes is imperfect, it is necessary to evaluate the portion of the savings that is lost, and the key is to determine not just the percentage of buildings that do not fully comply but the impact of compliance on energy savings. Commenters noted a building may not meet all the requirements of the code but may still achieve significant energy savings.

Comment 17: Comments proposing 2 options for determining comp liance rate with building codes: conduct code compliance studies or assume a code compliance rate, and stating that States should also be able to propose their own approaches.

Response 17: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include specific guidance on building codes. All EE/RE used to adjust an emissions rate must a ddress the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.321 The following summarizes the specific public comments under this comment:
Commenters proposed 2 opt ions for determining compliance rate with building codes: conduct code compliance studies or assume a code compliance rate. Commenters suggested a state could conduct code compliance studies to estimate compliance with building codes, where states would de termine a realization rate of energy savings, and this rate could be multiplied by the estimated code savings assuming full code compliance. Commenters indicated this methodology is the most rigorous and would apply in particular to states that are strivin g to improve compliance. Commenters also noted DOE and PNNL are working to develop a methodology that EPA should reference once it is completed, and commenters stated States should also be able to propose their own approaches. Commenters proposed a default compliance rate for states that lack current codes and that do not undertake a code compliance study, and recommended a conservative default rate, one that assumes near

- worst

- case practice, in order to provide an incentive for these states to conduct thei r own compliance studies. Commenters suggested that two default values be prescribed: one assuming no or few code compliance efforts, and a second assuming that a state is implementing a specified list of code compliance measures. Commenters recommended a preliminary estimate at 50 percent code compliance rate if little effort is devoted to code compliance, and a rate of 75 percent if a state implements at least three out of four of the following measures: conduct training for at least 90 percent of code of ficials on the energy portion of the building code and key aspects that need to be inspected; establish a stakeholder advisory group on compliance activities that meets regularly, and act on this compliance collaborative ‘s recommendations; prepare and imp lement a compliance gap analysis, and develop and implement a strategic compliance plan; and implement utility code compliance programs, giving utilities credit for energy savings from improved code compliance. Commenters stated States could claim savings above the default rates in their compliance plans if they conducted their own compliance studies and found a higher rate in practice. Commenters suggested States could also conduct their own studies and potentially propose other methodologies. Commenters n oted that several states already provide utilities with some credit for building

- code savings when they help with code adoption and/or implementation; in these states methodologies have already been developed and approved by state public service commission s, and commenters would expect many or most of these states to continue to use their current methodologies.

Comment 18: Comments stating that building codes are only effective when they are consistently and routinely enforced.
Response 18: The EPA’s app roach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include specific guidance on building co des. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:322 Commenters stated that building codes are only effective when they are consistently and routinely enforced, so credits may be contingent on proof of rigorous state enforcement. Commenters stated that similar to adoption and upg rades, enforcement of the strongest building codes should be recognized by EPA as deserving of credit in the CPP.

Comment 19: Comments related to building codes guidance.

Response 19: The EPA’s approach allows for building codes to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include specific guidance on building codes. All EE/RE used to adjust an emissions rate must add ress the provisions established in the preamble to the proposed Federal Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:

Commenters recommended EPA include specific guidance on how EM&V for building energy codes may be conducted in State Plans. Commenters noted the EPA states in its TSD for State Plan Considerations that "EPA is proposing to allow a wide (or unlimited) set of energy efficiency program and measure types in state plans, as long as the energy savings are adequately documented according to rigorous EM&V methods and appropriate state regulatory oversight." (pg. 50) Commenters stated however, in Table 2 of the TSD, EPA notes that EM&V proced ures and protocols are either moderately or less well established for measures such as building energy codes. Commenters stated the information included in this statement and table may inadvertently discourage states from including building energy codes in their emission reduction plans. Commenters stated this has the potential to reduce the energy and cost

- savings benefits possible through such measures. To remedy this situation, commenters encouraged EPA to clarify that although EM&V methods may be less w ell developed or common for building energy code adoption, compliance, and enforcement of the most recent editions of the model building energy codes, this will not either preclude their use or discourage the inclusion of building energy codes in state pla ns as an emissions reduction approach. Commenters stated EPA should further issue both guidance on EM&V for building energy codes and publish a list of pre

- approved measures for state plans that includes building energy codes. Such a list would provide sta tes with greater certainty when developing their emissions reduction plans.

Commenters recommended EPA issue guidance detailing examples of how states may obtain credit in their 111(d) compliance plans for carbon dioxide reductions from adoption of, and i ncreased compliance with, building energy codes. Commenters pointed out the adoption of building energy codes has varied widely among states and smaller jurisdictions, such as counties and municipalities, and each state is unique in its administration of b uilding energy codes, the rate of new commercial and residential construction, climate zone, level of utility involvement, and compliance practices. Commenters suggested EPA offer guidance detailing a flexible approach, with specific examples concerning ho w a state may take credit for the energy savings resulting from building energy code adoption and other code

- related activities. Commenters suggested this guidance should provide states information on code implementation, enforcement,323 EM&V, compliance veri fication, and potential structures of utility involvement, all of which can be based on real

- world practices already employed in a number of states.

Comment 20: Comments stating that current federal appliance and equipment standards have already been acc ounted for in the EIA's Annual Energy Outlook Reference Case (AEO), and, therefore, recommended that states using AEO as a method to forecast emissions rates in their compliance plans should not be allowed to claim credit for federal appliance and equipmen t standards to avoid double counting of those emissions reductions.
Response 20: The EPA’s approach allows for appliance and equipment standards to be counted towards EE savings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include specific guidance on appliance and equipment standards. All EE/RE used to adjust an emissions rate must address the provisions established in the preamble to the proposed Fede ral Plan, in section IV.D.8. The EPA welcomes stakeholder input on the draft guidance.

The following summarizes the specific public comments under this comment:
Commenters estimated that the savings from existing and pending Federal appliance and equipment standards average about 0.82 percent of electricity sales for each year over the 2020 to 2030 period. Commenters stated there is some ambiguity regarding how federal appliance and equipment standards will be treated and how states should account for them in their compliance plans and made several recommendations for addressing these standards. Commenters stated that current federal appliance and equipment standards have already been accounted for in the EIA's Annual Energy Outlook Reference Case (AEO), and , therefore, recommended that states using AEO as a method to forecast emissions rates in their compliance plans should not be allowed to claim credit for federal appliance and equipment standards to avoid double counting of those emissions reductions. Com menters also recommended that for cases where this does not apply, if states seek credit for emissions reductions that occur due to the adoption, updating, and increased compliance with federal appliance standards, then EPA should provide guidance for stat es to take credit for carbon reductions for federal appliance and equipment standards and those states should work with EPA regional offices to determine an adjusted the BSER and state goal reflecting this expanded scope of potential reductions. Alternativ ely, commenters stated EPA could set the BSER and state goals for all states to reflect the emissions reductions that will occur as a result of federal appliance and equipment standards that have already been finalized or that are pending and will take eff ect before 2030.

Comment 21: Comments suggesting that certain energy efficiency policies should not be eligible for compliance, recommending that the EPA allow states to use a weight of evidence (WOE) approach to establish compliance with state targets, and that if states adopt mass

- based targets, EM&V protocols do not need to be applied because compliance is measured directly through statewide mission levels.324 Response 21: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1 of the final rule preamble of the CPP, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emiss ion guidelines and the state plan as described in section VIII.K.3 of the final rule preamble. The EPA’s approach gives states flexibility over which EM&V standards to draw from, but encourages states to leverage existing industry protocols, as this will f acilitate the EPA’s ability to ensure that EE measure impacts can be adequately quantified and verified.

The following are summaries of the specific public comments under this c omment:
Commenters stated that energy savings from utility and non

- utility programs alike should be properly measured and verified according to state and EPA approved procedures and protocols. Commenters argued that certain energy efficiency policies should not be eligible for compliance with the Clean Power Plan. Commenters reco mmended that compliance credit not be given for energy savings that result from federal appliance and equipment efficiency standards or other federal mandates, for the following reasons:

• According to the commenters, ACEEE and ASAP estimate that national el ectricity usage in 2010 was reduced by an estimated 7.2%, saving about 278 TWh per year, by federal energy efficiency standards adopted through that year, and that the savings from these existing standards will increase to 682 TWh per year by 2025, 15.6% o f projected national electricity use that year according to the U.S. Energy Information Administration's most recent Annual Energy Outlook.

In addition, commenters recommended that stand alone pricing

- based policies, such as inverted block rates or time

- of

- use rates, not be allowed in state implementation plans or credited because the energy savings impacts of these policies are uncertain and inherently difficult to evaluate with accuracy. However, commenters indicated that pricing policies that are impleme nted along with enabling technologies, such as time

- of

- use rates or prepay meters implemented in conjunction with in

- home energy information displays, should be eligible for inclusion in a state implementation plan for compliance purposes.

Commenters noted that if states adopt mass

- based targets, EM&V protocols for the sake of compliance do not need to be applied because compliance is measured directly through statewide CO 2 emissions levels.

Commenters recommended that EPA allow states to use a weight of e vidence (WOE) approach to establish compliance and meet the EPA established state targets. Commenters stated under the WOE, for a plan to meet EPA approval, each state EE compliance plan would be required to explain how the effect of the EE measures will b e determined, and specify the analytic methods, assumptions and data sources that the State will use to determine energy generation savings. Commenters stated as described in EPA's " Roadmap for Incorporating Energy Efficiency/Renewable Energy Policies and Programs into State and Tribal Implementation Plans, Appendix H: Weight of Evidence Pathway," EPA has already established a method for using WOE in a state implementation plan (SIP). Commenters noted that EPA states that " [t]he325 WOE pathway does not include federal enforceability for the measures included in the WOE demonstration, WOE demonstrations can include qualitative or quantitative analysis ."

Commenters stated if applied to compliance with the Proposed Rule, a qualitative analysis could credit program s such as energy efficient building codes, where the energy saving benefits are difficult to quantify, and also increase the likelihood that EE savings from a broad array of EE actions taken across the state, and not just by jurisdictional utilities, will receive credit toward state emission rate compliance calculations. Commenters stated EPA recognizes that unquantifiable measures could have substantial impacts and the Agency appears open to suggestions for implementing them in state compliance plans. Comm enters stated the WOE approach is one such way to accomplish this objective. Commenters supported the use of a broad range of efficiency measures in state plans provided the impacts can be adequately quantified with measurement and verification protocols. For instance, commenters have been actively promoting the PennSave program, which promotes the use of energy savings performance contracting as a way for schools and municipalities to finance work done by energy service companies (ESCOs). Commenters stated a recent report from Lawrence Berkeley National Laboratory estimated ESCO industry revenue could be $7.5 billion in 2014 with 85 percent of the revenue from energy services. Commenters said this indicates significant potential for efficiency improvements that may not be accounted for in utility based programs.

5.3.4 Considerations: Accuracy of Energy Savings Estimates

This section addresses comments on the accuracy of EE savings estates.

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

Comment 1: Commenters suggested that deemed savings values be used until such time as a state program matures and has a credible EM&V program in plac e.
Response 1: The EPA’s proposed approach to EM&V provides flexibility for states to determine how to quantify the savings from EE programs. States have the option to use deemed savings, control group, or non

- control group approaches. All approaches must be rigorous, credible, and consistent with industry

- standard practice. If deemed savings are used, the EPA’s proposed approach recommends the technical reference manual for these approaches be reviewed and updated at least every 3 years to keep current wi th market trends and technology innovation. The EPA’s draft EM&V guidance provides information on the appropriate use of deemed savings estimates.
The following criteria should be addressed in the EM&V plan and documented in the EM&V report:326 • Descriptions of deemed savings values, the source(s) of such values, and how the deemed savings will and have been applied should be included in EM&V plans and referred to in EM&V reports, respectively.

• Deemed savings values should only be applied for the specific EE

m easures, measure/program delivery mechanism (e.g., direct install versus point of sale rebates), end

- uses (e.g., single family versus multi

family residential), operating conditions (e.g., climate, operating hours), and other assumptions for which the spec ific deemed saving values where developed.

• Deemed savings values, their applicability conditions and the work papers used to determine the values should be documented in a deemed savings database (often referred to as Technical Reference Manual

- TRM).

Ad ditional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the provisions established in the proposed Federal Plan. The EPA welcom es stakeholder input on the draft guidance.

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

Commenters stated that EPA should include deemed savings as part of an EM&V plan to minimize costs and assure compliance demonstration. The EPA should generate avoided emission rates (AER) for different regions, and conduct load reduction profiles (LRP) for categories of energy efficiency programs.

Commenters also supported the concept of deemed savings as part of an EM&V pl an because it can minimize program costs while providing an adequate level of assurance for compliance demonstration. Commenters also supported the use of load reduction profiles if the profiles capture when savings occur (time of day, day of week, and sea son) and geographic region, so that the profile coupled with dispatch modeling can capture emissions impact on the plants that are on the margin at times that the savings accrue. Commenters suggested that the EPA serve as a national clearinghouse for deeme d savings factors and for developing/approving load reduction profiles used in state plans.

Commenters suggested that deemed savings values be used until such time as a state program matures and has a credible EM&V program in place. Commenters stated that a deemed savings program should include annual reporting of results (based on self

- evaluation using a technical resource manual or third

- part evaluation), and the results be used to continuously improve the deemed savings estimates. Commenters advocated fo r EPA to develop deemed savings guidance with regional values for unit estimates, measure lifetime, and baselines. Commenters recommended that DOE develop this guidance. Commenters advocated or use of deemed savings for all measures during the 2016

- 2019 ti me period, if relevant deemed savings values are available from other states or regions.327 Commenters stated that deemed savings (statistical sampling of programs to determine the MWh saved) must be an acceptable method for determining the MWh to include in the denominator for compliance. Commenters stated that statistical sampling should use whole

- home meter data from a sample size large enough to generate a 90 percent confidence level for the results. Commenters stated that deemed saving should be based on gross MWh savings instead of net MWh savings. Commenters noted that the onerous data gathering and surveying required for a net calculation applied to a gross measure inherently includes many assumptions resulting in a net multiplier that is subjective at best. Commenters stated that imposing an overly complex accounting for MWh savings for EE will stifle programs of smaller utilities and divert precious capital and human resources to accounting for the MWh instead of further development of EE programs. Com menters stated that measurement and valuation needs to be less onerous for small utilities than current standards like International Performance Measurement and Verification Protocols.

Commenters advocated that small utilities (fewer than 10,000 meters) b e allowed to use deemed savings and not be required to conduct formal EM&V, because EM&V is affordable only for larger utilities.

Comment 2: Commenters provided examples of effective methods to verify EE savings.

Response 2: Thank you for providing the da ta appendix. The EPA recognizes the maturation of EM&V methods for many EE and RE programs, and encourages states and EE/RE providers to draw on the growing body of work in this area.

The following are summaries of the specific public comments under this c omment:
Commenters stated that strong EM&V methods can be developed to document the effects of appliance early replacement programs. Commenters included an appendix that shows that extensive data are available for designing effective EM&V.

Commenters state d that EPA should encourage states to use " state of the art approaches " to evaluate energy efficiency policies and outlined three approaches.

Comment 3: Commenters provided an example of an effective EM&V program for EE

. Response 3: Thank you for sharing your EM&V experience for EE programs. This aligns well with the EPA’s proposed approach of requiring states to conduct EM&V that is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. Similar to your experience making continuous improvements to protocols, the EPA’s guidance document will be a living document that is updated over time to reflect evolving approaches to EE and EM&V, innovation, market changes, and practical experience gained during the

co mpliance period.

The following are summaries of the specific public comments under this comment:328 Commenters stated that their experience demonstrates that robust and reliable EM&V for energy efficiency can be developed. Commenters stated the Bonneville Po wer Administration and the Regional Technical Forum now have a long history of encouraging energy efficiency and operating a robust system for measuring and verifying energy savings that ensures the reliability of its regional energy savings achievements f or various types of energy efficiency programs. Commenters stated the protocols for EM&V vary by three different project types: deems savings for certain well

- established measures, specification and savings estimation protocols for some measures, and on

- si te measurement and verification for customized customer energy projects. Commenters stated the EM&V process includes ongoing evaluation and oversight to make continuous improvements to protocols. Commenters stated retrospective impact evaluations are used to verify savings and adjust reported saving values as necessary.

Comment 4: Commenters advocated that state plans must have provisions to avoid double counting energy savings across different EE programs.

Response 4: The EPA’s proposed approach sets a minimum standard for EE and RE program tracking requirements to ensure double counting is avoided. EM&V plans must describe how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure (for example, two EGUs claiming savings from the same lighting retrofit). Other types of double counting must likewise be considered and avoided.

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

Commenters stated that state plans should include provisions to avoid double counting energy savings among various energy efficiency programs (e.g., utility and non

- utility programs).

Comment 5: Commenters stated the strict EM&V methods are needed.

Response 5: Overestimation of savings from EE programs is a concern for the EPA. To address this concern, the EPA is proposing to establish an " EM&V floor " that all states must achieve to ensure a minimum level of credibility. Whi le the EPA encourages states to go past the EM&V floor, we also recognize there are many established state programs with different EM&V approaches, and therefore it is appropriate to provide a reasonable degree of flexibility for these programs. The EPA is not requiring the rigorous EM&V approaches mentioned by the commenters (e.g., randomized controlled trials), since states have limited practical experience in this areas.

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

Com menters stated that energy efficiency programs often overrate their effect and so strict EM&V is needed. Commenters stated that energy efficiency savings are routinely overestimated by significant amounts for three reasons:329 • Efficiency programs often do not account for " free riders " meaning activities that people would perform anyway in absence of the program.

• Because efficient technologies cost less to operate, firms and people use them more often, and the efficiency programs do not take into account this "rebound" effect.

• Contractors and auditors that verify savings often inflate the up

- front estimates of the level of energy savings likely to be realized by a program so that more entities qualify for the program

Commenters stated that to avoid overestimat es that will not achieve real emission reductions, EPA should establish detailed protocols and guidance for EM&V of efficiency programs, which EM&V should strongly favor field

- based measured savings engineering estimates, and that evaluators should use sta te

- of

- the

- art approaches for program evaluation. Commenters believed that randomized controlled trials (RCTs) and quasi

- experimental methods are likely to be more reliable than other empirical approaches to estimating realized savings and that field

- based, ex

post empirical estimates are likely to be more reliable than engineering studies.

Comment 6: Commenters urged the EPA to adopt a mix of different EM&V protocols for different energy efficiency measures

. Response 6: The EPA’s proposed approach in the Federal Plan proposal allows for a mix of different EM&V protocols for different energy efficiency measures and practices. The EPA’s anticipates that its guidance document, when final, will lay out program

- specific EM&V criteria. We are also providing the option of using emerging methods, provided that a thorough description of such methods is provided in EM&V plans and M&V reports. The EPA’s guidance document will be updated over time to reflect evolving approaches to EE and EM&V, innovation, market chang es, and practical experience gained during the compliance period.

The following are summaries of the specific public comments under this comment:
Commenters urged EPA to adopt a mix of different EM&V protocols for different energy efficiency measures. Com menters stated, for example, that while deemed savings methods are appropriate for some measures, more robust methods based on measurements of pre

- retrofit and post

- retrofit consumption are needed for others. Commenters further stated that EM&V protocols

a re continuing to evolve and improve, and states should be allowed to adopt emerging EM&V approaches. Commenters stated that emerging methods are using billing data to improve savings estimates, but because one current barrier is the difficulty in obtaining consumption data, EPA should encourage the easy, rapid, and inexpensive transfer of utility data to program verifiers. Commenters encouraged EPA to allow use of smart meters and other smart home devices to document energy efficiency. Commenters suggested the use of energy consumption data provided by utilities.330 Comment 7: Commenters advocated a uniform EM&V standard to ensure consistent measurement of EE and RE savings.

Response 7: The EPA appreciates your concerns in prescribing a uniform EM&V standard t o ensure consistent measurement of EE and RE savings. While the EPA does provide flexibility to states under the state measures approach and EE and RE providers under the rate

- based emission trading approach to develop their own EM&V plans, the EPA is doin g several things to ensure states are at least meeting a minimum standard of EM&V. First, the EPA is proposing to require certain EM&V processes, including use of independent, third party verification. Second, we are providing an EM&V guidance document to elaborate on the CPP EM&V requirements and guide states and other EE and RE providers in developing EM&V plans to assure quality, credibility, and integrity. For example, the EPA’s guidance document provides guidance on how to select third party verifiers. Third, each EM&V plan will be subject to review and approval, by the EPA in the state measures approach and by the state regulatory body in the rate

- based emission trading approach. This will ensure programs meet the minimum level of credibility. Neverthe less, the EPA recognizes that there will likely still be inconsistency in reporting of energy savings across states. The EPA has tried to balance the desire for EM&V rigor and consistency with a desire to reduce burden on EE and RE program providers, state s, and the EPA in its proposal in section IV.D.8 of the preamble to the Federal Plan.

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

Commenters advocated that for building block #4, setting nationally uniform goals is not v iable without an existing national standard in the energy efficiency sector for training and certification, job scoping, cost/benefit analysis, data collection methods, or open source data protocols/sharing. Commenters stated that industry has had notoriou s difficulty in measuring energy savings. Despite a handful of established third party standards, commenters stated that there is no uniformity across current state and local programs. Commenters stated that enforcing the energy efficiency portion of a nat ional regulatory goal through state programs requires at least a common third party standard for workers/technician certification, for energy analysis of buildings, and uniform open

- source data reporting in order to instill confidence that each state is

re porting consistently. Commenters stated that EPA should (1) require state plans to name the certification standards and the recognized accrediting bodies issuing such certifications (such as LIUNA's Home Performance Laborer apprenticeship) for all business es, technicians, and laborers involved energy efficiency installation; and (2) establish some core standards for measuring energy "savings" and the cost effectiveness. Commenters stated that to allow states complete autonomy in this area will undermine con fidence in the consistency of Block 4 compliance outcomes across the states.

Comment 8: Commenters advocated for EPA to develop avoided emission rates for EE

measures.
Response 8: The EPA disagrees with the comment that the EPA should develop avoided emis sion rates for EE measures

. In order to ensure consistency with the calculation of CO 233 1 performance rates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the CO 2 emission rate of an affected source to refle ct the MWh impacts of zero

- emitting and low

- emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

- emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

based CO 2 goals in the final emission guidelines, the MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of qualifying non

- emitting an d low

- emitting resources across the regional grid. Further adjustment of CO 2 emissions, such as through the subtraction of emissions from the numerator, such as those estimated by applying an emissions factor to the MWhs, would double
count CO 2 emissions i mpacts across the grid and is, therefore, not permitted under the general accounting approach. While states may define renewable resources in their independent state policies different from EPA, the EPA requires that renewable energy resources states can u se for purposes of meeting the emission guidelines must meet the eligibility requirements specified in the rule. These requirements align eligibility with certain factors and assumptions used in establishing the BSER, and by extension, application of the B SER to the performance levels established for affected EGUs in the guidelines. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, see section VIII.K. The same section also descri bes the eligibility requirements and conditions for resources to be used to adjust a CO 2 emission rate, including specific discussions regarding hydroelectric power, biomass and combined heat and power. The rule describes the provisions related to
proper q uantification and verification of MWhs from renewable electricity generation or demand

- side EE savings in Section VIII.K.3 of the preamble to the final rule, and section IV.D.8 of the preamble to the proposed Federal Plan.

The following are summaries of the specific public comments under this comment:
Commenters also suggested that EPA should generate the avoided emissions rates (AER) for energy efficiency measures using power system dispatch modeling conducted for different regions as defined by power sy stem boundaries, and that AERs should vary by energy efficiency program and vary over time as a function of changes in energy and peak loads, generating resource mix, and market conditions (e.g., fuel prices).

Commenters advocated that EPA should conduct t he dispatch modeling and incorporate into the models load reduction profiles (LRPs) for categories of energy efficiency programs within broadly defined segments of time for different geographic regions by taking the following steps:

• Annually reviewing LRPs for categories of energy efficiency measures and programs, and updating them to the extent that new information suggests adding new or changing existing LRPs. The basis for LRPs will be existing measurement and verification results from energy efficiency332 programs, as collected and published

- or proposed

- by states and/or regional entities;

• Annually conducting power system dispatch modeling to establish avoided emission rates for each relevant region, using the best (i.e., most granular) representation of LRPs for categories of energy efficiency measures and programs;

• Annually publishing the AERs by region and program category; and

• Identifying areas to review for improving LRP and avoided emission rate modeling in the coming year. EPA should convene and seek the assistance of a technical support group as needed to help review and update LRPs , and for vetting input assumptions for the power system dispatch model.

Comment 9: Comments on consistency in EM&V across states.
Response 9: The EPA’s proposed approach to EM&V, as described in Section VIII.K.3 of the preamble to the final rule and sec tion IV.D.8 in the preamble to the proposed Federal Plan, include a significant number of components and provisions that the EPA believes will result in enhanced consistency in how quantification and verification is performed across states and EE providers

. The EPA appreciates your concerns in prescribing a uniform EM&V standard to ensure consistent measurement of EE and RE savings. While the EPA does provide flexibility to states under the state measures approach and EE and RE providers under the rate

- bas ed emission trading approach to develop their own EM&V plans, the EPA is doing several things to ensure states are at least meeting a minimum standard of EM&V. First, the EPA is proposing to require certain EM&V processes, including use of independent, thi rd party verification. Second, the EPA is providing an EM&V guidance document to elaborate on the CPP EM&V requirements and guide states and other EE providers in developing EM&V plans to assure quality, credibility, and integrity. Third, EM&V plan will be subject to review by the EPA in the state measures approach and by the state regulatory body in the rate

- based emission trading approach. This will ensure programs meet the minimum level of credibility, and ensure a reasonable balance the desire for EM&V rigor and consistency with a desire to reduce burden on EE and RE program providers, states, and the EPA.

The EPA’s proposed approach requires states in the state measures approach, and EE and RE providers under the rate

- based emission trading approach, to address the following key considerations in their EM&V plans:

• How significant changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be analyzed.333 • How the initial in stallation of EE will be verified for EE program categories that involve the direct installation of measures.

• How avoided T&D systems losses can be included in EE savings values.

• How the duration of EE program or project electricity savings will be determi ned using annual verification assessments, industry

- standard persistence studies, deemed estimates of effective useful life (EUL), or a combination of all three.

• How the rigor of MWh savings values will be determined, and the methods used to control the ty pes of bias or error relevant inherent to the applied EM&V techniques.

• How double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure.
Addressing these considerations will provide a foundation to judge the success of these
programs.
The following are summaries of the specific public comments under this comment:
Commenters stated that ultimately, the responsibility for developing and implementing the section 111(d) state plan will need to align with the program design, implementation, and cost recovery responsibility of the utility regulators for EE/DSM programs. Commenters stated the success or failure of the SIPs that implement Building Block 4 must be measured consistently. Commenters stated lack of a consistent tool and assumptions will be problematic. Commenters stated EMV of EE/DSM is an important component of the effectiveness of Building Block 4. Commenters stated EPA shoul d work with the states to develop a consistent tool to estimate the success or failure of the program, using the cost and benefit impacts for EE on the statewide emission rate as one of the metrics. Commenters stated otherwise, there is the potential for

e stimates to be a patchwork of methodologies, assumptions, and outcomes that cannot be compared easily between and among states. Commenters stated participants (generators, regulators, customers, and others) must have a useful metric to measure the success of the
programs.
Commenters stated EE savings can be difficult to quantify. Commenters stated uncertainties in evaluating EE measures include, for example: the costs of EE savings; the inherent level of EE independently attributable to consumer preference s; the extent and duration of energy savings given the uncertain life span of electric appliances; and the ability to predict and quantify the effect of consumer rebates, energy audits, or other EE programs on consumer choice. Commenters stated indeed, EPA recognizes in the proposed rule that, notwithstanding the widespread use of common measurement practices, there can be "significant differences in claimed energy savings values for similar EE measures between states and utilities, even when the same measu re type is installed under otherwise identical circumstances.334 Comment 10: Comments on balance rigor and flexibility of EM&V methods
Response 10 : One of the EPA’s overarching objectives for EM&V in the proposed Federal Plan is the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA in the proposed Federal Plan is to avoid excessive interference with EM&V pract ices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan ensure that practices result in credibility and certainty in savings estimates across jurisdictions. Additional implementing EM &V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters st ated EM&V plans for Clean Power Plan compliance need to strike a careful balance between ensuring the appropriate rigor of results and the flexibility necessary for innovation to continue in the industry. Commenters stated relying on strict, prescriptive

e valuation techniques may have the unintended consequence of stifling new EE programs due to the lack of established evaluation methodologies available to estimate savings from those new programs. Commenters stated as the market for energy efficient equipme nt becomes saturated over time, it will be imperative that program administrators have the ability to develop new programs in order to meet the aggressive EE savings targets through 2030 that will be necessary for Clean Power Plan compliance. Commenters st ated the EE industry has a tradition of innovation and developing new methodologies to evaluate new programs, often relying on established EM&V practices from other disciplines, such as the social sciences. Commenters stated these new practices should be a cceptable under any EPA EM&V regime, but would likely not qualify under a strict prescriptive set of methodologies.

Comment 11 : Comments stating that the EPA should allow states to design voluntary and flexible programs as a further incentive to reduce e lectricity use under Building Block 4.

Response 11: Regarding voluntary programs, the EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility descr ibed in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.
Regarding indirect EE savings, for all EM&V submittals addressing demand

- side EE, the applicable metric is electricity savings, which is defined as a reduction in electricity consumption. EE savings must be determined and reported in units of gross MWh, except in cases where gross savings values are not available (e.g., randomized control trials). In these instances, net savings can be reported.

The following are summaries of the specific public comments under this comment:335 Commenters believed that EPA should allow states to design voluntary and flexible programs as

a further incentive to reduce electricity use under Building Block 4.

Commenters noted that EPA seeks to measure EE savings related to the actions of EE program participants, but not necessarily directly attributable to the efforts of Program Administrators ; therefore it is not necessary to conduct detailed estimates of spillover and free ridership. Commenters also noted that methodologies can differ in the estimation of spillover and free ridership effects and inclusion of these adjustments will not necessa rily result in more accurate EE savings estimates.

Comment 12 : Comment suggesting that the EPA could credit states with impressive accomplishments on energy efficiency would be to apply a "cap" to the amount of efficiency it requires from any given state to achieve cumulatively.

Response 12: The EPA’s approach reflects how demand

- side EE and other non

- BSER measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO 2 emission rate, described in Section VIII.K.1.a.(2). of the preamble.
The following are summaries of the specific public comments under th is comment:
Commenters suggested that one way EPA could credit states with impressive accomplishments on energy efficiency would be to apply a " cap " to the amount of efficiency it requires from any given state to achieve cumulatively, similar to the way t he proposal does for renewable energy.

Comment 13: Comments stating that accurately quantifying EE achievements is an ongoing challenge.

Response 13: The EPA’s approach allows deemed savings methodologies. The applicable criteria for using deemed savings are that all savings values must be documented in a publicly available database (frequently referred to as a technical reference manual, or TRM) and be updated at least every 3 years to keep current with market trends and technology innovation.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes sta keholder input on the draft guidance.

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

Commenters stated that accurately quantifying EE achievements represents an ongoing challenge to determining the appropriate level of emis sions savings. Commenters stated this is a consequence of the fact that EE benefits are evaluated against assumed baselines. Commenters336 stated many states have adopted a Technical Reference Manual or " Deemed Savings " approach to attributing EE savings. Com menters stated in this approach the jurisdictional authorities responsible for evaluating utility EE achievements develop a generally accepted methodology for utilities to use in determining the appropriate amount of credit that a utility can claim from

re bating a particular technology. Commenters stated this is usually the case for technologies that are rebated in large quantities, such as residential lighting measures, or weather

- dependent technologies such as air conditioners. Commenters stated these app roaches dictate the number of annual operating hours to be used.

Commenters stated by way of example, consider the likely scenario of an end

- use consumer replacing a 100

- watt incandescent light bulb. Commenters stated there are a number of options that ar e available to the consumer, assuming the consumer does not have an inventory of 100

- watt incandescent light bulbs to use for replacement. Commenters provided a table illustrating three lighting replacement options, their wattage, credited watt savings, an d incremental cost (see Table in comment letter). Commenters stated based on the options laid out in the table, one may find it difficult to make a cost

- effective case for providing a utility incentive for the 18

- watt LED light bulb. Commenters stated this is due to the fact that the incremental benefit of energy savings is only 6 watts, while the incremental increase in cost is $18.48. Commenters stated if the utility wishes to provide an incentive that would be equal to 30 percent of the incremental cost, or $5.54, the cost per kilowatt is $924. Commenters stated however, even though the cost of the CFL is equivalent to the cost of the Advanced Incandescent option, consumers may not choose this technology for a number of reasons. Commenters stated consumer choices regarding
energy

- consuming technologies are multi

- dimensional and do not always comport to basic economic principles.

Commenters stated total energy savings credited for each of the technology options is determined by multiplying the credited wat t savings by an assumed number of operating hours per year. Commenters stated these assumptions are typically based on co

- opted studies within the public domain that have been conducted within different areas of the country. Commenters stated the total amo unt of credited energy savings can vary widely depending on the study that is used for annual lighting hours of operation. Commenters stated in addition, the energy savings associated with the efficient lighting options in the above example can vary by as much as 100 kilowatt

- hours depending on where the light is installed within a home. Commenters stated a very granular approach to the quantification of energy savings has the potential to be both intrusive and costly for Great River Energy's members.

Com ment 14 : Comments noting that lack of a consistent tool and assumptions will be problematic when evaluating EE/DSM programs.

Response 14: The EPA’s proposed approach requires states in the state measures approach, and EE and RE providers under the rate

- based emission trading approach, to address the following key considerations in their EM&V plans:337 • How significant changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estima tes will be analyzed.

• How the initial installation of EE will be verified for EE program categories that involve the direct installation of measures.

• How avoided T&D systems losses can be included in EE savings values.

• How the duration of EE program or pro ject electricity savings will be determined using annual verification assessments, industry

- standard persistence studies, deemed estimates of effective useful life (EUL), or a combination of all three.

• How the rigor of MWh savings values will be determined , and the methods used to control the types of bias or error relevant inherent to the applied EM&V techniques.

• How double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately c laim savings from the same EE project or measure.

Addressing these considerations will provide a foundation to judge the success of these
programs.
The EPA’s overarching EM& V objectives in the proposed Federal Plan include the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA’s proposed criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criter ia established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

The following are summaries of the specific public comments under this comment:
Commenters noted that ultimately, the responsibility for developing and implementing the 111(d) state plan will need to align with the program design, implementation, and cost recovery responsibility of the utility regulators for EE/DSM programs. Commenters stated the success or failure of the SIPs that implement Building Block 4 must be measured consistently. Commenters noted that lack of a consistent tool and assumptions will be problematic. Commenters noted that evaluation, measurement, and verification (" EMV ") of EE/DSM is an important component of the effectiveness of Building Block 4. Commenters stated that EPA should work with the states to develop a consistent tool to estimate the success or failure of the program, using the cost and338 benefit impacts for energy efficiency on the statewide emission rate as one of the metrics. Otherwise, commenters stated, there is the potential for estimates to be a patchwork of methodologies, assumptions, and outcomes that cannot be compared easily between and among states. Commenters noted that participants (generators, regulators, c ustomers, and others) must have a useful metric to measure the success of the programs.

5.3.5 Considerations: EM&V Technical Considerations for State Plans

This section addresses comments on technical considerations for determining the level of energy

sa vings that can be credited.

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

Comment 1: Commenters advocated that states must use the same procedures for forecasting baseline energy demand and the same EM&V protocols for determining energy savings.

Response 1: For all EM&V submittals addressing demand

- side EE (as proposed in the Federal Plan), the applicable metric is electricity savings, whi ch is defined as a reduction in electricity consumption. EE savings must be determined and reported in units of MWh. The EPA also specifies that " common practice baselines " should be used, estimating what a typical consumer would have done at the time of t he project implementation without the measure in place.

The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and imp ortance of these perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement any eligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for complianc e with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. ERCs issued in 2022 or a subsequent year may be carried forward and used for demonstrating compliance in a future year. For example, an ERC issued for a MWh of RE generation that occurs in 2022 may be applied to adjust a CO2 emission rate in 2023 or future years without limitation. ERCs may be b anked from the interim plan performance period to the final plan performance period. See section VIII.K.2.e of the preamble to the proposed rule for more details on ERC banking.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward investment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy339 demand during 2020 and 2021. Under this program, states may set aside allowances from their interim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII .B.2 of the preamble to the final rule.

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

Commenters stated that the baseline demand forecast used in the draft rule for target setting is from the EIA's Annual Energy Outlook, w hich does not include all of California's energy efficiency programs. Commenters asked that EPA expressly allow states to use a demand forecast that reflects the most current economic and demographic information available, as well as state data on committe d energy savings, and asked that the baseline forecasts include the same basic load categories for each state. Commenters advocated for the use of net energy efficiency in state plans so that the plans account for only the energy efficiency savings that ar e incremental to energy savings that would have occurred without state energy efficiency programs. Whichever method EPA selects, commenters stated that all states should be required to use the same accounting approach (gross or net), but that both gross an d net savings should be reported. Commenters urged that EPA require that the plan emissions projections and compliance demonstration both reflect the same EM&V protocol. Commenters recommended that EPA should define baseline as " business as usual " as defin ed in the SEE Action Network Impact Evaluation Guide and the DOE Uniform methods Project (Chapter 17).

Commenters stated that EPA should allow states to include the savings from energy efficiency programs that were adopted prior to 2014 as long as they con tinue to result in energy efficiency savings in 2020. Commenters advocated that energy savings achieved to date should be banked and credited toward compliance, and that the allowable types of programs should be very broad.

Comment 2: Comments stated that protocols for determining the impact of energy efficiency measures consider the entire energy chain and not just the point of energy use.
Response 2: The EPA’s approach recommends the measurement of site savings (at busbar), which accounts for transmissio n and distribution losses. In addition, the EPA allows for states to count savings from measures that reduce transmission and distribution losses (e.g., conservation voltage reduction).

Using energy consumption provided by utilities as the basis for verif ying energy efficiency is one methodology allowed under EPA’s approach. However, states have greater flexibility to include other proven EM&V methodologies such as deemed savings methodologies.

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

Commenters advocated that in determining the emissions impact of efficiency measures that the protocols consider the entire energy chain and not the just the point of energy use. Commenters stated that the protocols should consider point of use and the energy losses associated with generation, transmission, and distribution of electricity, and the energy consumed in extracting, processing, and transporting or distributing primary fuels (e.g., losses in transmission and340 distribution are far greater for electricity than for natural gas). Commenters urged EPA to use energy consumption provided by utilities as the basis for verifying energy efficiency.

Comment 3: Comments on allowing credit for educational programs on energy efficiency under certain conditions.

Response 3: The EPA’s approach allows for behavior change programs as a type of indirect action program whose direct impact cannot be easily linked to a specific investment or change in practices. The EPA is proposing in the Federal Pla n that EE EM&V must undergo independent, third party verification and EM&V plans will need to be approved, by the EPA in the state measures approach and by state regulatory bodies under the rate

- based emission trading approach, to ensure a minimum level of credibility.
The following are summaries of the specific public comments under this comment:

Commenters cautioned against excessive credit for general education programs, saying that such programs should be limited to not more than 5 percent of total savings from energy efficiency
programs. Commenters also stated that customer behavior programs should be allowed only if the projected effects and verification are conduced independently from the vendor that provides the program.

Commenters stated that be havioral demand

- side energy efficiency programs should be included. Commenters stated that they and other utilities have implemented behavioral programs for years and performed independent, rigorous EM&V. Commenters stated that their programs and the EM&V associated with the programs have been under the oversight of the state public utility commissions in five states. Commenters stated that not only do behavioral programs produce results, but they also encourage customer adoption of other programs in the co mpany's energy efficiency program portfolio. Commenters attached several studies and articles on the positive impacts of behavioral energy efficiency approaches.

Comment 4: Comments that state plans address the quality of energy savings measures not just through back

- end inspections, but rather upfront quality control tools as well.

Response 4: Thank you for pointing out these standard and certification programs. The EPA’s approach gives states the flexibility on whether or not to adopt skill standards and certification programs such as those from the U.S. DOE and California. While these performa nce requirements will increase the robustness of state EM&V plans, the EPA is not requiring a particular standard or certification program for approval.
The following are summaries of the specific public comments under this comment:

Commenters urged that the EPA require the state plans to address quality not just through back

end inspections, but rather upfront quality control tools as well. Commenters suggested development of performance requirements for contractors performing the work and skills341 standard s for the workers they employ to carry out the work. Commenters stated that skill standards for energy efficiency and renewables can be based on federal or state apprenticeship standards for construction trades workers, and supplemental skill standards tha t have been developed for renewable energy and energy efficiency, including the skill standards currently being developed by the U.S. Department of Energy as well as the highly successful California Advanced Lighting Controls Training Program certification

. Commenters said that skill standards and skill certifications could partially substitute for post

- installation inspections, because they are a mechanism to insure quality.

Comment 5: Comments that effective EM&V for EE measures are not yet available.

R esponse 5: EM&V methods for many traditional EE measures are relatively well

- established. For energy efficiency measures that are more recent or have higher levels of uncertainty associated with energy savings, the EPA’s proposed approach will still requir e a minimum set of EM&V criteria to be met. The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in the preamble, section VIII.K.1 .a.(2), and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. The EPA’s proposed approach gives states flexibility over which EM&V standards to draw from, but encourages stat es to leverage existing industry protocols, as this will facilitate the EPA’s ability to ensure that EE measure impacts can be adequately quantified and verified.

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

Commenters s tated that the difficulty in quantifying these impacts of energy efficiency as part of a compliance strategy makes energy efficiency inappropriate as part of BSER. Commenters stated that an energy efficiency program, by its very nature, is a market

- driven strategy that cannot be easily measured and quantified because it is attempting to measure something that did not happen. Quantification relies on a combination of engineering calculations, pre

- and post

metering data, and customer surveys to determine " at tribution " to the adoption of a specific energy efficiency and to predict the persistence of the benefits into the future. Commenters stated the EPA proposes to rely on nationwide EM&V standards that are currently in place or are in the process of being written. Commenters stated many of the EM&V protocols that EPA referenced are still under development and are not designed to serve as compliance tools sufficient to meet Clean Air Act compliance standards. Commenters stated that for example, DOE's Uniform Methods Project, is still under review and revision, which adds uncertainty to the "value" of energy efficiency measures at any particular time.

Comment 6: Comments on the use of net versus gross energy efficiency.
Response 6: For all EM&V submittals add ressing demand

- side EE, the proposed applicable metric is electricity savings, which is defined as a reduction in electricity consumption. Demand

-342 side EE savings must be determined and reported in units of gross MWh, except in cases where gross savings val ues are not available (e.g., randomized control trials). In these instances, net savings can be reported. Importantly, gross savings is the simplest and most commonly reported form of demand

- side EE savings and shows total reductions in electricity generat ion, irrespective of cause, while there are wide variations in the definition and uncertainty of net savings.

The EPA further specifies that " common practice baselines " must be used, estimating what a typical consumer would have done at the time of the pro ject implementation without the measure in place.

Regarding the ability of certain EE measures to count for compliance, the EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it me ets the criteria for eligibility described in section VIII.K. 1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the proposed Federal Plan.

Additional implementing EM&V guidance will be provi ded in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated that the EPA should clarify whether compliance is based on net or gross savings, but advocated the use of gross savings.

Commenters advocated for using net ener gy savings to measure emission reductions. Commenters pointed out that using gross savings will allow credit for actions that would occur in absence of the rule and, therefore, would result in fewer emission reductions. Commenters also pointed out that mea suring net savings is necessary for ongoing evaluation to identify the most effective program designs. Commenters supported the use of net savings consistent with the SEE Action Network Energy Efficiency Program Impact Evaluation Guide. Commenters encouraged EPA to ensure no double counting of energy efficiency savings across different program activities and to include adjustments for measure persistence and actual savings achieved (e.g., as determined through billing analyses and verification of in stallations) , and corrections to account for data quality control.

Commenters strongly encouraged the EPA to base accounting of energy efficiency on gross savings, not net savings, because gross is easier to determine and will better encourage adoption of efficiency programs; the protocols and methods that states currently use for net savings vary widely and therefore the use of net savings could lead to inconsistent treatment of energy efficiency measures across states; and methods for determining net effi ciency are not available for non

- utility programs (e.g., building and appliance efficiency). Commenters supported using verified savings based on operational data collected by site visits, sub

- metering, billing analysis, customer surveys, or third

- party im pact evaluation, as long as the verification costs are capped at 5 percent of energy efficiency spending. Commenters also advocated that the EPA clarify that gross savings estimates must exclude savings from programs outside those approved in the state pla ns, except for market transformation programs, and that the rule should rely on existing343 EM&V methods for market transformation in states that currently have market transformation programs. Commenters stated that the EPA should not discount "free riders" b ecause the energy savings from free riders are real, regardless of why they occur.

Commenters stated that there are many reasons why gross energy savings is the appropriate metric:

• Emissions reductions are based on gross savings, which represent the actual level of savings that occur (and can be measured and verified), rather than net savings.

• Attribution of savings under the net savings approach (i.e., applying a
net

- to

- gross ratio) is both difficult to determine accurately and not relevant for emission re ductions resulting from the adoption of EE

measures.

• Allowing for inclusion of spillover effects as well as free ridership in the determination of net savings is highly subjective.

• It will be much easier for states and utilities to evaluate and use gross savings rather than net savings, thereby facilitating inclusion of a broad range of EE policies and programs in state plans. The use of a gross savings approach in the final guidelines would be both more realistic and less cumbersome for states to implemen t, which would facilitate and encourage the deployment of EE

- related measures.

Commenters stated that the EPA should recognize gross savings as an appropriate metric for state compliance plans. Commenters noted that in the proposal, the EPA states that it calculated state energy efficiency goals based on net savings. Commenters noted that as the EPA states,

" This incremental savings rate and all others discussed in this subsection represent net, rather than gross, energy savings. Gross savings are the chan ges in energy use (MWh) that result directly from actions taken by program participants, regardless of why they participated in the program. Net savings refer to the changes in energy use that are directly attributable to a particular energy efficiency pro gram after accounting for free

- ridership, spillover and other factors."

Commenters stated that net savings establish whether a utility expenditure caused a consumer to adopt an energy efficiency technology or measure. Commenters noted as such, they are a u seful metric for determining whether a utility should receive a performance incentive or lost revenue adjustment for its program. Commenters stated that this is a separate issue from whether a utility program has the effect of reducing carbon emissions for a state carbon reduction goal. From that standpoint, commenters stated that any measure that actually reduces emissions by reducing the need for generation should count for compliance, regardless of whether the measure was installed by a free rider, or re sulted from spillover or other factors. Accordingly, commenters344 believed that gross savings are the appropriate metric for compliance purposes, and that the EPA should so clarify in the final rule.

Commenters stated that the EPA should consider incorporati ng the use of gross energy savings in back

- end compliance calculations as failing to do so results in underestimation of the true reductions in CO 2 emissions at EGUs due to EE measures and can lead to inconsistencies in EE savings determinations. Commenter s stated that USEPA used a net energy savings methodology to develop the cumulative annual electricity savings for EE in state goal development. Commenters stated that the recognized methodologies used to determine net, as opposed to gross, energy savings vary from state

- to

- state and within states. Commenters stated that the differences in net energy savings can be significant. Commenters stated that these variations in determining net

- to

- gross energy savings will be a source of inequity and uncertainty as states develop, and USEPA reviews, their plans.

Commenters supported the use of gross energy savings as part of the EPA's requirements and guidance. Commenters stated that accurate estimation of free ridership (necessary to calculate net energy savings) is complex. Commenters stated that this is a large understatement. Commenters noted that it is far more accurate to develop methodologies and guidelines to address calculations of gross energy savings. Commenters stated that all savings due to EE should be c ounted since they all lead to reduced electricity generation and to proportionally reduced emissions.

Commenters stated that the EPA did not specifically seek comment on this issue, and the commenters disagreed with the EPA's use of net savings for purpose of target

- setting. However, commenters stated that compliance is another issue. Commenters noted that in its State Considerations Technical Support Document, the EPA states that a consideration for energy efficiency programs in state compliance plans "is whether reporting of energy savings should be specified on either gross or net basis, or both, to promote consistency in measuring the impact of energy efficiency measures across state plans ."

Commenters stated that this is not currently an issue in Alabam a, as it has no utility

- funded programs to speak of. Commenters stated that to the extent Alabama proposes utility

- funded programs as part of its state compliance plan (and it should), it will be important to have clarity regarding whether the EPA accepts gross savings figures for purposes of demonstrating compliance.

Commenters stated that net savings establish whether a utility expenditure caused a consumer to adopt an energy efficiency technology or measure. As such, the commenters noted that they are a useful metric for determining whether a utility should receive a performance incentive or lost revenue adjustment for its program. Commenters stated that this is a separate issue from whether a utility program has the effect of reducing carbon emissions fo r a state carbon reduction goal. From that standpoint, the commenters stated that any measure that actually reduces emissions by reducing the need for generation should count for compliance, regardless of whether the measure was installed by a free rider, or resulted from spillover or other factors. Accordingly, the commenters believed that gross savings are the appropriate metric for compliance purposes, and the EPA should so clarify in the final rule.345 Commenters stated that Ohio cannot easily quantify ann ual incremental electricity savings in the manner that the CPP proposes. Commenters stated that they depend upon evaluation, measurement and verification (EM&V) reports that are created by an independent third party to determine EE savings. Commenters stat ed that assuming arguendo that building block 4 is permissible, the CPP should consider using a gross savings reporting mechanism to allow for maximum consideration of energy savings that may not be reflected by just considering EE on a net savings basis. Commenters noted that currently, they consider EE on a gross savings basis. Commenters stated that revising their tracking methodologies to a net savings basis would be costly, difficult to implement and contrary to Ohio statute.

Commenters stated that th e EPA should allow states to count gross EE savings (not net savings) toward compliance with the rule. Commenters stated that energy efficiency savings can be measured as " gross " or " net " savings, where gross savings include all savings from measures insta lled under a program, and net savings represent only those measures that are due directly to the program excluding measures that would have been installed anyway (without the program in place). Commenters stated that gross savings are the appropriate measu re under this rule, both because this rule is focused on actual emission reductions without attributing motivations (or "additionally" ) to the measures and because determination of net savings is somewhat subjective.

Commenters stated that the EPA should finalize a definition of "net " based on evaluated savings, including savings from spillover and free ridership beyond business as usual. Commenters stated that because the environment sees the benefits of the total energy savings (whether or not due to spi llover or free ridership effects), the total evaluated savings of EE should be credited in the 111(d) framework.

Commenters stated that the basis upon which EE savings are measured for compliance should match the basis upon which the EE target is set. Com menters stated that adopting a compliance approach based on total evaluated savings would therefore require a corresponding adjustment to the level of the EE target used to calculate state goals. Commenters noted that in general, an EE approach measured on an evaluated savings basis (which includes spillover and free rider effects) yields a higher MWh value than the same EE approach measured using a "net" basis (which does not include these effects). Commenters stated that to account for this difference in accounting, the proposed EE target, which was set on the basis of "net" measurements should be recalculated using evaluated savings.

Commenters stated that the EPA can minimize the recordkeeping burden of states by allowing the use of gross energy savings to measure and document EE program achievements. Commenters stated that EPA should allow the use of gross energy savings for compliance purposes, rather than the proposed net energy savings. Commenters stated there are many reasons why gross energy savings is the appropriate metric:

• emissions reductions are based on gross savings, which represent the actual level of savings that occurs (and can be measured and verified), not net savings;346 • attribution of savings under the net saving approach (i.e., applying a net

to

- gross ratio) is both difficult to determine accurately and not relevant for emission reductions resulting from the adoption of EE measures;

• allowing for inclusion of spillover effects as well as free ridership in the determination of net savings is highly subjective; and

• it will be much easier for states and utilities to evaluate and use gross savings rather than net savings, thereby facilitating inclusion of a broad range of EE policies and programs in state plans. Commenters stated that use of a gross savings approach in the final guidelines would be both more realistic and less cumbersome for states to implement, which would facilitate and encourage the deployment of EE

- related measures.

Commenters stated that the EPA should recognize gross sav ings as an appropriate metric for state compliance plans.

Comment 7: Comments that DOE should be tasked to develop the rating system for evaluating EM&V plans.

Response 7: The EPA’s proposed approach establishes an " EM&V floor " that all EE and RE programs must achieve to ensure a minimum level of credibility in their EM&V programs. State EM&V plans will also be subject to EPA approval under the state measures approach, while EE and RE providers under the ERC approach will need t o get their plan approved by the state regulatory body for the program. Regarding the discounting of savings for less rigorous and less accurate methods, EE and RE providers should follow industry

- standard practices and protocols to determine whether or no t to discount savings, and report savings in gross MWh where possible.
The following are summaries of the specific public comments under this comment:
Commenters supported NEEP's recommendation for the EPA to engage DOE to design and develop a rating syste m (with stakeholder input) that assesses the rigor and precision of EM&V methods used. Commenters recommended that the method should discount credit for energy efficiency savings when less rigorous or less statistically accurate methods are used.

Comment 8: Comments that EPA should not discount credit for EE measures.

Response 8: EE and RE providers should follow industry

- standard practices and protocols to determine whether or not to discount savings. EE savings must be determined and reported in units of gross MWh, except in cases where gross savings values are not available (e.g., randomized control trials). In these instances, net savings can be reported.
The following are summaries of the specific public comments under this comment:347 Commenters stated that EPA should not discount credit for energy efficiency measures, pointing out that the level of discounting that they have seen in some SIPS is excessive. Commenters stated that if EPA is going to discount credit for energy efficiency programs, then EP A also should apply the discount in creating the state goals.

Comment 9: Comments objecting EPA applying a measure of lifetime to the effect of EE
programs.
Response 9: The EPA’s approach encourages states to use established industry protocols when determ ining the lifetime of an EE measure. We do not require a particular measure lifetime to be used, but will be reviewing state EM&V plans to ensure they are consistent with standard industry practice.
The following are summaries of the specific public commen ts under this comment:

Commenters objected to the concept of applying a measure of lifetime to energy savings
programs. Commenters stated that load forecasts are an integral component of Integrated Resource Plans by the utility and so the utility already c aptures any diminished impacts in their long

- run sales forecasts. Commenters stated that it is unreasonable to require the utility to re

invest effort into a program that still is achieving energy savings and would result in double counting of the same sav ings. Commenters stated that EPA needs to take a more realistic view of how energy efficiency is used in the utility planning process. Commenters stated that for an emission reduction to be permanent, the EM&V protocols for energy efficiency programs must require reporting on persistence, which includes retention of the programmatic measure and performance degradation over time.

Commenters recommended that the EM&V should specify the equipment useful lifetime for energy efficiency measures rather than appl ying a linear decline from first year savings estimates.

Commenters advocated that the non

- energy benefits (e.g., aesthetic enhancements) of energy efficiency programs should not be included in EM&V because these benefits are not easily measured and would increase the cost of EM&V.

Comment 10: Comments related to considering time of day for calculating avoided CO 2 emissions from energy savings.

Response 10: The EPA’s approach does not directly measure the avoided CO 2 from EE programs. Instead, the energy saved from these programs is incorporated into the denominator of the rate

- based equation when determining compliance with the state target. In order to ensure consistency with the calculation of CO 2 performance rates and state rate

- based CO 2 goals in the final emission guidelines, and to avoid double

- counting or inconsistent adjustment approaches across states, the final rule prescribes a general accounting approach states must use to adjust the348 CO 2 emission rate of an affected source to reflect the MWh impacts of zero

- emitting and low

emitting resource. Quantified and verified MWh impacts of qualifying zero

- emitting and low

emitting resources tied to a state plan may be used by an affected EGU or state to adjust a CO 2 emission rate, regardless of whether the renewable generation or demand

- side EE savings occur inside or outside the state or territory. Consistent with the EPA’s calculation of the CO 2 emission performance rates and state rate

- based CO 2 goals in the final emission guidelines, the MWhs impacts are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower, adjusted CO 2 emission rate. The reported CO 2 emissions reflect the actual emission reductions from the deployment of q ualifying non

- emitting and low

- emitting resources across the regional grid. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and demand

- side EE, see section VIII.K.
The following are summaries of the specific public comments under this comment:

Commenters stated that the calculation of avoided CO 2 emissions should account for time of day when the savings occur. Commenters stated that their company already accounts for the hourly values of energy efficiency impacts. Commenters also supported the use of hourly data if feasible. Commenters stated that if EPA determines that states must calculate the avoided CO 2 associated with each megawatt

- hour saved, the agency should identify which methodologies a re most appropriate for this purpose and how hourly savings data can be estimated if not generated through the state's EM&V plan. Commenters argued that using time differentiated energy savings was too complex and expensive. Commenters stated that savings should be based on annual yearly savings but states should be allowed to consider savings that occur during peak hours if they can provide adequate documentation. Commenters also recommended that EPA should ask DOE to report on the availability of load sha pe data across the states (and the rigor of such data) so that EPA can specify acceptable options for states to use for determining time

differentiated energy savings. Commenters advocated that energy efficiency should be accounted for by just adding the M Wh saved in the denominator of the rate

- based equation.

Comment 11: Comments on accounting for transmission line losses in the calculation of energy savings.

Response 11: The proposed EPA’s EM&V approach allows all demand

- side efficiency savings determine d at the site of an EE action, other than CVR/volt

- VAR optimization, to apply a T&D adder. The T&D adder must be based on the lesser of 6 percent or the calculated statewide annual average T&D losses expressed as a percentage and based on values in the mos t recent year and published US EIA State Electricity Profile.

In the final rule, the EPA recognizes the value of combined heat and power as a resource that can reduce CO2 emissions from affected EGUs. The EPA agrees with the commenter and allows for electr ic generation (MWhs) from CHP units to be used to adjust the CO2 emission rate of an affected EGU, provided that the units meet the eligibility criteria described under section K.1.a.(9) and the EM&V criteria described in section IV.D.8 of the preamble to the proposed Federal Plan. Quantified and verified electric generation from non

- affected combined heat and power units tied to a state plan may be used to adjust the CO2 emission rate of an affected EGU349 provided that it meets the eligibility criteria descr ibed under section VIII.K.1.a of the final rule preamble. Since, in most cases, a CHP unit would be a low

- emitting CO2 source, the MWh output would need to be prorated to account for the emissions using the method described in section VIII.K.1.a.(9) of the final rule preamble. The measures must also meet the requirements and criteria related to proper quantification and verification of MWhs as described in section IV.D.8 of the preamble to the proposed Federal Plan.

The following are summaries of the specif ic public comments under this comment:
Commenters supported the accounting for transmission line losses in the calculation of energy savings because line losses contribute to the level of energy savings achieved by an efficiency

measure. Commenters stated that EPRI has developed a framework to assess benefits, cost, and performance of technologies to improve T&D efficiency and utilization, and that this research can serve as the foundation for an EM&V protocol. Commenters stated that the calculation should be performed at the system wide level as a ratio of the total amount of metered generation relative to the total of all metered sales, because it is impossible to know which customers may choose to implement which energy efficiency measures, so the calcula tion must be done system

wide. Commenters stated that states should be allowed to use their own T&D loss factors, if available.

Commenters advocated against adopting a national average line loss credit. Commenters suggested use of average line losses for t he state in which the CHP unit is located. Commenters pointed out that EIA currently has state

- by

- state line losses through 2012 (State Electricity Profiles, May 1, 2014). If EPA decides to adopt a single national line loss credit, the commenters stated th at the proposed 5 percent level is too low and suggested using 7.51 percent to be consistent with the line loss estimate that EPA used in calculating BSER in the Goal Computation TSD. Commenters asked EPA to clarify whether or not generation from new or
up rated non

- affected CHP units must meet an EM&V requirement, and if so it should be accomplished using revenue

- quality electric meters. Commenters also advocated that CO 2 emitted from non

- affected CHP units should not be included in the determination of the emission reductions credited to those units, and that however, if the final rule requires this CO 2 to be accounted for, the rule should not require CEMS on these non

- affected units.

Comment 12: Comments on a range of specific provisions that should be co ntained in EM&V plans.
Response 12: The EPA appreciates the commenters’ recommendations. With respect to third

party EM&V verification, the Federal Plan proposal requires third party verification for both the state measures and the rate

- based emission tra ding approach and these requirements do not vary by state. Many states have already established credible EM&V programs that differ slight from each other, therefore, the EPA’s proposed approach allows states under the state measures approach, and EE and RE providers under an rate

- based emission trading approach, flexibility to define their own EM&V approach as long as it is rigorous, credible, and consistent with industry

- standard practices. A third party evaluator must not be seen to have a conflict of int erest with the success of the project. Conflict of interest procedures must be included in EM&V plans.350 For all EM&V submittals addressing demand

- side EE, the proposed applicable metric is electricity savings, which is defined as a reduction in electricity consumption. EE savings must be determined and reported in units of gross MWh, except in cases where gross savings values are not available (e.g., randomized control trials). In these instances, net savings can be reported. Importantly, gross savings is th e simplest and most commonly reported form of EE savings and shows total reductions in electricity generation, irrespective of cause, while there are wide variations in the definition and uncertainty of net savings.

The EPA is providing guidance on statist ical sampling in the draft guidance issued with the proposed Federal Plan. In particular, the guidance suggests to obtain a minimum sample size that provides at least 20 percent precision and 80 percent confidence.

The EPA’s approach in the final emission guidelines requires states that have an independent entity maintain and certify an EE registry that tracks project level identification for each credit in order to provide assurance that there is no double counting of either the credits themselves or the
p rojects that make up each credit.

Regarding EM&V for small utilities, the EPA is providing flexibility for states and ERC programs to be structured in ways that allow collaboration between utilities.

States have the option to used deemed savings, control g roup, or non

- control group approaches. All approaches must be rigorous, credible, and consistent with industry

- standard practice. The EPA’s draft EM&V guidance provides information on the appropriate use of deemed savings estimates. If deemed savings are u sed, EPA’s approach recommends the technical reference manual for these approaches be reviewed and updated at least every 3 years to keep current with market trends and technology innovation

Additional implementing EM&V guidance will be provided in the dra ft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters provided general recommendations regarding EM&V plans. Based in large part on their knowledge of the EM&V practices routinely used by utilities in the Southwest, the
commenters st ated that the following provisions are feasible for both large and small utilities:

• The EPA should require third party EM&V of the total first year energy savings (MWh saved per year) of every energy efficiency program that is claiming efficiency credits a t least once every three years, using EPA

approved EM&V protocols for different types of programs.

• There should not be different EM&V requirements for those states or utilities that have limited experience with energy efficiency programs and those that ha ve substantial experience. All are capable of hiring qualified EM&V experts to evaluate the energy savings of their efficiency programs.351 • The same EM&V requirements should apply to both utility and non

utility policies/programs, because there are many compe tent EM&V experts and firms that can perform the EM&V of non

- utility programs once EPA issues guidance and EM&V protocols for these programs.

• The EM&V should be based on gross savings.

• The EPA should adopt a single protocol for each type of efficiency

mea sure and not be multiple sets of EM&V protocols with discounting of savings if utilities or states take an "easier approach."

• The EPA should provide guidance on statistical sampling in order to reduce potential sampling error bias in savings estimation an d to help ensure that energy savings evaluation is consistent across utilities and states. The commenters recommended a 90/10 confidence interval/precision as part of EM&V for programs that are contributing 5% or more of the total energy savings of a parti cular utility, third party program administrator, or state in any one year, but allow 80/20 confidence interval/precision for programs contributing less than 5% of total savings.

• If EM&V is required only once every three years for every program, EM&V resu lts may not be available when states file their annual compliance reports with the EPA. In this situation, EPA should allow annual emissions rate reporting using deemed savings values, if the savings values as determined by third party EM&V are not yet ava ilable, and require retroactive adjustment of energy efficiency credits (either up or down) after the required EM&V is completed. This retroactive true

up is not likely to change a state or utility from compliance to out of compliance because the adjusted difference is likely to be relatively small.

• The EPA should allow states and utilities to conduct EM&V on their own without necessarily complete standardization across states, as long as the EM&V is consistent with approved protocols. The commenters stated that state PUC, energy office, or other appropriate state could certify that appropriate EM&V protocols were followed.

• The EM&V plan should address how to avoid double counting of energy savings across different programs.

• To facilitate EM&V for very small utilities (small municipal or rural coops), EPA should allow EM&V to be carried out for multiple utilities jointly in collaboration with wholesale power providers or state associations of utilities or cooperatives.352 Commenters stated if evaluation of energ y efficiency measures is required, that EPA should allow the same firm that assists utilities in developing the energy efficiency program to conduct the evaluation of efficiency results because this would reduce costs to the utility.

Comment 13: Comments on establishing a system for trading EE credits

. Response 13: The EPA’s approach allows for EE trading through the rate

- based emission trading approach. In states implementing emission standard type plans with rate

- based trading, affected EGUs adjust thei r reported emission rate using ERCs, which represent MWh that are quantified and verified according to the EM&V criteria included in section IV.D.8 in the preamble to the proposed Federal Plan. Providers of EE and RE who seek to earn ERCs must develop EM&V plans outlining how they will quantify and verify the results of their efforts. These providers are then required to submit EM&V plans as part of their application to the state regulatory body for project approval.
The following are summaries of the spec ific public comments under this comment:

Commenters advocated that a system is needed so that reductions due to energy efficiency can be tradable. Commenters believed it will take time to develop a credit system for energy efficiency that ensures that ener gy efficiency credits are comparable on a one

- to

- one basis that trading is viable.

Comment 14: Comments on rigor of EM&V in states using a mass

- based approach.

Response 14: EM&V is not required if a mass

- based state plan approach is utilized. This is bec ause the evaluation metric for these plans is achievement of a mass limit on CO 2 emissions from affected EGUs. With the a mass

- based state plan approach, EE/RE measures can provide a complementary role, but their effects are embodied in measurements of CO 2 emissions that are tracked through monitoring, reporting, and record

- keeping requirements on affected EGUs.
The following are summaries of the specific public comments under this comment:

Commenters stated that the EPA should require less rigorous EM&V for energy efficiency measures in states that adopt the mass

- based approach. Commenters stated that documenting emissions reductions is not needed to demonstrate compliance with a mass

- based approach, but they suggested that documentation could be needed t o account for interstate effects of energy efficiency programs. While documenting the effects of energy efficiency could be helpful in assessing the efficacy of these programs for purposes of improving future emissions projections, commenters stated that l ess rigorous EM&V methods seem justified. Commenters asked EPA to clarify how EM&V differs for mass

- based approaches.353 Comment 15: Comments on the need for a consistent methodology for valuing energy efficiency to facilitate multi

- state emissions trading a nd other transactions

Response 15: To accommodate states with existing EE programs, the EPA’s proposed EM& V approach gives states a reasonable degree of flexibility, independence, and discretion in selecting methods and parameters. While this approach does not resolve inconsistent methodologies across states, the EPA’s proposed approach does require EM&V to be rigorous, complete, and consistent with the criteria provided in the emission guidelines and the state plan.

In response to comments about state policy and analytic needs, the EPA, in consultation with U.S. DOE and other federal agencies, continued to re fine its toolbox of decision support resources at: http://www2.epa.gov/ www2.epa.gov/cleanpowerplantoolbox. The site includes information on regulatory requirements, including state plan guidance and state plan decision support. The state plan guidance sec tion serves as a central repository for the final emission guidelines, RIA, guidance documents, TSDs and other supporting materials. The state plan decision support section includes information to help states evaluate different approaches and measures they might consider as they initiate plan development. This section includes, for example, a summary of existing state climate and RE and demand

- side EE policies and programs, information on electric utility actions that reduce CO 2 , and tools and information t o estimate the emissions impact of RE and demand

- side EE programs, including the AVERT model. For more information about Resources for States to Consider in Developing Plans, see Section VIII.H.

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

Commenters stressed the need for a consistent methodology for valuing energy efficiency to facilitate multi

- state emissions trading and other transactions. Commenters stressed that the valuation methods should be simple and predictable, and recommended that EPA impute for each state an emission reduction value for energy efficiency as the emission rate of the marginal dispatched resource in the power pool or the average emissions rate for the state.

Commenters stated that to quantify emi ssions avoidance from electricity savings, States should be allowed to use either marginal generation and emissions calculators or dispatch models. Because dispatch models are often proprietary and complex, EPA should allow states the choice of either disp atch models or AVERT or similar tools used by utilities and regional transmission organizations.

5.3.6 Options: Use of EM&V protocols and guidance

This section addresses comments on the guidance that EPA should provide on acceptable protocols for verifyin g energy savings.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.354 Comment 1: Comments on the importance for the EPA to prepare clear, flexible, effective, and affordable guidance on EM&V as early as possible before state plans are due.

Response 1: Thank you for pointing out the various standards and guidelines that can help states craft their EM&V plans. The EPA’s proposed EM&V approach for EE and RE measures seeks to strike a balance between providing states flexibility, encouraging states and other EE and RE providers to implement programs, and ensuring credible reductions from these programs. The EPA’s proposed criteria reflect several overarching objectives and principles offered by states, private organizations, and the public during the comment period. One of these is the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the
costs ass ociated with project performance evaluation on the other. Another of the EPA’s proposed criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an ap provable state plan establishes a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions. In addition, the EPA will be providing a detailed guidance document to assist states and other EE and RE providers in crafting EM&V plans. This guidance will be reviewed periodically, and the EPA welcomes stakeholder feedback.

The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the cri teria for eligibility described in section VIII.K .1.a.(2) o f the preamble to the final rule , and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.

The EPA has developed an EM &V guidance document to assist regulators. The EPA welcomes stakeholder feedback on this document. This document provides quantification guidelines for various types of RE and EE programs, and can refer regulators to relevant EM&V protocols. In addition, c riteria making up an " EM&V floor " have been established and discussed in the preamble. The EPA also specifies that " common practice baselines " should be used, estimating what a typical consumer would have done at the time of the project implementation with out the measure in place.

The EPA received many comments suggesting that the EPA should recognize early actions for the emission reductions they provide prior to the performance period. The EPA recognizes the validity and importance of these perspectives, and as a result, the final rule contains two provisions that enable states to incentivize early investments in zero

- emitting generation and demand

- side EE.

First, states adopting rate

- based plans may award ERCs to qualified providers that implement
any e ligible projects from 2013 onward for the quantified and verified MWh of generation or savings those projects provide in 2022 and subsequent years. Affected EGUs may use ERCs issued under each of these provisions for compliance with their assigned emission standards or bank the ERCs for use in any compliance period. In a mass

- based context, similar efforts will be inherently reflected in the affected EGUs stack emissions in 2022 forward. ERCs issued in 2022 or a subsequent year may be carried forward and us ed for demonstrating compliance in a future year. For example, an ERC issued for a MWh of RE generation that occurs in 2022 may be applied to adjust a CO 2 emission rate in 2023 or future years without limitation. ERCs may be355 banked from the interim plan pe rformance period to the final plan performance period. See section VIII.K.2.e of the preamble to the proposed rule for more details on ERC banking.

Second, the EPA has developed the Clean Energy Incentive Program, an optional program designed to reward inv estment in certain RE and demand

- side EE projects that commence construction after the effective date of this rule and that generate MWh or reduce end

- use energy demand during 2020 and 2021. Under this program, states may set aside allowances from their in terim targets or generate early action ERCs (as defined in section VIII.K.2), and allocate to eligible projects allowances or ERCs equivalent to each MWh generated or avoided. For more details on this program, see section VIII.B.2 of the preamble to the fi nal rule.

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

Commenters stressed the importance for EPA to prepare clear, flexible, effective, and affordable guidance on EM&V as early as possible before state plans are due. Commenters stressed that widespread incorporation of energy efficiency measure might be discouraged due to uncertainty over the process and cost burden for EM&V. Commenters further suggested that EPA should seek public comment on the guidance document, and they suggested collaboration with states. Commenters stressed that the guidance should be reviewed and revised periodically to take advantage of experience and lessons learned and that there should be a streamlined review process by EPA. Commenters advoca ted for EPA to consult with DOE on selection of the list of acceptable protocols and on selection of the criteria for approving additional protocols proposed by states. Numerous commenters stressed that flexible, innovative, and affordable EM&V is importan t for encouraging energy efficiency and renewable energy; and standards need to be developed in cooperation with States. Numerous commenters stressed that these actions are important if EPA wants to encourage a wide variety of energy efficiency and renewab le energy measures. Commenters stated that EPA's failure to establish protocols has fostered uncertainty on the ability to set achievable CO 2 reduction goals based on energy efficiency. Commenters said that EPA must clarify how states will take credit for early energy efficiency measures adopted in the time between proposal of the rule and either plan approval or the beginning of the interim compliance period

Commenters requested definition of measurement and accounting protocols for EE and the E M

V elemen ts to be included.

Commenters stated that the EPA has not defined the measurement and accounting protocols for energy efficiency. Commenters explained that, as a result, the actual amount of contributions that such measures make toward the proposed standa rd is uncertain, and there are substantial and complex issues that have no current consensus solutions.

Commenters said that "The Regional Technical Forum and Northwest Power and Conservation Council, as well as individual utility data, all provide real

- w orld program cost numbers that EPA should use as alternatives to cost assumptions in its proposed rule. In addition, EPA should allow regional/state approaches to measurement and verification of savings but ensure use of best practices that result in equiv alent rigor across the country."356 Commenters went further to say that EPA should "explicitly reference the M&V methods used by the Regional Technical Forum or the recommendations of the National Energy Efficiency Evaluation, Measurement and Verification Standards Scoping Study, US DOE 2011."

Commenters said that "OG&E is concerned that enforcement of EE measures under the proposal will be open to challenge if current evaluation and verification ("EM&V") approaches are considered inadequate. The CPP should not be promulgated until EPA guidance on this issue is made available for review and public comment."

Commenters stressed the need or consistency among states in EM&V approaches. Commenters stated that EM&V practices continue to vary widely among states a nd utilities. Commenters stated that the EM&V protocols for energy efficiency must be rigorous to ensure that the emission reductions are credible, and EPA must ensure that the rigor of the methods used to set the state goals and determine compliance with goals is the same. Commenters suggested that the guidance include analytic methods, assumptions and data sources that the state will employ to determine energy savings and energy generation related to renewable energy and energy efficiency measures. Commen ters stated that EPA should establish a uniform compliance instrument for demand

- side EE, because of the different ways that states currently account for energy efficiency and to address cross border effects consistently. Commenters advocated for consisten t EM&V methods across states for all building blocks to endure consistency in level of emission reductions credited. Commenters recommended that while consistency is important, the process needs to allow for the continued evolution of EM&V practices over t ime as states gain experience, and cited a reference (Hibbard and Okie, 2012) for a possible framework that EPA could use. Commenters stressed the need for enforceability of energy efficiency requirements.

Commenters recommended that the EM&V have the foll owing elements, based on their many years of experience in energy efficiency program implementation and evaluation:

• Use established state, regional, and national EM&V programs as models, and delegate development of the EM&V protocol to DOE. The DOE has already developed evaluation protocols through the Uniform Methods Project and these protocols already provide high level guidance with appropriate program safeguards that will ensure state flexibility but deliver the necessary transparency and clarity required to properly evaluate the programs.

• EPA should support training on the certification process so that qualified evaluators can be hired to support EM&V, but recommends against requiring a certification program for evaluators because certif ication programs are not in place now and would add additional costs.

• Allow flexibility to adopt dynamic energy efficiency programs that go beyond the straightforward initiatives in place today and that recognize357 upstream and midstream programs and savings related to codes and standards.

• EM&V program success requires team effort, including federal and state support, and roles must be understood

. Commenters stated that EPA should ensure that states consider the multiple parties that may be necessary for succ essful implementation of certain programs and ensure that entities are only responsible for the components in their control.

Commenters supported the use of energy efficiency as a mean to reduce emissions from the power sector. Commenters recommended that , because EM&V protocols will continue to evolve as more states gain experience, EPA should support continued development of EM&V best practices over time. Commenters suggested that EPA should (1) participate in ongoing efforts , such as the ongoing effort s coordinated by the Department of Energy, the State and Local Energy Efficiency Action Network, and regional technical forums; and (2) periodically revise the M&V standards reflect this coordinated evolution of M&V practices over time. Commenters suggeste d that EPA should:

• Work with existing federal, regional and state efforts to improve EE M&V and work towards common, voluntary M&V practices. To the extent EPA convenes a workgroup (rather than assist existing national and regional efforts), states should be invited to participate fully in this effort.

• Facilitate meetings, studies and analysis to achieve a framework for consistent national EE M&V standards.

• Periodically develop revisions to EM&V guidance, reflecting as much as possible the evolution of en ergy efficiency EM&V for compliance, and the lessons learned through the coordination process. Commenters stated that revisions should capture elements upon which there is significant progress and agreement, but need not represent a specific, prescriptive set of EM&V standards.

Commenters suggested a two

- tiered protocol for EM&V:

• Tier 1 would adopt EM&V criteria based on the level of certainty for an energy efficiency measure. By specifying criteria rather than specific EM&V measures, EPA will encourage mo re innovation in energy efficiency.

• Tier 2 would apply to measures that are less susceptible to detailed EM&V, such as building, energy, and appliance codes. The tier 2 protocol would include enforcement provisions, measurements for building efficiency pro grams, and tiered uncertainty metrics for different energy efficiency measures.358 Commenters stated that EPA should not default to requiring utility industry EM&V as the only approach because current industry protocols were designed for different purposes; a nd EPA should allow less costly and more flexible EM&V options. Commenters also stated that, states that require third

- party EM&V should not be required to provide additional reporting and recordkeeping, which will only increase the cost of energy efficien cy programs for utilities and their customers. Commenters stressed that states should have broad discretion over how to address EM&V.

Commenters suggested to not limit the types of demand

- side energy efficiency programs or policies that states can incorpor ate in their plans, EPA should develop high

- level guidelines for EM&V that would permit acceptance of existing state protocols that are credible, rather than specifying a detailed and prescriptive set of analytical methods and protocols tailored to specifi c energy efficiency measures. Commenters also recommended that the guidelines should reference existing EM&V programs that provide robust measurement and verification such as the programs in Massachusetts, Rhode Island, New York, New Jersey, Pennsylvania, Illinois, California, and the Northwest Energy Efficiency Alliance. Commenters recommended this approach because it would allow EPA to develop guidelines faster and would allow states to continue relying on established EM&V programs, avoiding the burden th at would result from creating a new set of program requirements. Commenters recommended that EPA designate another entity to approve a list of EM&V protocols that meet the guidelines and that EPA should review the state's reports on verification of energy savings. Commenters supported use of " EPA's Roadmap for the Inclusion of Renewable Energy and Energy Efficiency in State and Tribal Implementation Plans." Commenters further stated that any efficiency initiative that conforms to ISO 5001 or the DOE Superio r energy Performance Program should not require further EM&V. Commenters specifically supported EPA's option 3, which would establish a set of generalized,
process

- oriented EM&V requirements that apply to all energy efficiency programs and measures, while providing flexibility to customize EM&V approaches, as appropriate for different types of programs and measures, provided that EM&V meets these minimum requirements. Commenters pointed out that EM&V programs by states can provide a good model to follow for certain elements but; because the programs can vary substantially among states, EPA should publish baseline criteria for EM&V to address methodologies, data sources, assumptions, annual reporting and third party verification. Commenters supported the crit eria in the comments by the Northeast Energy Efficiency Partnership (NEEP). Commenters recommended that EM&V should require annual reporting and third

- party verification. Commenters advocated for a national registry to standardize and verify energy efficie ncy savings.

Commenters suggested that EPA not limit the types of demand

- side energy efficiency programs or policies that states can incorporate in their plans provided that EPA specify a robust EM&V methodology.

Commenters advocated for EPA to develop a n on

- exclusive list of protocols that the Agency would approve for use and also include criteria for evaluating alternative protocols submitted by states. As a general principle, commenters stated that EM&V should provide reasonable confidence in energy savi ngs, but should not be so onerous as to become a disincentive to deploying energy efficiency as a resource. Commenters pointed out as an example that the set

aside for energy efficiency activities in the Acid Rain Program established such onerous criteria that it was more or less unused, and pointed out that the degree of precision that might be359 necessary for health

- based criteria or toxic pollutant policies is not needed for carbon pollution. Commenters stated that EPA should publish the criteria that it w ould use for evaluating protocols not on the pre

- approved list, that the criteria should be rigorous and account for uncertainty in energy savings estimates, and that the criteria should be most stringent for behavioral energy efficiency measures.

Therefor e, commenters advocated that the Clean Power Plan should pre

- approve a list of effective, low cost EM&V protocols that have been adopted by states, utilities, regional, and international bodies. Commenters stated that existing protocols are sufficient and no Federal protocols specific to this rule are necessary. Commenters suggested that EPA convene a group of states and EM&V professionals in early 2015 to develop the protocols in time for states to use in preparing their plans. Most of these commenters sug gested that DOE should chair the group. Commenters suggested that for any gaps in protocols the group would develop a schedule for their development. Commenters provided an appendix with specific recommendations for EM&V for solar power. Commenters recomme nded that EPA develop a uniform compliance protocol that would be used for all states for demand

- side efficiency programs. The protocols suggested across commenters were:

• Department of Energy Uniform Methods Project, a standardized set of EM&V protocols fo r specific energy efficiency actions.

• DOE Residential Energy and Cost Analysis Methodology and Commercial Energy and Cost Analysis Methodology.

• DOE Superior Energy Performance protocol.

• Protocol for behavioral energy efficiency programs by the State & Lo cal Energy Efficiency (SEE) Action Network.

• International Performance Measurement and Verification Protocol, available from the Efficiency Valuation Organization.

• Energy Management Systems (EnMS) under the ISO 50001 standard.

• California Title 24 code.

• S eparate protocols for efficiency projects provided to energy service companies through performance

- based contracts.

• Model Energy Efficiency Program Impact Evaluation Guide issued by the State and Local Energy Efficiency (SEE) Action Network;

• ASHRAE Guideline 14

- 2002 Measurement of Energy and Demand Savings; and,

• Technical Reference Manuals developed and/or adopted by states, utilities and regional bodies; examples include the Northwest Power and360 Conservation Council Regional Technical Forum ( RTF) and the Northeast Energy Efficiency Partnerships (NEEP) EM&V Forum.

• EPA's "Roadmap for Incorporating Energy Efficiency/Renewable Energy Policies and Programs into State and Tribal Implementation Plans, Appendix H: Weight of Evidence Pathway.

• DOE/EPA action guide, Evaluation, Measurement, and Verification (EM&V) of Residential Behavior

- Based Energy Efficiency Programs: Issues and Recommendations for behavioral energy efficiency programs, and recommended development of a similar guide for commercial
pr ograms.

• ISO New England. Connecticut Program Savings Document. USGBC LEED protocol for building efficiency. State of Georgia protocols.

• Energy STAR Portfolio Manager for building efficiency ratings. Pacific Northwest Regional Technical Forum. Northeast E nergy Efficiency Partnerships (NEEP) EM&V Forum.

• NAESB Wholesale/Retail Electric Quadrant Energy Efficiency M&V Standards (contact NAESB)

• Northwest Regional Technical Forum (RTF) Operative Guidelines

• PJM Manual 18B: Energy Efficiency Measurement & Verifi cation

• California Evaluation Protocols

• Other well established protocols not listed here

Commenters recommended that EPA adopt a weight of evidence approach for calculating energy savings because this approach avoids many of the implementation issues and j urisdictional problems associated with traditional EM&V. This approach is referenced in EPA's publication, "Roadmap for Incorporating Energy Efficiency/Renewable Energy Policies and Programs into State and Tribal Implementation Plans, Appendix H: Weight of Evidence Pathway " and has been employed in attainment demonstrations for ozone, PM2.5, and Regional Haze.

Commenters encouraged EPA to set national EM&V standards for energy efficiency to ensure accurate, unbiased, and consistent emission reduction estimates for rate

- based programs. Commenters asked EPA to take the following actions and also provided the following additional recommendations in the appendix of their comments:

• Promulgate detailed guidance establishing an EM&V framework (including defi nitions, evaluation methods and key assumptions, roles and responsibilities, peer review requirements, and transparency and reporting requirements) that

- if used by states to estimate savings from361 demand side energy efficiency measures

- allows resulting savings estimates to be used to demonstrate compliance with a state plan or to modify an emissions rate. Create standards and requirements for state reporting of EM&V plans, EM&V actions, savings estimates, and program details that allow easy comparison of savings estimates across program administrators and states.

• Encourage regional collaboration on EM&V, so that more states use similar analytic methods, assumptions, and data sources, and states can share the burden of developing resource

- intensive inputs . Encourage states to subject savings estimates to peer review. Commit to conducting a thorough review of state EM&V plans, ensuring they comport with EM&V Guidance, and on to ensuring that states follow EM&V plans to estimate savings.

• Require states to c ertify savings estimates in an open and transparent regulatory (adjudicated if requested by parties) process.

• Consider supporting the development of a national energy efficiency registry (23325, 22732).

Commenters stated that EM&V for demand side measure s should be handled differently, because these measures shift load to a different time of day.

Commenters advocated that national uniformity in EM&V is not needed for energy efficiency. Commenters stated that practices should be normalized where possible, and each state or region should develop EM& V protocols for measures that follow best known and acceptable practices for their region. Commenters stated that otherwise, the rule could create barriers to the use of energy efficiency and advanced EM&V for t hose states and regions such as the Northwest, California, or the Regional Greenhouse Gas Initiative (RGGI) states, where energy efficiency practices are more mature. For other states, commenters recommended that EPA should provide technical assistance in program development and begin developing develop best practices guidance for EM&V to assist states going forward.

Commencers urged EPA to encourage energy efficiency because of the substantial opportunity for emission reductions, and that reasonable and f lexible EM&V requirements are critical
to encourage efficiency. Commenters stated that EM&V for energy efficiency and renewable energy should be left to the discretion of the states to account for the unique circumstances in each state. Commenters stated t hat the goals were based on existing state EM&V programs, so compliance should be consistent with these same methods. Commenters suggested that EPA should provide guidance and assistance on how to develop EM&V plans but should not impose specific provision s that contain costly and onerous monitoring and verification requirements. If EPA does not allow states to set their own protocols, then commenters stated that streamlined EM&V protocols should be developed for certain programs including CHP and weatheriz ation of low

- income homes, and efficiency upgrades by water and wastewater utilities. Commenters particularly stressed that CHP should not require rigorous EM&V for each project. Commenters stated that state discretion was particularly important because th e cost impacts will be higher for362 small utilities and their customers, while the benefits will likely be lower. Commenters asked EPA to publish a set of deemed savings values, which would require less rigorous EM&V standards. Commenters stated that simplif ied EM&V protocols need to be developed for any programs for which a formal EM&V program does not exist currently. Commenters advocated to not allow each state to establish their EM&V protocols because states use vastly different methods, resulting in sign ificant differences among states and utilities.

Commenters stated that uncertainty over EM&V protocols makes it difficult for states to rely on EE programs to meet section 111(d) requirements. Commenters expressed concern about how end

- use efficiency savin gs will be quantified and noted that EPA's proposal acknowledges there are substantial differences in how states quantify results from end

- use efficiency programs, but provided no guidance on how states will be required to quantify end

- use efficiency savin gs. Commenters stated that although the EPA stated that they intent to work with states to develop appropriate EM&V protocols, the lack of EM&V protocols makes it difficult for states to determine how much they can rely on end

- use efficiency programs to me et the rule's emission rate requirements.

Commenters restated EPA's proposal for rate

- based targets or mass

- based performance targets and credits for energy efficiency under each approach. Commenters requested that EPA provide guidance on evaluation measur ement and verification (EM&V) protocols and requirements, including whether there will be different EM&V requirements for states depending on the type of target they adopt providing a clear compliance pathway by describing state plan approaches, efficiency measures, and EM&V protocols suitable for each approach; whether any trading of efficiency credits will be permitted between states that adopt different types of targets as, absent oversight, trading between such states could result in double

- counting of emissions reductions; and, prohibit trading of energy efficiency credits between states with mass

- and rate

- based targets unless state regulators can demonstrate that there are adequate safeguards to prevent double

- counting of emissions reductions.

Comme nt 2: Comments that the selection of EM&V protocols for energy efficiency should be left to the States.
Response 2: The EPA’s proposed approach gives states the flexibility to develop their own EM&V protocols. While the agency does not plan to interfere w ith existing state EM&V approaches that are working well, state EM&V plans under the state measures approach, and ERC program specifications under a rate

- based emission trading approach, will be subject to EPA approval to ensure EM&V is rigorous, complete, credible, and consistent with the criteria provided in the preamble and EM&V guidance document.

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

Commenters stated that selection of EM&V protocols for energy efficiency should be left to the States. Commenters stated that existing protocols developed by States were designed for different purposes than verifying emission reductions and, therefore, might not be the most effective or appropriate protocols for emission reductions. Commenters stated for example, many363 of the existing protocols were developed to ensure that cost recovery for energy efficiency programs by for

- profit utilities is justified. Commenters stated that an NRECA study indicated that only a handful of states req uire cooperatives to conduct EM&V studies or report savings from energy efficiency programs. Commenters stated therefore, it is critical that EPA not mandate existing protocols for use by States and that EPA instead allow States flexibility to use methodol ogies that are most appropriate for their individual circumstances. Commenters stated in the case of statewide programs, that it may be most effective to monitor savings upstream of the consumer

- utility relationship or at a higher level than some methodolo gies used by large IOUs that can require large sample sizes, rigorous statistical analysis, or in

- home visits in some cases. Commenters stated that however, given that the cost of EM&V can be a barrier to adopting energy efficiency programs, the methodolog ies should be as simple as possible to meet specific state needs, and the states should be allowed to decide of the balance between costs and benefits of EM&V protocols.

Comment 3: Comments that EM&V protocols should be developed by either ASTM or DOE.

Response 3: The EPA’s proposed approach gives states flexibility to choose from credible EM&V protocols, as this will not restrict states that already have established programs. However, the EPA specifies EM&V provisions in the preamble to the proposed Fed eral Plan, and is providing EM&V guidance to help states to determine EM&V procedures, methods, and parameters that are quantifiable and verifiable, and therefore more likely to be approvable

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

Commenters advocated development of standardized national protocols for EMEV for renewable and energy efficiency, and suggested that the protocols should be developed by either ASTM or DOE.

Comment 4: Comments that EPA should develop the EM&V protocols.
Response 4: The EPA’s proposed approach gives states flexibility to choose from credible EM&V protocols, as this will not restrict states that already have established programs. However, the EPA specifies EM&V provisions in the preamble to the Federal Plan, and provides EM&V guidance to help states to determine EM&V procedures, methods, and parameters that are quantifiable and verifiable, and therefore more likely to be approved. Requiring a specific, national EM&V protocol may be too large of barrier to some states that are considering EE programs or have different EM&V requirements than a potential national protocol. EE and RE programs must report savings in gross MWh where possible, and third party verification of energy savings is requir ed.

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

Commenters stated that EPA should develop EM&V protocols for energy efficiency. Commenters asked EPA to create detailed requirements for EM&V for energy efficiency that364 inc lude a net savings approach, third

- party verification of energy savings, and a formal state process to provide transparency and allow for stakeholder input. Commenters stated that most states currently have inadequate EM&V for energy efficiency and allowi ng those procedures to remain in place will result in non

- uniform treatment across states. Commenters stated that approving the use of current EM&V protocols will stall adoption of innovative new practices that are underway in the energy efficiency industr y.

Comment 5: Comments that uniform EPA guidance on acceptable EM&V protocols is
unnecessary.
Response 5: The EPA’s proposed approach gives states flexibility to choose from credible EM&V protocols, as this will not restrict states that already have established programs. However, the EPA specifies EM&V provisions in section IV.D.8 of the preamble to the proposed Federal Plan, and provides EM&V guidance to help states to determine EM&V procedures, methods, and parameters that are quantifiable and verif iable, and therefore more likely to be approvable. Regarding limiting crediting to well

- established programs, the EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the cr iteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. Regarding the acceptance of current state EM &V programs, the EPA’s proposed approach in the Federal Plan leverages existing state oversight, approval, and certification processes as long as they meet the rule text requirements.

The EPA’s approach does not distinguish between energy efficiency techno logies. Renewable energy and demand

- side EE and other non

- BSER measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility require ments for resources used to adjust a CO 2 emission rate, described in Section VIII.K.1.a.(2) of the preamble. The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects, if applicable, and the req uirements and criteria related to proper quantification and verification of MWhs from demand

- si de EE savings are described in s ection VIII.K.3 of the preamble.

The EPA’s approach allows for building codes and appliance standards to be counted towards EE sa vings. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the final rule. This guidance will include specific guidance on building codes and appliance standards, including recommended methodologies and p rotocols to use. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

Electricity T&D measures that improve the efficiency of the T&D s ystem and/or reduce electricity use may be used to adjust a CO 2 emission rate. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the final rule. All365 EE/RE used to adjust an emissions rate must address t he criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

The following are summaries of the specific public comments under this comment:
Commenters opposed creation of a single guidance manual fo r EM&V for all states for demand

side energy efficiency. Commenters stated that additional guidance for utilities is unnecessary because EM&V vendors already use nationally accepted protocols to evaluate efficiency programs. Creating a single EPA protocol would be unworkable because it would require frequent updating to stay current. Commenters also stated that adding another layer of EM&V requirements would hinder development of new programs by utilities due to the additional complexity and cost. Commenters also objected to the concept of limiting credit to well

established energy efficiency programs, because it would hinder development of new and innovative programs.

Commenters advocated that no federal EM&V requirements are needed for any energy efficiency program that is subject to PUC oversight, because these programs already are subject to rigorous evaluation and a transparent review process. Commenters said that additional EM&V would impost unnecessary burden and costs. Commenters stated EPA i nstead should accept current state EM&V programs and not require third

- part evaluation. Commenters stated that if a state requires third

- part evaluation, then no additional recordkeeping or reporting should be required for 111(d).

Commenters supported an a pproach that allows for three different nationally standardized EM&V procedures for well

- established, moderately well

- established, and less well

- established energy efficiency technologies. Commenters expressed concerns relative to new emerging technologies , which may be central to maintaining 1.0% or 1.5% of sales targets, and which may not be given a chance to develop and succeed if EM&V is too strict.

Commenters stated that the EPA should consider including codes and standards as a compliance option for meeting goals under Building Block 4. Commenters recommended that EPA consider developing guidance surrounding EM&V and limitations or requirements for including codes and standards as a compliance option in state compliance plans.

Commenters stated that EPA must further develop a framework for EM&V protocols that balance cost with credible quantification of EE, as this is necessary for ensuring such measures are reliable and enforceable.

Comment 6 : Comments that EPA is too late in providing the needed g uidance for EM&V.

Response 6: Thank you for this perspective. The EPA is issuing draft EM&V guidance with the final emissions guidelines, and intends to finalize that guidance as quickly as possible. SectionIV.D.8 of the preamble to the proposed Federal Pl an discusses the final EM&V provisions.

The following are summaries of the specific public comments under this comment:366 Commenters stated that EPA is delinquent in providing EM&V guidance. Commenters stated that this guidance should have been developed an d made available for comment during the public comment period. Commenters maintained that not only does ill

- timed guidance inhibit the states' ability to provide meaningful comments on feasibility of EPA's goals, but ultimately it could jeopardize the abil ity of states to prepare plans that meet EPA's requirements.

Comment 7: Comments on a recommended approach for EM&V that builds on state and regional programs currently in place.

Response 7: Thank you for your detailed recommendations for an EE EM&V framework. The EPA’s proposed approach requires states in the state measures approach, and EE and RE providers under the rate

- based emission trading approach, to address the following key considerations in their EM&V plans:

• How significant changes in indep endent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be analyzed.

• How the initial installation of EE will be verified for EE program categories that involve the direct installatio n of measures.

• How avoided T&D systems losses can be included in EE savings values.

• How the duration of EE program or project electricity savings will be determined using annual verification assessments, industry

- standard persistence studies, deemed estima tes of effective useful life (EUL), or a combination of all three.

• How the rigor of MWh savings values will be determined, and the methods used to control the types of bias or error relevant inherent to the applied EM&V techniques.

• How double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure.

Regarding state pathways for EM&V of specific EE measures, the EPA’s proposed approac h gives states the flexibility to choose from a deemed savings pathway, a PUC pathway, and a tailored M&V pathway as long as they meet EPA’s minimum requirements for EM&V. The EPA disagrees with the commenter that EE credit should only be given in the stat e which said credit occurs. The EPA is finalizing that states can participate in multi

- state plans (see section VIII.C.5).

The following are summaries of the specific public comments under this comment:367 Commenters suggested that EPA develop a framework for EM&V for energy efficiency that is environmentally rigorous, cost

- effective, and practical to implement, while also recognizing and building on the considerable progress by state and regional entities. Commenters enclosed a 29

- page document describing one potential approach to such a framework. Much of the attached framework contained general administrative and procedural requirements for a section 111(d) SIP but contained a few specific recommendations as listed below:

To receive credit for an energy effi ciency measure, commenters stated that a company must make two annual filings for approval with the State agency

- a prospective compliance plan and a compliance demonstration. Commenters stated the recommended content of each filing is outlined below:

Ene rgy Efficiency M&V Compliance Plan (filed prospectively)

• An overview of the approach to achieving avoided emissions through energy efficiency programs or measures;

• Description of specific measures and programs that are expected to be implemented, and a p rojection of the quantity to be installed;

• If applicable, an identification of the energy efficiency services company(ies) that will carry out EE installations, or a description of the process by which the company will select EE vendors

• Expected energy s avings to result from EE installations;

• Adjustment of EE savings based on the M&V approach used and the state's assigned discount factors; and

• Complete EE M&V plan consistent with the M&V requirements of the state plan, including specific approach(es) ta ken.

Energy Efficiency M&V Compliance Demonstration (filed retrospectively)

• A report comprehensively documenting savings based on implementation of the approved M&V plan;

• Description of any modifications to program implementation (i.e.,
measures or prog rams installed, numbers of installations, etc.) relative to that specified in the compliance plan;

• If applicable, a description of variations between expected and realized savings on a program

- by

- program basis

• If applicable, identification of the energy efficiency services company(ies) that carried out installations, and any differences between expected and actual energy service companies used368 • Adjustment of actual EE savings based on the M&V approach used and the state's approved adjustment factors

Commenters stated that the energy efficiency credits awarded must be adjusted to account for uncertainty in the EM&V approach. Commenters recommended that the uncertainty measure could be statistical or not but with way should be based on the following cri teria:

• The amount of time and number of programs across states for which the M&V approach has been used;

• Historical evaluations of the statistical certainty around savings estimates generated using the M&V approach;

• The degree of consistency in results g enerated using the M&V method in question;

• Whether the program whose savings are being measured generally involves the same or similar measures installed in each location, or site

specific determinations of a variety of end

- use efficiency measures;

• The d egree to which the M&V approach involves or has involved site

specific measurement of key parameters, as opposed to relying only on engineering estimates;

• Assessments by state, regional or national agencies, collaboratives and/or organizations about the d egree of certainty associated with savings measured using the approach;

• Whether the M&V approach is subject to regulation by a public utilities commission or similar entity that evaluates measured energy savings for the purpose of establishing rates or ot herwise compensating a regulated utility.

• If a state plan does not provide an adjustment factor for uncertainty, or does not provide a reasoned basis for such a factor, EPA should consider applying a default adjustment factor based on the average degree o f uncertainty observed in similar EE programs in other states.

Commenters advocated that the energy efficiency credits should have an initial sunset of 5 years (to account for uncertainty in the estimated emissions results), which can be extended if the S IP has a provision for evaluating the persistence of a savings measure. Commenters stated that the baseline for energy efficiency credits should vary depending on the type of measure but the SIP should be explicit regarding the choice of baseline for vario us measures.
Commenters acknowledged that it is not possible at this time to specify a single set of EM&V approaches because the approaches are evolving rapidly and need to vary to reflect variation across regions in power systems, customer characteristic, electric loads, weather, and other369 factors. Commenters supported any one of three broad pathways for EM&V of energy efficiency

measures:

• Deemed Savings Pathway: Commenters stated that the Deemed Savings pathway should require sources or third party provi ders to measure and verify the program installations, but would rely on deemed savings values or calculation methods for quantifying program savings for compliance demonstrations. Commenters specified some additional conditions for deemed saving programs.

• PUC

- Based Pathway: Commenters stated that the PUC

- Based Pathway states would accept savings demonstrated through mandated M&V filings with the state's public utility commission for the purpose of approving rate recovery or otherwise compensating the regula ted utility, with appropriate adjustments to address any residual uncertainty. Commenters stated entities would be required to measure and verify energy efficiency measure/program installations and would rely on PUC

- approved savings values as the basis for estimating program savings for compliance demonstrations. Commenters specified some additional conditions in the commenter's framework document.

• Tailored M&V Pathway: Commenters stated that the Tailored M&V approach, compliance entities or energy efficien cy providers would be required to establish and implement a comprehensive M&V plan that is representative of national best

- practices or other approaches appropriately adjusted to address residual uncertainty, that meet EPA

prescribed minimum standards, and that is subject to the review and approval of the state agency implementing the Carbon Pollution Standards. Commenters specified some additional conditions in the commenter's framework document, including specification that the EM&V standard used by the P UC must have been used for at least 10 years and state must apply the protocols developed under the DOE Uniform Methods Project (UMP) for measurement of energy efficiency savings. Commenters provided in the framework document an alternative set of specific ations to the UMP requirement.

Commenters stated that EPA as part of plan approval should require commitment of sufficient resources to ensure reliable administration and oversight of EM&V.

Commenters stated that a state should not be able to take credit for emissions avoided through energy efficiency measures undertaken in other states, but only for EE measures and programs undertaken within that state.

Commenters stated this process takes into consideration demand

- side EE throughout the Tennessee Valley . Commenters stated that TVA has its own methodology for designing, evaluating and valuing EE programs and these programs, to some extent, will need to compete as a resource in TVA's current IRP process. Commenters supported TVA's approach to the370 developme nt of current and future EE programs, but recognized that its approach is unique when compared to how other states have driven EE efforts. Commenters stated some of this uniqueness likely derives from the fact that end

- use customers within the Tennessee Va lley use electricity to cool and heat their homes, differing from many other parts of the U.S. Commenters stated therefore, the types of programs and how these programs are structured may need to be unique. Commenters stated whether TVA's approach and meth odology will be acceptable for use within a state plan and whether TVA's programs will be enough for Tennessee to achieve the reductions required from this building block is not yet clear.

Comment 8: Comments stating that the EPA should allow a wide range of EE measures to be used, including those for which EM&V has not yet been developed.

Response 8: The EPA’s position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criter ia for eligibility discussed in section VIII.K.1.a.(2). of the preamble, and that supporting EM&V is rigorous, complete, and consistent with the criteria provided in the emission guidelines and the state plan.
The following are summaries of the specific pu blic comments under this comment:

Commenters encouraged EPA to allow a wide range of energy efficiency measures, and stated that EPA should find a way to allow measures for which development of acceptable EM&V measures have not yet been developed.

Comment 9: Comments that EPA should provide training on how to incorporate EE into state plans.

Response 9: The EPA is providing a draft EM&V guidance that will detail the types of EM&V approaches that can be considered rigorous, credible, complete, and consisten t with industry

standard practices. Stakeholder comments on this draft are welcome and encouraged.
The following are summaries of the specific public comments under this comment:
Commenters suggested that EPA should provide training on how to incorporate e nergy efficiency into state plans, including the methods for quantifying avoided emissions.

Comment 10: Comments that EM&V data should be publically available and that EM&V practices be subject to third

- party audits.

Response 10: The EPA’s proposed approach requires that all non

- confidential EM&V plans, M&V reports, and savings documentation be made available for public review.
The following are summaries of the specific public comments under this comment:371 Commenters advocated that due to the complex ity of the EM&V process for energy efficiency, all EM&V verification data should be made available to interested stakeholders and that the EM&V practices should be subject to periodic third

- party audits.

Comment 11: Comments that third

- party verification of energy savings should be required.
Response 11: The EPA’s proposed approach requires the use of independent third party verification.

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

Commenters requested that EPA clarify i f the proposal intended that third party verification of energy savings would be required as part of EM&V. Commenters stated that the language and terminology used in the preamble is ambiguous.

Comment 12: Comments that strict EM&V could restrict the use of programs to encourage increased application of ground source heat pumps.

Response 12: Regarding the inclusion of heat pumps, the EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided t hat it meets the criteria for eligibility discussed in section VIII.K.1.a.(2). of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.

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

Commenters supported the use of ground source heat pumps as an energy efficiency measure for homes. Commenters stated that EM&V tools are available now for energy consumption at building sites. Commen ters recommended allowing energy efficiency credit for the use of water source and ground source heat pumps, but stated that protocols to quantify energy savings from ground source heat pumps are not currently available. Commenters r ecommended the adoptio n of EU Commission Decision 2013/114/EU

- L62/2927 and L62/2928 with modifications for use in the United States, and mentioned that ASHRAE currently is developing a protocol for ground source heat pumps that uses meters and other automated data collection to monitor energy savings. Commenters cautioned that imposing strict EM&V requirements could make ground source heat pumps less feasible.

Comment 13: Comments that third

- party verification of energy savings should be required and that some accredited creden tialing organizations already exist.
Response 13: Thank you for pointing out the credentialing and verification resources. The EPA’s proposed EM&V approach requires state plans to include independent third party372 verification for EE programs if the state i s including EE in their plan. This is the case regardless of whether a state is using the state measures or the rate

- based emission trading approach.

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

Commenters advocated that EPA should require any state plan to include provisions for independent, third

- party auditing and verification of energy efficiency programs. Commenters pointed to the instances of fraud that have come to light in the trading of renewable fuel credits in t he Renewable Fuels Program. Commenters stated that there are nationally accredited credentialing organizations such as those involved in the Clean Energy Credentialing Coalition ( http://www.cleanenergy credentials.org/ ) that provide third

- party assessment of energy efficiency professionals and products. Commenters listed five organizations that currently provide verification services.

Comment 14: Comments that EPA should impose no additional EM&V beyond what states require for renewable portfolio standards.

Response 14: The EPA’s approach on RE projects is that any project is potentially allowed, provided it meets the criteria established by EPA, providing a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.
The following are summaries of the specific public comments under this comment:

Commenters stated that any renewable energy that is accepted by a state RPS should qualify for compliance. Commenters stated that the rule should not add additional EM&V beyond whatever the state requires for their RPS.

Comment 15: Comments urging the EPA to allow for use of less well

- established energy efficiency programs to be used.

Response 15: The EPA’s position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility discussed in section VIII.K.l.a.(2). of the preamble, and that supporting EM&V is rigorous, complete and

co nsistent with the criteria provided in the emission guidelines and the state plan.
The following are summaries of the specific public comments under this comment:

In response to EPA's request for comment on whether state plans should be limited to energy efficiency and renewable energy programs that are well

- established, commenters stated that consideration should not be limited to only the well

- established programs, because this will limit innovation in energy efficiency.

Commenters urged EPA to allow for use of less well

- established energy efficiency programs to be used, subject to the following caveats:373 • The amount of credit should be discounted according to the level of uncertainty inherent in the underlying EM&V method.

• States should be capped to a cert ain maximum amount of total credit for programs that are subject to significant discounting of credits per #1 above.

• States using these programs should be actively refining and improving EM&V for these programs to reduce uncertainty and ensure that use of these programs result in real reductions units.

• If EPA allows for the inclusion of less well

- established EE programs, EPA should increase the Building Block 4 target accordingly, considering the uncertain results of such programs.

Commenters supported the use of EPA's second option for providing EM&V guidance, which would allow utilities to take credit for energy savings from mature programs approved by a state process, and provide generalized guidance for relatively new, innovative, or untested energy effi ciency measures.

Comment 16: Comments on the need for EPA guidance on EM&V for EE measures.

Response 16: The EPA has developed a draft EM&V guidance document to assist regulators. This document provides quantification guidelines for various types of RE an d EE programs, and can refer regulators to relevant EM&V protocols. In addition, criteria making up an " EM&V floor " have been established and presented in the preamble and emissions guidelines.
The following are summaries of the specific public comments un der this comment:
Commenters stated that utility energy efficiency protocols for EM&V have already been developed and fully vetted by most public utility commissions but believed that EM&V protocols for emissions reductions attributable to end

- use energy efficiency are not as well developed. Commenters were concerned that many regulators are unfamiliar with EM&V protocols for end

- use energy efficiency and recommended the EPA develop tools to bridge this gap, including estimated emissions values, a scoring system, or other quantification guidelines.

Comment 17: Comments that the Wisconsin Focus on Energy program could help EPA develop EM&V guidance for EE.

Response 17: Thank you for your comments and offer to act as a resource to learn from the Focus on Ene rgy experience. One of the primary objectives for the EPA’s proposed EM&V provisions is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable sta te plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates374 across jurisdictions. The EPA agrees that as long as EE and RE providers meet the minimum EM&V criteria presented in the preamble and emissions guidelines , they will be given flexibility to tailor their EM&V plan to the circumstances of their state. The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eli gibility in the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.

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

Commenters not ed that the " Wisconsin Focus on Energy " program has a well

- established and rigorous approach to determine the avoided emissions from EE measures that could serve as a model for EPA's EM&V requirements. Commenters stated that staff from the "Focus on Energy " program are willing to prepare materials and/or consult with EPA to help develop EM&V requirements. Commenters also requested the EPA allow Wisconsin to use these previously established methods to verify avoided emissions and should also allow other type s of EE programs, including voluntary programs, to qualify for compliance as long as they meet the same, rigorous EM&V procedures.

Comment 18: Comment that the EM&V protocol should allow for multiple EM&V methods because the methods are evolving

. Response 18: The EPA’s proposed approach accommodates the likelihood that industry standards will evolve over time as EM&V methods mature. While the emissions guidelines provide high

- level requirements and principles to be followed regarding EM&V, the draft guidance document can further inform state plans will be periodically updated to reflect changes in industry best practices.
The following are summaries of the specific public comments under this comment:

Commenters stressed that to accommodate building en ergy efficiency, the EM&V protocol needs to allow more than one EM&V approach because EM&V for the building sector is continuing to evolve and needs the flexibility to innovate to develop more accurate, streamlined methods.

Commenters noted that EPA assert s that states, for the most part, already utilize demand

- side EE programs to reduce the amount of generation required from existing EGUs through reduced electricity consumption. Commenters stated that while this may be the case in many states, this does no t adequately reflect how utility EE programs operate within Tennessee. Commenters noted that Tennessee has no demand

- side EE planning requirements or standards and TVA's IRP process does not utilize an " all cost

- effective energy efficiency ." Commenters not ed further that Tennessee currently has no PUC

- defined EM&V or related compliance and reporting requirements. TVA engages in EM&V for its EE programs according to its Tennessee Valley Authority Technical Resources Manual ("TRM"). Commenters stated that EPA acknowledges in the State Plan Considerations TSD that EM&V approaches vary by state based on numerous factors and circumstances, and the fact that TVA determined that no existing EM&V approaches375 met their needs and found it necessary to customize its own EM&V methodology particularly for its service area and demand

- side EE program offerings highlights that there is no " one size fits all " approach to EM&V that is applicable and constructive for all states. Commenters recommended that EPA include TVA's exis ting EM&V methodology as one that would be acceptable under the proposed guidelines. Commenters also requested that EPA acknowledge and allow for evolving EM&V protocols in state plans as EE programs may change or their understanding of how best to value a nd credit them may evolve.

Commenters stated that while system

- wide metrics for these programs are collected by TVA in partnership with LPCs, they are not currently collected on a state

- by

- state basis and within Tennessee are not subject to any state

- level or state

- specific EM&V requirements. Commenters asserted that if Tennessee were to incorporate demand

- side EE into its state compliance plan, it would need to embark upon a process of establishing an EE valuation and crediting infrastructure that applies to all current programs, complete with EM&V standards. Commenters were unclear as to what state entity would be best suited to do this, given that TVA doesn't currently provide this oversight. Commenters further noted that this would need to be done under a compressed timeframe according to the proposed guidelines and would require cooperation among hundreds of LPCs.

Commenters stated they understand that TVA is the first utility in the US to treat EE as a selectable resource in its IRP planning and that t he potential for EE to compete in utility resource planning as a true resource is exciting and the commenters support TVA's approach in this IRP process. However, commenters noted that this is a relatively new approach to EE within the utility space and th e process is ongoing. Commenters stated that it is unclear what the valuation or future growth assigned to EE by TVA will look like at this point, therefore, it is difficult to conceptualize how a state plan may value or credit this EE.

Comment 19: Comments that EM&V for EE measures is an inappropriate burden to place on
states.
Response 19: States have the flexibility to meet their targets using any combination of building blocks. To encourage states to incorporate EE and RE programs into their plan s while still ensuring the credibility of these programs, the EPA’s proposed approach ensures a minimum level of EM&V rigor and quality control. The EPA is doing this by establishing an " EM&V floor " that all EE and RE providers must achieve to ensure credi bility, while still providing states the flexibility to design their own tailored programs

. The following are summaries of the specific public comments under this comment:
Commenters stated that tracking, quantifying and compiling the effect of all of the essential BSER measures for Building Blocks 3 and 4 would be a daunting task. Commenters stated EPA is saddling states with an inappropriate burden.

Commenters believed that enforcement of Building Block 4 would be difficult because measurability and verif iability are difficult to attain and enforcement would be too difficult as376 many of the efficiency measures are outside of the control utilities because they occur at the customer's premises.

Comment 20: Comments on the degree of rigor needed for EM&V for EE programs.
Response 20: The EPA’s proposed approach balances the tradeoff between accuracy and cost by establishing an " EM&V floor " that all states must achieve to ensure a minimum level of credibility, while still providing states the flexibility to de sign their own tailored programs. States will have the flexibility to use model

- based evaluations as long as they conform to industry standards and the EE measure impacts can be adequately quantified and verified.
The following are summaries of the specifi c public comments under this comment:

Commenters urged EPA to carefully consider the tradeoff between accuracy and cost in designing EM&V programs for energy efficiency. Commenters said to not let the perfect be the enemy of the good. For example, commente rs recommended the use of model

- based evaluations for energy savings as is allowed form transportation measures in SIPs.

Comment 21: Comment encouraging behavioral energy efficiency programs because EM&V methods are available using randomized control tria ls.

Response 21: Under the EPA’s approach, behavior change programs are allowed, as long as their impacts can be adequately quantified and verified. The EPA’s approach also no longer incorporates a streamlined review option, therefore behavioral energy ef ficiency will face the same level of scrutiny for approval as other forms of EE and RE.
The following are summaries of the specific public comments under this comment:

Commenters disagreed with EPA that behavioral energy efficiency programs pose verification challenges and advocates for their adoption. Commenters stated that their company operates behavioral energy efficiency programs for utilities in 31 states and successfully use randomized control trials to verify savings for state energy effic iency programs. Commenters recommended that EPA list behavioral programs with randomized control trials as measures that will be subject to streamlined review in an approvable state plan.

Comment 22: Comments suggesting that EPA provide a template for sta te EM&V plans.

Response 22: The EPA is providing a template for an EM&V plan in its draft EM&V guidance document.
The following are summaries of the specific public comments under this comment:377 Commenters asked EPA to provide a template for the EM&V plan t o help states know what needs to be included.

Comment 23: Comment that EPA should require multi

- year EM&V evaluations of the effectiveness of EE measures

. Response 23: The EPA’s proposed EM&V approach requires that program impacts are determined for each year, based on annual verification of activity levels, and at least every three year impact evaluations to update values. The draft EM&V guidance suggests that impact evaluations for larger projects in the EE portfolio should be updated annually. If deemed savings are used, the EPA’s draft guidance recommends the technical reference manual for these approaches be reviewed and updated at least every three years to keep current with market trends and technology innovation.
The following are summaries of the s pecific public comments under this comment:

Commenters stated that the EM&V plan should include a multi

- year evaluation plan for updating the plan and the savings assumptions and reporting back to EPA, similar to the SEE Action Network Impact Evaluation Guide Chapter 8. Commenters stated that an evaluation every 3

- 5 years should be conducted for every efficiency measure that accounts for 5

- 10 percent of the energy savings that a state claims.

Comment 24: Comments about changing EM&V protocols over time.

Response 24: The EPA’s is not approving the use of protocols that can or cannot be used, but offering a set of EM&V criteria in the emissions guidelines and implementing guidance (to be released in draft with the final rule). The approval of EM&V plans res ts with states in the emissions

- standards type state plan. For state measures plans, the EPA will work closely with interested states to ensure that approvable EM&V approaches

– consistent with the emissions guidelines

– are clarified.
The following are s ummaries of the specific public comments under this comment:

Commenters expressed concern that EPA could, at a later date, decide that it no longer agrees with a particular EM&V protocol, and then reject the claimed energy efficiency savings. Commenters st ated that States and utilities need fair advance notice if EPA is going to change approved protocols.

Comment 25: Comments that EPS should set a specific schedule for the EM&V plan process.

Response 25: The EPA’s proposed Federal Plan and draft guidance a ddress the following process steps with EM&V for EE and RE programs:378 • Completion of EM&V plans

• Annual evaluation of MWh impacts

• Minimum tracking requirements to avoid double counting of MWh

• Requirements for third

- party verifiers

• Public disclosure of meth ods and results

• Periodic verification during the plan period to ensure EE measures are still in place and saving energy

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

Commenters stated that EPA should set a schedule for th e following steps:

• State submission of EM&V plan.

• EPA review of the EM&V plan (including steps for re

- submittal and EPA approval).

• Interim reporting to EPA of energy efficiency savings and avoided emissions, and progress toward meeting the 2030 goals.

• Stat e modification of EM&V plans as informed by the interim reporting.

Comment 26: Comment on consistency across states on EM&V reporting for entities that provide EE services in multiple states and for small entities.

Response 26: Regarding inconsistent EM&V across states, the EPA’s proposed approach allows states, and EE and RE providers under the rate

- based emission trading approach, the flexibility to develop their own EM&V plans. While the EPA is proposing to establish minimum EM&V requirements for all EE and RE programs, and states are encouraged to work jointly to promote consistency, the EPA’s proposed approach does not resolve the fact that utilities may face different EM&V requirements applied by their public utility commissions (PUCs), for example. R egarding approved methodologies for states to use in their EM&V plans, the EPA is providing a draft EM&V guidance document that recommends industry standards for various EE and RE projects. With smaller utilities, the EPA’s proposed approach leaves it to t he states on whether and how to include these utilities in their EE and RE programs.
The following are summaries of the specific public comments under this comment:

Commenters asked EPA to provide guidance on the issue of interstate entities that would be subject to duplicative reporting of demand

- side energy efficiency efforts. Specifically,379 commenters asked EPA to provide clarification on how certain interstate scenarios, and other similar situations, would be handled under the different plan types discus sed in the State Plan Considerations TSD. Commenters stated the Agency should allow flexibility on what can be used for measurement and verification (M&V) at the state level.

Commenters stated EPA should provide states with indicative approved methodolog ies to measure and verify energy savings from energy efficiency projects and programs (both single technology measures and whole buildings), and a process for states and industry to submit additional methodologies for consideration and approval. Commenters suggested these should include, but not be limited to: Uniform methods projects standard; International Performance Measurement and Verification Protocol; ASHRAE Guideline 14

- 2002 Measurement of Energy and Demand Savings; DOE's Superior Energy Performance program created an M&V protocol for industry; Technical Reference Manuals ("deemed savings" charts that provide statistical savings value for equipment upgrades); SEE Action Network and regional standards such as those by NEEP and the Northwest's Regional Technical Forum; ISO 50001:2011 Energy management systems; and Demand response measurement and verification, such as The National Action Plan for DR M&V element (see http://emp.lbl.gov/sites/all/files/napdr

- measurement

andverification.pdf .)

Commenters stated EPA should provide guidance for smaller entities that will be required under this rule to implement EM&V protocols for their efficiency programs. Commenters state d that for small utilities (e.g., a small utility could have only a few employees, less than 2,000 customers, and multiple service responsibilities), this could easily become burdensome and costly since they do not have the resources (workforce, funding, e tc.) to accomplish the same caliber of reporting and analysis as larger utilities. Commenters recommended EPA establish a subcategory group of utilities that will have more streamlined requirements for their EM&V reporting. Commenters stated the developmen t of these protocols and methods for measuring and verifying energy savings will take time and the Agency should explicitly allow additional time, if needed, in state plans for states to set up the constructs or modify their existing programs to meet
any a dditional requirements imposed by this rule. Commenters noted this conforms to the timing questions posed in EPA's NODA.

Comment 27: Comments advocating field

- based verification rather than engineering estimates for EM&V.

Response 27: EM&V methods for many traditional EE measures are now well

- established. For energy efficiency measures that are more recent or have higher levels of uncertainty associated with energy savings, the EPA’s proposed approach will still require a minimum set of EM&V criteria to be met. The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility discussed in the preamble, section VIII.K.1.a.(2)., and that supporting EM&V i s rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. The EPA’s proposed approach gives states flexibility over which EM&V standards to draw from, but encourages states to leverage existing industry p rotocols, as this will facilitate the EPA’s ability380 to ensure that EE measure impacts can be adequately quantified and verified. Regarding the discounting of EE savings for less rigorous EM&V approaches, as long as the EM&V approach meets approvability cri teria, energy reductions will be fully credited.
The following are summaries of the specific public comments under this comment:

Commenters recommended the EPA establish detailed protocols and guidance for evaluation, monitoring, and verification of effici ency programs favor field

- based savings estimates over engineering estimates, and should encourage evaluators to take advantage of state

- of

- the

- art approaches to program evaluation. Commenters also recommended states be credited for energy

efficiency savi ngs based on the rigor of the methodology used to measure the savings. Commenters stated that randomized controlled trials (RCTs) are the most rigorous design, followed by quasi

- experimental methods, non

- experimental methods, and engineering studies. Comme nters recommended the EPA discount estimated savings from non

- RCT based evaluations and argued that only savings estimates from high

- quality, well

- executed RCTs would be credited at 100 percent. Commenters said that savings estimates based on engineering

e stimates or using field data and less rigorous evaluation techniques should be credited at some fraction (i.e., less than 100 percent) of the predicted savings with exact discount based on the ratio of actual savings to predicted savings in previous studie s. As an example, commenters explained that if an engineering study predicted 450 kWh savings per year per household from replacing old refrigerators with energy

- efficient models, but then a high

- quality RCT found that this same program actually generated savings of only 135 kWh, then future engineering

- based estimates for refrigerator programs should be credited at 135/450=30 percent. Commenters noted that states that do not like the discount can perform a high

- quality RCT and then be credited with the ful l amount of savings. Commenters suggested the EPA update the discounts over time as more data becomes available from new studies. Commenters noted that using this approach, crediting would become more and more accurate over time.

Comment 28: Comments that costs for many EE measures remain uncertain

. Response 28: For the reasons discussed in section V.B of the preamble, the EPA is not including demand

- side energy efficiency measures as part of the BSER, but are allowing demand

- side energy efficiency as a me ans of compliance with the requirements of this rule. Therefore, each state will be able to make their own determination as to what, if any, demand

- side energy efficiency measure they want to adopt to help EGUs comply with the rule. Simultaneous with the final rule, we are publishing EM&V guidance for states to use in preparing their plans (Evaluation, Measurement and Verification Guidance for Demand

- Side Energy Efficiency

– Draft). In preparing the EM&V guidance, an objective was to avoid excessive interf erence with current EM&V practices that are already robust, transparent and working well so as to encourage the use of cost effective energy efficiency measures to the maximum extent practicable.
The following are summaries of the specific public comments under this comment:

Commenters stated in devising and implementing state plans for compliance, states should keep in mind that the costs of many EE measures remain largely uncertain, particularly in the absence381 of EM&V guidance that defines the universe o f acceptable, quantified measures. Commenters stated as the proposed rule currently stands, there is no reliable cost analysis with respect to potential EE measures. Commenters stated thus, there is simply insufficient data and information in the record to support the cost

- effectiveness of emission reductions from potential EE

measures.

Comment 29: Comments requesting additional guidance about assessing EE programs and EM&V provisions to verify a state's ability to achieve and implement claimed emission

r eductions for purposes of state plan approval.

Response 29: Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the Federal Plan. This guidance will include a state plan template specifying what will need to be included. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters stated in sum, the EPA should provide additional guidance for how it will go about assessi ng EE programs and EM&V provisions to verify a state's ability to achieve and implement claimed emission reductions for purposes of state plan approval. Commenters stated to ensure meaningful consideration of such guidance and its implications for the EPA' s promulgation of section 111(d) emission guidelines, the EPA further must ensure that such guidance is proposed and finalized following public comment prior to issuance of any final rule.

Comment 30: Comments requesting that final rule contain a clear s et of best practices for EM&V of EE programs.
Response 30: Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criter ia established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance

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

Commenters stated EPA must use the final rule to establish a clear s et of best practices to appropriately monitor, measure, evaluate, and verify the contributions of EE programs. Commenters stated that with a number of different programs in the baseline, states will need guidance to count compliance appropriately.

Comment ers suggested improvements to the rule that include clarifying a number of details on how building block #4 will be implemented; in particular, including good but reasonable procedures for evaluating and documenting EE savings.382 Comment 31: Comments encou raging the EPA to provide guidance on SIP implementation for end

- use EE programs.
Response 31: The EPA’s proposed approach requires states in the state measures approach, and EE and RE providers under the rate

- based emission trading approach, to address th e following key considerations in their EM&V plans:

• How significant changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be analyzed.

• How the initial installation of EE will be verified for EE program categories that involve the direct installation of measures.

• How avoided T&D systems losses can be included in EE savings values.

• How the duration of EE program or project electricity savings will be determined using a nnual verification assessments, industry

- standard persistence studies, deemed estimates of effective useful life (EUL), or a combination of all three.

• How the rigor of MWh savings values will be determined, and the methods used to control the types of bias or error relevant inherent to the applied EM&V techniques.

• How double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure.

A dditional implementing EMV guidance will be provided in the draft guidance that will be released with the proposed Federal Plan.

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

Commenters stated that consistent with EPA policy, any state incorporating End

- Use EE Programs into their section 111(d) State Implementation Programs (SIPs) should

• permanently reduce GHG reductions that

• would not otherwise have occurred due to existing regulations or law,

• the emissions reductions must be accurately quantified, and

• the EE program administrators must be held accountable through a transparent enforcement process.383 Without providing prescriptive recommendations or endorsing any particular m ethodology, commenters strongly encouraged EPA to establish guidance on SIP implementation that, at a minimum, include the following elements and/or criteria:

• long

- term sources of identifiable, programmatic funding for EE
programs,

• the adoption of reason able, reliable measurement practices that can determine emissions reductions attributable to the programs, and

• procedures for monitoring, record

- keeping, and administration of penalties for non

- compliance.

Comment 32: Comments requesting guidance on EM&V , and providing some recommendations.
Response 32: Additional implementation EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria est ablished in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters stated rigorous evaluation, measurement and verification (EM&V) for EE savings is a critical issue for state plans that rely on reported savings to demonstrate compliance. Commenters looked forward to EPA's eventual guidance on EM&V. Commenters provided previously a brief review of the recommendations of Analysis Grou p on EM&V in section 111(d) state plans, which were included in a white paper published in March 2014, to assist EPA in preparing such guidance.

Comment 33: Comment stating the importance of an EM&V protocol.
Response 33: The EPA’s proposed approach reco gnizes states will have individual circumstances and provides flexibility when choosing EM&V methods. One of the EPA’s overarching objectives for the proposed EM&V criteria is to avoid excessive interference with EM&V practices that are already robust, tra nsparent and working well at the state level. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.
The following are summari es of the specific public comments under this comment:

Commenters stated at the heart of all successful EE programs is a reliable, enforceable, EM&V protocol. Commenters stated protocols must balance cost with credibility, and no one protocol fits all prog rams. Commenters stated EPA rightfully acknowledged that states have adopted numerous EM&V protocols. Commenters noted many states will wish to maintain their384 jurisdiction in determining and monitoring EM&V protocols. Commenters stated in the same vein, st ates use different methods to determine the costs and benefits of EE programs under their jurisdiction, to ensure they are consistent with state laws and policies. Commenters stated therefore, EPA should not attempt to standardize EM&V protocols across all states. Commenters noted that the likely unintended consequence is that states may avoid the inclusion of this building block in their plans in order to avoid the regulatory upheaval it would create.

Comment 34: Comments recommending that the EPA develo p a broad framework of EM&V protocols to guide states, and require state plans to provide information on the EM&V protocols in their SIPs.
Response 34: Rather than prescribing one EM&V protocol, the EPA’s proposed approach allows EE and RE providers to cho ose from a broad framework of EM&V protocols. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the final rule. All EE/RE used to adjust an emissions rate must address the criteria established in the fi nal emissions guidelines.
The following are summaries of the specific public comments under this comment:

Commenters recommended that EPA develop a broad framework of EM&V protocols to guide states, and require state plans to provide information on the EM& V protocols that will be relied upon by the given state(s) in its SIP. Commenters also recommended that EPA not involve itself in cost benefit assessments for EE programs, as they are also unique to each state and not a necessary element for compliance. Co mmenters stated so long as EPA has confidence that the energy savings are real, each state can assess the cost effectiveness of the programs compared against other options to reach its CO 2 emission target.

Comment 35: Comments stating that the EPA has failed to provide specific EM&V guidance, that the EPA needs to do more than " assert " that flexibility in to a building block.

Response 35: The EPA’s proposed approach provides states with flexibility to tailor their
progr ams to meet the needs of their state, and continue to apply EM&V methodologies that are working well.
However, the EPA specifies an EM&V floor of minimum requirements states must meet to ensure their programs are credible and robust. Additional implementin g EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder in put on the draft guidance.

The following are summaries of the specific public comments under this comment:
Commenters stated EPA failed to establish Evaluation, Measurement and Validation (EM&V) protocols that need to be relied upon by states to develop st ate plans.385 Commenters also commented that the EPA's lack of guidance on how to attribute, measure and verify EE savings creates uncertainty that could lead to substantially underestimating the needed amount and types of EE (leaving the state short of meet ing the needed contributions from EE) or overestimating the needed amounts and types of EE (needlessly increasing the overall costs of compliance). Commenters stated that the " flexibility " built into this particular building block simply exposes the many s ubstantive issues that remain unresolved, and to which the EPA acknowledges it does not have readily available solutions. Commenters added that the EPA must do more than simply " invite comments " or assert that there is "flexibility" by providing meaningful guidance on what will or will not be considered adequate EE measures.

Commenters believed that in the Clean Power Plan proposal, the EPA could have provided additional guidance on the demand

- side EE building block regarding evaluation, measurement, and v erification.

Comment 36: Comments encouraging the EPA to provide states with guidance regarding procedures related to claimed EE savings.
Response 36: Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public com ments under this comment:

Commenters stated the CPP must ensure that a state's claimed EE savings are based on sound, appropriate evaluation procedures. For that reason, commenters encouraged EPA to provide states with guidance regarding such procedures, and to seek input from experienced states in developing such guidance

.

Comment 37: Comment stating that modeling must be allowed to account for EM&V.
Response 37: Regarding the inclusion of modeling methodologies to account for EE, additional implementi ng EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder i nput on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters believed modeling must be allowed to account for EM&V. Commenters stated that two systems they found are useful and would support are REM /RATE and REM/Design. Commenters stated both are designed to calculate various energy design features. Commenters stated REM/Design is a model for homebuilders and remodelers. Commenters stated by entering some simple details about a home the software auto matically configures the most cost effective386 ways to meet the IECC. Commenters stated REM/Rate is specifically designed for Home Energy Rating Systems (HERS) providers. Commenters stated in addition to ensuring code compliance, this model can provide an EE mortgage report, energy appraisal addendum, and a utility bill analysis, among other things.

Comment 38: Comments providing suggestions for specific tools to ensure GHG reductions are measurable and attributable to EE, specifically from insulation.
Resp onse 38: The EPA thanks you for your recommendations on tools that will help ensure greenhouse gas reductions are measurable and attributable to EE. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan, and the EPA welcomes stakeholder input on the draft guidance.
Regarding double counting, the EPA’s approach requires states in the state measures approach, and EE and RE providers under the rate

- based emission trading approach, to s how how double counting will be addressed in their EM&V plans. Specifically, states and EE/RE providers must show how double counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separatel y claim savings from the same EE project or measure.

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

Commenters stated there are a variety of other tools that are or will soon be helpful in ensuring greenhouse gas reductions are measurable and attributable to EE and specifically insulation. Commenters provided a few examples, as follows:

• DOE's Standard Energy Efficiency Data (SEED) Platform is a free and open source software tool that helps administrators of large groups of b uilding manage data on EE performance. SEED software can handle imported data from related tools such as EPA Portfolio Manager, DOE Buildings Performance database and in 20l5 will include DOE's Commercial Building Energy Asset Score and Home Energy Score. The software can help state and local governments implementing regulations and standards keep track of these measures. http://energv.gov/eerc/ buildings/ standard

- energy

- efficiency

- data

- platform

• DOE's Uniform Methods will ultimately create a uniform manne r to measure and assess EM&V in EE. The protocols that will be created will provide a basis for complying with resource standards and will give stakeholders confidence that EE goals are being met. http://encrgy.gov/eere/about

- us/initiatives

- and

- projects/un iform

methods

- project

- determining

- energy

- efficiency

- program

- savings

• The ACEEE has created a tool they call the Local Energy Efficiency Policy Calculator (LEEP

- C) that can be used by policy makers to calculate a variety of items including ways to achieve policy goals such387 as energy savings, pollution reduction, and net jobs. http://www.aceec.org/ portal/local

- policy/calculator

Commenters stated this list is simply a sample of the EM& V tools that are available or are being developed to quantify and standardize EM&V from EE.

Commenters recommended that the EPA appropriately account for voluntary energy efficiency actions by private actors not covered by the rule, so that such actions a re not double counted by reducing any state's obligations under the rule. Commenters also recommended that the EPA not allow double

- counting of efficiency

- based reductions, including between a state using a rate

based and one using a mass

- based approach.

Comment 39: Comments stating that it is analytically challenging to estimate the quantity of GHG emissions reduced or avoided by demand

- side EE projects, and that the EPA should accept state conservation improvement methodologies as they currently exist.
Response 39: The EPA’s proposed overarching EM&V objectives include the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objec tive for the EPA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure cr edibility and certainty in savings estimates across jurisdictions.

After implementation has occurred, EM&V reports are required to document and describe how each of the criteria was applied on an ex

- post basis. These reports also specify the resulting MWh savings or generation values per RE and EE program and project category.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must add ress the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated that TVA is not required to submit annual M&V studies to state utility commissions. Commenters stated it is analytically challenging to estimate the quantity of GHG emissions that may be reduced or avoided by implementing demand

- side EE projects. Commenters stated that to estimate reduced G HG emissions in this context requires complex modeling designed to calculate (i) the change in electricity load for each hour of the day an EE project is expected to operate, and (ii) the marginal emissions reductions associated with the marginal electric generation unit in a region that can be expected to reduce its output in response to the change in electric load. Commenters noted that accomplishing this requires the use of regional electric generation dispatch modeling tools and other sophisticated anal ysis methods that not all entities have at their disposal. Commenters indicated that instead of requiring these burdensome methods, to the extent that states can credibly show that these emissions have been388 avoided, EPA should grant credit for these action s under a state plan. Because TVA is a wholesaler of electricity with over 150 local power companies that distribute TVA power, commenters stated the business model requires collaboration from multiple parties, resulting in a complexity for EE that does no t appear elsewhere.

Commenters stated EPA should broadly and explicitly accept state conservation improvement methodologies as they currently exist. Commenters stated at the heart of EE savings are assumptions about how those savings are quantified. Comme nters stated these assumptions attempt to characterize existing use patterns, which are then applied to energy efficient technologies to determine the appropriate amount of savings. Commenters stated in nearly all cases, the measurement of EE impacts requi res a comparison to a scenario that didn't happen, or that ceases to exist. Commenters stated this is one of the fundamental challenges of EE. Commenters stated attempts to resolve this inherent quantification challenge can take the form of measurement and verification efforts, ex

- post evaluations of EE impacts, or statistical evaluations of the impact. Commenters stated in all cases these evaluations are costly, do not remove the inherent uncertainty of the measurement, and potentially take resources away from activities that provide direct benefit to the end

- use consumer, e.g., incentives for energy efficient equipment. Commenters stated the necessity to look at a change in energy use from a business

as

- usual scenario does not fit will with the Clean Air A ct's continuous compliance assurance requirements. Commenters stated accordingly, EPA should recognize that state programs are adequate and sufficient to meet all of the Clean Air Act provisions.

Comment 40 : Comments stating that if the EPA does not help states understand how GHG emission reductions driven by PC projects can be counted toward CPP compliance, states will tend to focus on other compliance activities and neglect PC opportunities.

Response 40: Regarding the eligibility of performance contract ing projects, additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guideli nes. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:
Commenters pointed out that if states are not clear on the steps needed to include GHG emission reductions from P C projects into their compliance plans and reporting under the CPP, it should be expected that these projects are more likely to be excluded from state planning activities. Commenters noted that the CPP, even as nothing more than a proposed rule, is alread y driving significant activity at the state and local level to re

- examine energy plans, policies and incentives. Commenters said it stands to reason that attention will be most likely focused on those activities that include the benefit increasing a state' s ability to comply with the CPP. If EPA does not help states understand how GHG emission reductions driven by PC projects can be counted toward CPP compliance, commenters said they will tend to focus on other compliance activities and neglect PC opportuni ties. Commenters indicated this could inhibit demand for PC389 projects in many states. Absent an active ESCO market, commenters said large quantities of EE opportunity will remain beyond reach and untouched.

Comment 41 : Comments supporting the findings of a report titled " Greenhouse Gas Reductions through Performance Contracting under EPA’s Clean Power Plan " , in which comments request additional guidance from the EPA on ten key issues.

Response 41: Additional implementing EM& V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input o n the draft guidance.

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

Commenters supported the findings of a report (written by different commenters), titled,

" Greenhouse Gas Reductions through Performance Contracting under EPA's Clean Power Plan

, " in where the commenters stated EPA include additional guidance in its final rule with respect to ten key issues.

Comment 42: Comments suggesting the EPA should consider a variety of options initiated within a state.

Response 42: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigor ous, complete and consistent with the criteria provided in the emission guidelines and the state plan. Additional EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissio ns rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.
Regarding the issue of double counting, EM&V plans must address how double counting will be avoided through the use o f tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure (for example, two EGUs claiming savings from the same lighting retrofit). Other types of double counting must likew ise be considered and avoided.

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

Commenters suggested EPA should consider a variety of options as long as they are initiated within the state (i.e., not federal programs such as federal appliance and equipment standards), have the appropriate EM&V, and avoid double counting savings.390 Comment 4 3 : Comments urging the EPA to clarify that the same approach applies to demand response programs and measures in the Final Rule in this docket.

Response 4 3 : The EPA position is that any demand

- side EE program and project that results in MWh savings is potent ially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated EPA's Proposed Rule proposes that state implementation plans be allowed to include "a wide (or unlimited) set of energy efficiency programs and measure types in state plans, as long as the energy savings are adequately documented accordin g to rigorous evaluation, measurement & verification (EM&V) methods and appropriate state regulatory oversight." Commenters urged EPA to clarify that the same approach applies to demand response programs and measures in the Final Rule in this docket. Comme nters stated as with energy efficiency, this approach will work for demand response because energy savings calculated by rigorous demand response EM&V methodologies subject to regulatory oversight can be used to calculate carbon emissions reductions.

Com ment 4 4 : Comments stating that tested and proven demand response EM&V protocols in use today adequately document energy savings, as well as peak load reduction impacts, and are subject to state regulatory oversight.
Response 4 4 : The EPA position is that an y demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consisten t with the criteria provided in the emission guidelines and the state plan.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include recommended approaches and protocols for various types of EE programs. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated tested and proven demand response EM&V protocols in use today adequately document energy savings, as well as peak load reduction impacts, and are subject to state regulatory oversight; for ex ample, the California Public Utility Commission (CPUC) developed its own demand response EM&V protocols to facilitate integration of demand391 response into the California electricity system. Commenters stated CPUC requires that California utilities submit an nual and monthly reports in compliance with the EM&V protocols which evaluate demand response energy savings and load reduction impacts. Commenters stated significantly, CPUC's EM&V protocols insure accurate measurement of energy savings from demand respon se events by addressing any issues of pre

- cooling and snap back cooling as well as gaming of load impacts. On the other hand, commenters stated the State of Maryland has had success utilizing a third

- party, independent evaluator model to measure and verify the energy impacts of demand response. Commenters stated the independent evaluator in Maryland verifies each utility's report on demand response energy impacts in a two

- step process.

Comment 4 5 : Comments stating that accurate evaluation of the energy im pacts of demand response is critical to maintaining system reliability and grid stability.
Response 4 5 : The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.

Additional implementing EM&V guidance will be prov ided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include recommended approaches and protocols for various types of EE programs. All EE/RE used to adjust an emissions rate must address the criteria establis hed in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated accurate evaluation of the energy impacts of demand response is critical to maintaining system reliability and grid stability. Commenters stated as a result, the FERC tasked the North American Energy Standards Board (NAESB) to promulgate demand response EM&V model standards for use in wholesale and retail electricit y markets. Commenters stated in FERC Order 676

- G, FERC required RTOs and ISOs to incorporate the NAESB developed standards into their demand response evaluation, measurement and verification tariffs. Commenters stated as a result, RTOs and ISOs have develo ped sophisticated demand response EM&V protocols incorporating NAESB standards that are used to pay demand response providers for load reductions and other purposes.

Comment 4 6 : Comments urging the EPA to use the approach used for energy efficiency of allowing states (and multi

- states) to include an unlimited set of demand response measures in their implementation plans.
Response 4 6 : The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, prov ided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan.392 Additional implemen ting EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will include recommended approaches and protocols for various types of EE programs. All EE/RE used to adjust an emissions rate mus t address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated in short, demand response has established EM&V protocols that are even more robust than the EM&V protocols that have been used for energy efficiency. Therefore, commenters urged EPA to use the approach used for energy efficiency of allowing states (and multi

- states) to include an unlim ited set of demand response measures in their implementation plans subject to the energy savings being documented by rigorous EM&V methods and appropriate state regulatory oversight.

Comment 4 7 : Comments suggesting the EPA promote regional collaboration to develop EM&V methods and encourage standardization or consistency of EM&V.

Response 4 7 : The EPA encourages states to collaborate and share EM&V best practices. Regarding the appropriateness of building off existing state efforts on EM&V, the EPA’s proposed EM&V criteria would leverage the industry

- standard practices, protocols, and data

- sets currently utilized by the majority of states currently implementing demand

- side EE and RE programs. The EPA further noted that many state regulatory bodies and other entities already have significant EM&V infrastructure in place and have been applying, refining and enhancing their evaluation and associated quality assurance approaches for over 30 years. The EPA took comment on whether this infrastructure is appro priate to use as the basis for establishing minimum EM&V criteria for use in rate

- based state plans that include RE and demand

- side EE. The majority of commenters addressing this question indicated that existing EM&V infrastructure is appropriate to assure quality, credibility, and integrity. Thus, the final EM&V criteria reflected in section IV.D.8 of the preamble to the proposed Federal Plan herein are intended to be consistent with and leverage prevailing industry

- standard evaluation practices.

The follo wing are summaries of the specific public comments under this comment

. Commenters recommended the EPA encourage regional collaboration on EM&V, so that more states use similar analytic methods, assumptions, and data sources, and states can share the burden of developing resource

- intensive inputs. Commenters suggested states conduct joint research on key savings assumptions parameters where such data is especially needed. Commenters believed that this type of collaboration would be beneficial because it woul d help states to leverage research funds across states and also lead to greater consistency. Commenters also mentioned several examples of collaborative efforts between states, including the NW Regional Technical Forum (covering 4 states in the northwest), the Regional EM&V Forum (covering 9 states in the Northeast/Mid

- Atlantic regions), and the newly formed California Technical Forum (Cal TF), which in part models the NW RTF, and coordinates with the Northwest.393 Commenters submitted comments about whether there are additional incentives that should be included in the Final Rule . ( 22 Proposed Rule at 34,899.) Whether states seek to adopt a regional
or state

- specific approach to their overall compliance obligations under the Final Rule, there are certain inte rmediate steps where coordination across a region can provide significant benefit. One such area is compliance measurement and verification for compliance options such as energy efficiency in particular. Commenters were not suggesting that a single complia nce measurement or enforcement or other protocols should be required in the Final Rule but the Administrator should consider providing appropriate incentives for states to reach such regional agreements even if just in the area of compliance measurement an d verification for specific building blocks so that there is an apples

- to

- apples comparison of reductions to achieve rate

based or mass

- based targets across states. Commenters continued that standardization or consistency of compliance measurement and ver ification and enforcement are prime examples of areas where regional approaches can meet state needs but also provide multi

- state EGUs with a manageable means for compliance, explaining that regional approaches to these elements can also help avoid the pot ential for perverse incentives that could lead to strategic behavior (gaming) regarding compliance and have detrimental market and reliability consequences that may otherwise occur should individual compliance measurement protocols be different in differen t states. Commenters offered the example of two states, one with a stringent, and the other with a lax energy efficiency protocol. The state with the stringent protocol may be forced to rely on greater amounts of gas re

- dispatch relative to the state with the lax protocols. Commenters said this has an obvious market distortion impact and could lead to deployment of energy efficiency resources in a manner which is not necessarily cost

- effective or as beneficial in reducing CO 2 emissions, and moreover, in the absence of a regime where emissions rates/reductions could be exchanged across state lines, changing power flows could result in NERC transmission criteria violations, an undesirable reliability outcome. Commenters said that in the case of a regime where emissions reductions or rates could be exchanged across state lines, EGUs could buy credits from the state with lax protocols thereby finding a compliance loophole which could also change power flows in ways never envisioned resulting in transmission relia bility issues. For this reason, Commenters posited the following potential incentives that should be set forth in the Final Rule which should make clear that EPA itself will undertake a greater degree of deference and light

- handed regulation of compliance measurement and verification protocols against a state that is submitting these on a regional basis. Commenters added that a regional approach to compliance measurement and verification (preferably one that coincides with the dispatch of EGUs across the re gion) can work to avoid entities pressure on other states or unintended reliability outcomes such protocols between states as the entire region, rather than a single state, would also face a risk of non

- compliance, and this degree of self

enforcement in a region is exactly the type of deferential oversight that EPA should adapt as states are challenged to meet the complex requirements.

Comment 48 : Comments stating that the EPA needs to provide clarification on EM&V methods to use for compliance need to provide clarification and the ability to incorporate codes and standards.

Response 48 : The EPA’s approach allows for a mix of different EM&V protocols for different energy efficiency measures. The EPA’s guidance document lays out program

- specific EM&V394 crit eria. The EPA’s approach also allows for emerging EM&V methods to be used. The EPA’s guidance document will also be updated over time to reflect evolving approaches to EE and EM&V, innovation, market changes, and practical experience gained during the comp liance period.
Building codes and standards can be incorporated into state plans; additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan.

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

Commenters requested that the EPA provide clarification on EM&V methods and the ability to incorporate codes and standards in the final guidelines for how to credit CO 2 emissions reductions for compliance. Commenters re quested that the clarification cover unit retirements, fuel switching, new gas

- fired generation, heat rate improvement projects, added renewable generation, and increased energy efficiency.

Commenters requested that the EPA provide clarification that green building codes and standards may be included in state emission reduction plans because they can help increase demand

- side energy efficiency, protect the environment, and catalyze economic growth. Commenters also requested that EPA publish a list of pre

- ap proved measures for state plans that includes green building codes and standards.

Commenters gave an example of a fuel

- switching program in the residential sector where the home switches from electricity to natural gas. Commenters stated if the fuel

- switch ing isn't accompanied by EE measures, like air sealing and insulation, the opportunity to achieve potential savings through the upgrade will be lost, and carbon emitted from the natural gas heater will not be accounted for. The commenters recommended that EPA proved guidance to states to include residential energy savings programs in their implementation plans to encourage best

- practices to ensure all carbon is accounted for when switching to natural gas, propane, or other fuels, from electric energy.

5.3.7 Options: EPA review of EM&V plans as part of the state plan review process

This section addresses comments related to the EPA review and approval of EM&V plans.

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

Comment 1: Comments that EM&V protocols should be left to the discretion of the states.

Response 1: The EPA’s proposed approach establishes an " EM&V floor " that all states must achi eve to ensure a minimum level of credibility. The EM&V floor needs to be sufficiently stringent to serve as the basis for generating EE/RE credits and supporting a functioning trading395 market. As part of these minimum EM&V requirements, EM&V for EE and RE p rojects must be conducted by independent third parties. For states opting for a mass

- based target, EM&V is not required for EE and RE programs. Regarding the frequency of verifications, the EPA’s draft EM&V guidance suggests that program impacts are determ ined for each year based on periodic verification of activity levels, and impact evaluations every three years to update values. The draft guidance also suggests that impact evaluations for larger projects in the EE portfolio can be updated annually. If de emed savings are used, the EPA’s proposed approach recommends the technical reference manual for these approaches be reviewed and updated at least once every three years.

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

Commenters urged that EM&V protocols should be left to the discretion of the states. Commenters recommended that third party verification not be required for energy efficiency programs, because third party programs are cost prohibitive and are unnecessary because the state or affected utility will be required to demonstrate compliance using one of numerous existing mechanisms that reflect best practices in designing energy efficiency programs and their accompanying EM&V protocols. Commenters advocated third party verification for all energy efficiency measures, and (to limit burden on utilities) require verification only every 3 years.

Comment 2: Comments suggesting that the EPA provide a standardized reporting template for
states to use.
Response 2: The EP A’s draft EM&V guidance document is providing a standardized reporting template for states to use.
The following are summaries of the specific public comments under this comment:
Commenters stated that EPA should develop a standardized reporting template for annual reporting of energy efficiency savings to streamline the EPA report review process.

Comment 3: Comments suggesting that EPA offer to review and comment on state EM&V plans prior to submission.
Response 3: The EPA will work closely with states on EM&V plans upon request.
The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should offer to review and comment on state EM&V plans prior to submission to provide greater assurance that the plans wi ll be accepted.

Comment 4: Comments suggesting that the EPA will need sufficient resources to review EM&V plans and the periodic reports of reported savings in a streamlined manner.396 Response 4: As part of a balanced approach to EM&V, the EPA has only proposed EM&V criteria and submittal requirements that the EPA is realistically positioned to review.
The following are summaries of the specific public comments under this comment:

Commenters stated that to effectively implement Building Block #4, EPA wil l need sufficient resources to review EM&V plans in a streamlined manner and to review the reported savings by
states.

Comment 6: Comments suggesting that the EPA allow each state to establish its own protocols.

Response 6: One of the primary objectives f or the EPA’s proposed EM&V criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establishes a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions. The EPA agrees that as long as EE and RE providers meet the minimum criteria presented in the preamble and rule, they will be given flexibility to tailor their EM&V plan to the ci rcumstances of their state.

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

Commenters stated that the EPA should allow each state to establish its own protocols. Commenters believed the rigorous evaluation, measurement, and verification (EM&V) practices established and implemented in partnership with state commissions may need only minor modifications to meet EPA's guidelines. Commenters further recommended the EPA to take a flexible approach to EM&V and allow each state, es pecially those with established EM&V protocols, to tailor a plan that meets the needs of their unique stakeholders with the least disruption to existing policies and procedures. Commenters suggested the EPA rely on the experience of the states to determine whether EM&V protocols are acceptable.

Comment 7: Comments stating that the proposed rule sets forth no firm criteria for evaluating EE programs and EM&V plans, and for determining whether they comport with section 111(d).
Response 7: EM&V criteria are proposed in the preamble to the proposed Federal Plan in section IV.D.8.Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the final rule. All EE/RE used to adjust an emissions rate must address the req uirements established in the final emissions guidelines.

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

Commenters stated under the proposed rule, states would be required to submit an EM&V plan that would " specify the ana lytic methods, assumptions, and data sources that the state will employ during the state plan performance periods to determine the energy savings and energy generation related to [renewable energy] and demand

- side [energy efficiency] measures " and397 that thi s plan would be subject to EPA approval. The EPA states that it " intends to develop guidance for [EM&V] of renewable energy and demand

- side energy efficiency programs and measures incorporated in state plans ." Commenters stated the proposed rule itself, ho wever, sets forth no firm criteria for evaluating EE programs and EM&V plans and for determining whether they comport with section 111(d).

Comment 8: Comment stating that the EPA has not yet provided sufficient support for how it will ensure rigorous ass essment of state EE programs and EM&V plans.

Response 8: EM&V requirements are proposed in the preamble to the Federal Plan. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters stated EPA's State Plan Considerations Technical Support Document ("TSD") provides some discussion of the range of potential EM&V plan types and potential EPA approval criteria. Commenters stated however, EPA has not yet provided sufficient support for how it will ensure rigorous assessment of state EE programs and EM&V plans; for example, EPA takes the position that any EM&V plan must consider the level of certainty in evaluating expected EE savings but also must balance the degree of certainty against inv estments of time and money needed to obtain such certainty. Commenters stated in any final rule, and in approving any state section 111(d) plan, EPA must ensure that claimed EE savings are reliably demonstrated and verified on the basis of consistent metho dology. In other words, the degree of certainty required is not a negotiable commodity; it must exist at a level of rigor and support that allows for its approval.

Comment 9: Comments stating that the EPA should provide guidance identifying specific, consistent approval criteria based on sound technical support to ensure that all EE programs and measures included in a state plan are proven to a required level of certainty.
Response 9: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emissi on guidelines and the state plan. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the fin al emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.398 The following are summaries of the specific public comments under this comment:

Commenters noted the EPA also states, both in the proposed rule and the TSD, that it intend s to allow wide flexibility in selection of EE measures but that measures for which EM&V standards and procedures are not as well developed may require additional documentation. Commenters stated EPA should provide guidance identifying specific, consistent approval criteria based on sound technical support to ensure that all EE programs and measures included in a state plan are proven to a required level of certainty. Commenters stated if the ability to evaluate some types of EE measures is insufficiently e stablished, such measures may not be used as a basis for a state's section 111(d) compliance or approved as part of its state plan. Commenters stated moreover, without specific guidance on EM&V, it is impossible to evaluate EPA's finding that all states ca n reach annual EE levels of 1.5 percent of in

- state sales. Commenters stated at a minimum, EPA will need to evaluate this level of potential savings against robust EM&V guidance before finalizing the rule as proposed.

Comment 10: Comments questioning the planned approach for quantification and verification of emissions reductions from EE.

Response 10: One of the EPA’s overarching EM&V objectives is the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM &V in an approvable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.
The following are summaries of the specific public comments under this comment:

Commenters questioned the planned approach for quantification and verification of emissions reductions from EE, and questioned what the respective roles of EPA and the states are in determining the scope of efficiency measures that may be included for cre dit in a section 111(d) plan or compliance demonstration.

Comment 11: Comments stating that the final rule should clarify details on how building block 4 will be implemented.
Response 11: The EPA position is that any demand

- side EE program and project th at results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emis sion guidelines and the state plan. One of the EPA’s overarching objectives for EM&V is the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA’s criteria is to avoid399 excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V pr actices to ensure credibility and certainty in savings estimates across jurisdictions

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

Commenters stated that an important question facing states is how best to measure and ver ify energy savings if states choose to incorporate EE into their state plans. Commenters stated current methods of efficiency EM&V often lack the rigor necessary to meet existing EPA SIP guidance on enforceability. Commenters stated the final rule should c larify details on how building block 4 will be implemented; in particular, it should include good but reasonable procedures for evaluating and documenting EE savings. Commenters stated the proposed rule attempts to approach building block 4 in several diff erent ways, attempting to provide flexibility. Commenters stated however well

- intentioned, it appears that the EM&V requirements for a one

state

- only plan may not be achievable with the current level of resources available.

Comment 12: Comments stating t hat Section 111(d) should include EE requirements rigorous enough to ensure that reductions in electricity use and the resulting emissions reductions are real and verifiable.

Response 12 The EPA’s overarching EM&V objectives include the importance of strik ing a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.
Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the final rule. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the d raft guidance.

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

Commenters stated Section 111(d) should include EE requirements rigorous enough to ensure that reductions in electricity use and the resulting emissions reductions are real and verifiable. Commenters stated that technology and methodology exists to quantify savings. Commenters stated however, without strong language from the EPA, accurate measurement and verification of these savings across the grid will l ikely not be a reality.

Comment 13: Comments suggesting that each state or region should develop EM&V protocols that follow best known and acceptable practices.400 Response 13: The EPA’s proposed approach recognizes states will have individual circumstance s and provides flexibility when choosing EM&V methods. The EPA’s proposed approach also allows for a mix of different EM&V protocols for different energy efficiency measures. The EPA’s guidance document lays out program

- specific EM&V criteria. The EPA’s
pr oposed approach also allows for emerging EM&V methods to be used. The EPA’s guidance document will also be updated over time to reflect evolving approaches to EE and EM&V, innovation, market changes, and practical experience gained during the compliance pe riod.

The EPA’s overarching EM&V objectives include the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA ’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure credibility and ce rtainty in savings estimates across jurisdictions.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria establis hed in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated there should not be national uniformity in EM& V practices and protocols for purposes of demonstrating EE savings in state compliance plans. Commenters stated practices should be normalized where possible, and each state or region should develop EM&V protocols for measures that follow best known and acceptable pra ctices. For those states and regions such as the Northwest, California, or the Regional Greenhouse Gas Initiative (RGGI) states, where EE practices are more mature, commenters stated EPA should be careful not to create barriers to development of advanced m easurement technologies. Commenters further stated that for those states that have not had substantial practice verifying EE savings, EPA should offer technical assistance in program development. Commenters stated that subsequent to the final Clean Power P lan next year, the EPA should begin a process to develop best practices for EM&V, which those states can use as a tool to develop their own robust EM&V practices and protocols.

Comment 14: Comments supporting the use of flexible protocols for EM&V.

Respo nse 14: The EPA’s overarching EM&V objectives include the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the E PA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.401 Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria es tablished in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters supported the use of flexible protocols for Evaluation, Measurement & Verification (EM&V) and established or EPA

- approved protocols that result in rapid review and approval of state plans. Commenters stated EPA must balance this flexibility with enough detail to offer the states a measure of certainty as states develop their plans. Furthermore, because the EIA is the most likely source of data for many of the requirements of the states, commenters stated the use of time differentiated data should only be a part of the guidelines to the extent that it is readily available from EIA. Commenters stated it is critical that the cost of EM&V in verifying EE savings not outweigh the EE savings achieved.

Comment 15: Comments stating that new EPA EM&V pro tocols will be an impediment to EE programs, states already have EM&V standards for EE programs, and new EM&V requirements would be duplicative and increase the reporting burden unnecessarily.

Response 15: The EPA’s overarching EM&V objectives include the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other. Another objective for the EPA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.

Addi tional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welco mes stakeholder input on the draft guidance.

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

Commenters stated new EPA EM&V protocols will be an impediment to EE programs. Commenters pointed out that States already have EM&V standards for EE programs. Commenters stated that new EM&V requirements would be duplicative and increase the reporting burden unnecessarily. Commenters stated EPA should support the implementation of EE measures by recognizing existing state EM&V protoco ls and providing states flexibility in creating new EM&V standards.402 Comment 16: Comments stating that the EPA should allow a weight

- of

- evidence (WOE) approach for EE verification, and that a traditional EM&V approach would likely be a barrier to capturin g a significant amount of EE beyond jurisdictional utilities.

Response 16: The EPA’s overarching EM&V objectives include the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with proje ct performance evaluation on the other. Another objective for the EPA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state
p lan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.

Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commen ters stated EPA should allow a weight

- of

- evidence (WOE) approach for EE verification. Commenters stated there are two issues that could potentially limit the amount of EE available to meet compliance with the Proposed Rule. Commenters stated the first is enforceability. Commenters stated entities not subject to section 111(d) will likely be resistant to accepting some form of EE requirement even with the understanding it would reduce energy bills. Commenters stated second, and related, EPA has indicated it would follow traditional EM&V, but this approach is largely applied to jurisdictional utilities in Indiana, and it generally is not applied or required for other EE programs (e.g., rural electric cooperatives, municipal electric, large industrial sources) . Commenters stated these sources again would likely be resistant to accepting enforceable EM&V. Commenters stated a traditional EM&V approach would likely be a barrier to capturing a significant amount of EE beyond jurisdictional utilities.

Comment 17 : C omments stating that non

- compliance rates with energy codes are staggeringly high, the EPA needs to issue guidance on EM&V or the savings will not be realized, and urging the EPA to develop a set of best practices for EM&V and to provide assistance to stat es that do not have substantial experience in verifying energy savings.

Response 17: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibility de scribed in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. EE credit for building codes, appliance standards, and market transfo rmations will be allowed under the EPA’s approach. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. Additional implementing EM&V guidance will be provided in the403 draft guidance that will be released with the proposed Federal Plan. The EPA welcomes stakeholder input on this guidance.
The following are summaries of the specific public comments under this comment:

Commenters encouraged EPA to issue clear guidance on EM&V for green building code s. Commenters stated that non

- compliance rates with energy codes are staggeringly high, and EPA needs to issue guidance on EM&V or the savings will not be realized.

Regarding energy efficiency, commenters advocated that EPA should allow credit in a state

c ompliance plan for energy savings from demand response measures, enforcement of building codes, federal and state appliance standards, market transformation, and other programs that are not administered by the regulated utility if a state can demonstrate a robust EM&V protocol. Commenters urged that credit for building codes be allowed, and stated that the Northwest Power and Conservation Council has been studying the impacts of energy efficiency policies, including utility and third party energy efficienc y programs, state building energy codes, and federal appliance standards across their member states, Idaho, Montana, Washington, and Oregon, for more than three decades. Commenters recommended that EPA work with states on savings measurement methodology fo r building codes, and work with the U.S. Department of Energy's Building Energy Codes Program, which is currently developing methodologies to advance building code compliance and savings verification. For energy savings measures that were adopted prior to the section 111(d) guidelines, commenters also stated that EPA should allow credit for the remaining life of the measure. Commenters urged EPA to develop a set of best practices for EM&V and to provide assistance to states that do not have substantial
expe rience in verifying energy savings.

Comment 18: Comments urging the EPA to account for all consequences of energy efficiency

measures.

Response 18: Renewable energy and demand

- side EE and other non

- BSER measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adjust a CO 2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO 2 emission rate, described in Section VIII.K.1.a.(2). of the preamble. The measures must also meet the eligibility requirements and provisi ons related to demand

- side EE programs and projects, if applicable, and the provisions related to proper quantification and verification of MWhs from demand

- side EE savings are described in section IV.D.8 of the preamble to the proposed Federal Plan.

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

Commenters urged EPA to account for all consequences of energy efficiency measures. Commenters pointed out that some energy efficiency measures will encourage more use of natural ga s in homes and should account for the carbon emitted from natural gas combustion and energy loses from lack of air sealing and insulation. Commenters urged EPA is use the Resource Valued Framework by the Home Performance Coalition to evaluate home energy e fficiency404 measures to account for all of the benefits of energy efficiency and, therefore, encourage deeper energy savings opportunities.

Comment 19 : Comment encouraging the EPA to explicitly allow states to use ESPCs to comply with the Clean Power Plan.

Response 19: The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for e ligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the state plan. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters pointed out that, under an ESPC contract, a private ESCO agrees to deliver and install energy

- saving measures and equipment that are paid for with energy bill savings. Commenters said the performance of the energy conservation measures installed, as well a s the energy savings, are contractually guaranteed by the ESCO and are measured and verified (M&V) using internationally recognized protocols such as the International Performance Measurement and Verification Protocol (IPMVP). Commenters stated that this r igorous M&V process ensures that these projects deliver quantifiable and verifiable energy savings, making ESPCs an ideal component of any state implementation plan.

In terms of total impact, commenters stated that ESCO activities in 2012 resulted in
appr oximately the same amount of energy efficiency investment as all utility

- run programs ($6 billion each), according to Bloomberg New Energy Finance's, " Sustainable Energy in America Factbook." Commenters encouraged EPA to explicitly allow states to use ESPCs to comply with the Clean Power Plan

-- not doing so would result in a sizeable, low

- cost source of potential emissions reductions being left on the table.

5.3.8 Options: general quality stan dards for EM&V rigor and accuracy

This section addresses comments regarding the quality standards needed for adequately verifying the credits from energy savings measures.

Commenters have raised a number of issues related to this subsection which are organ ized by topics (comments) below. Responses are also provided for these topics.405 Comment 1: Comments advocating creation of an energy efficiency registry to streamline the reporting and auditing of claimed energy savings and to avoid double counting.

Respon se 1: The EPA’s proposed approach requires an independent entity to maintain and certify an EE and RE registry with project level identification for each credit in order to provide assurance that there is no double counting of either the credits themselves or the projects that make up each credit. Clear and transparent attribution and ownership of each credit is also required, however, project level tracking is not required for building energy codes or product standards programs. The EPA’s draft EM&V guidan ce document provides more details on minimum requirements for an EE registry. The draft guidance document also discusses appropriate evaluator training for conducting EM&V.
The following are summaries of the specific public comments under this comment:

Several commenters supported the creation of an energy efficiency registry as a tool for state compliance with Section 111(d) obligations. Commenters stated that a flexible energy efficiency registry would provide a centralized, transparent vehicle for pr ojecting, estimating, reporting, and auditing savings from energy efficiency measures. Commenters stated that a registry would allow states to demonstrate their compliance in a meaningful way, save costs, reduce burden on states, facilitate trading, ensure no double counting across programs, and would also enable and expand energy efficiency programs across the United States. Commenters stated that EPA should provide guidance on the minimum requirements for an energy efficiency registry.

Commenters provided 6 attachments showing how different aspects of building efficiency could be incorporated into the CPP.

Commenters stated that EPA should promote appropriate evaluator training and experience to ensure qualified professionals to conduct EM&V with required minimum levels of training and expertise.

Comment 2: Comments that current EM&V protocols are not adequate because they do not incorporate randomized control trials or quasi

- experimental methods to account for the behavioral aspects of EE programs.

Respo nse 2: The EPA’s proposed approach sets a medium bar with respect to EM&V stringency and quality control which does not go as far as some of the most comprehensive state programs. This approach is used to encourage states to participate using their existin g or new programs while still ensuring credible energy savings. Although the EPA’s proposed approach does provide states flexibility in their choice of EM&V methodologies, all EE savings must meet quantifiable and verifiable criteria through EM&V that is r igorous, credible, complete, and consistent with industry

- standard practices.
The following are summaries of the specific public comments under this comment:406 Commenters stated that EM&V protocols for energy efficiency are often lacking in the rigor

necessa ry to provide a clean and unbiased estimate of energy savings. Commenters stated all efficiency programs have a behavioral aspect to them that current approaches to evaluation tend not to address very well. Commenters stated that better EM&V methods must b e developed that include randomized control trials or quasi

- experimental methods. Commenters provided a number of published articles about EM&V for energy efficiency.

Comment 3: Comments that the EPA should provide guidance on the appropriate benefit/cost test for EM&V programs.
Response 3: It is the EPA’s understanding that the benefit

- cost tests are applied by state public utility commissions (PUCs) and other oversight bodies to ensure that customer funds used to pay for EE programs are prudently allocated. The EPA believes that this is a state matter and therefore does not address benefit

- cost tests in the requirements for EM&V.

Renewable energy and demand

- side EE and other non

- BSER measures that are tied to a state plan and achieve quantified and verified MWh savings may be used to adju st a CO2 emission rate, provided they meet the general and specific eligibility requirements for resources used to adjust a CO2 emission rate, described in Section VIII. K.1.a.(2) of the preamble. The measures must also meet the eligibility requirements and provisions related to demand

- side EE programs and projects, if applicable, and the provisions related to proper quantification and verification of MWhs from demand

- side EE savings are described in section IV.D.8 of the preamble to the proposed Federal Pla n.
Additional implementing EM&V guidance that includes recommended EM&V protocols to follow will be provided in the draft guidance that will be released with the proposed Federal Plan . All EE/RE used to adjust an emissions rate must address the criteria es tablished in the final emissions guidelines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters stated that the EPA needs to provide guidance for the appropri ate benefit/cost test of EE programs. Commenters noted that typical utility EE programs are cost

- share programs between the participant and the utility, utility rebate covers a portion of the cost to implement a measure. Commenters stated that the Total Re source Cost (TRC) is the general test required by the Kentucky state utility commission. Commenters stated that the rebate amount in that test has no impact on whether a program or measure has more benefit than cost from the utilities perspective. Commente rs noted that the utility can pay $1 or 100 percent of all cost and the TRC Benefit to Cost (B/C) ratio will not change. Commenters noted that the Utility Cost Test (UCT) or Ratepayer Impact Measure (RIM) does include the rebate amount in the B/C calculati on. Commenters noted that over half of the counties that they serve are identified by the U.S. government as persistent poverty counties and nearly 40 percent of all of their customers are at or below the poverty level and simply cannot pay for their share of the costs. Commenters stated that in order for them to achieve 1 percent or a stretch goal of 1.5 percent, they would be required to pay nearly 100 percent of most measured cost. Commenters stated that it would result in most programs failing the UCT o r RIM B/C which would cause commenters to fail to achieve407 the EE savings goals. Commenters stated that the program might pass the TRC, but then EE could be more costly than building generation.

Comment 4: Comments suggesting that unit

- specific evaluation periods should be one year and progress should be reported annually.

Response 4: The EPA agrees with the commenter that evaluation periods should be one year and progress be reported annually, as discussed in Section VIII.K of the preamble. Additional imp lementing EM & V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. This guidance will discuss evaluation periods for stat e plans incorporating both rate

- based and mass

- based goals. The EPA welcomes stakeholder input on the draft guidance.
The following are summaries of the specific public comments under this comment:

Commenters opposed EPA allowing differing unit

- specific evaluation periods for rate

- based and

mass

- based state plans and supports a one year evaluation period for all affected EGUs and states. Commenters argued that accommodating the enforcement periods in existing state programs could undermine the enforceability of the CPP's state goals.

Commenters also stated that allowing some states to apply a three

- year evaluation period to their affected sources, in tandem with the rule's requirement that affected EGUs report hourly CO 2 emissions and net electric output for each evaluation period, would render unworkable the annual comparison of act ual and projected performance under the plan. Commenters argued that the proposed rule did not explore the drawbacks of allowing less frequent comparison checks for some states, despite the significant value in maintaining a uniform approach with annual

co mparisons. Commenters stated the annual comparisons will provide a crucial opportunity for the Agency and public to assess the progress of all states in meeting their goals and staggering some of these checks would complicate ensuring the integrity of the reported results. Requiring a unit

- specific evaluation period of one

- year for all states may require changes to some existing state programs, but commenters supported these changes as necessary to generate a uniform set of performance data for assessing pr ogress. For similar reasons, commenters supported annual reporting and notes that each element of the annual report described in proposed 40 CFR 60.5815 is needed to present an accurate picture of state's progress.

Comment 5 : Comments on the verification accuracy and cost.
Response 5: One of the EPA’s overarching objectives for EM&V is the importance of striking a reasonable balance between EM&V rigor and credibility on the one hand, and the costs associated with project performance evaluation on the other . Another objective for the EPA’s criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an approvable state plan establish practices that ensure cr edibility and certainty in savings estimates across408 jurisdictions. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan.
The following are summaries of the specific public comment s under this comment:

Commenters indicated that states enjoy considerable flexibility in developing section 111(d) state plans and devising strategies for compliance with EPA emission guidelines and thus may rely on any combination of measures to achieve r equired emission reductions. Commenters stated however, while a state may claim emission reductions through demand

- side EE programs or measures, EPA may not approve a state plan unless EE

- related emission reductions claimed are both real and verifiable. Co mmenters stated moreover, states should recognize that the costs of many EE measures remain uncertain.

Commenters stated the approval and implementation of any state plan lacking adequate criteria to ensure that emission reductions are real and verifiable would be contrary to both section 111 and EPA's implementing regulations. Commenters stated under the statute, states are required to submit to EPA " satisfactory " state plan for compliance with performance standards. Commenters indicated a state plan that includes unverified EE measures would not meet this standard. Commenters stated that without rigorous review of EE measures using consistent, clear, and measurable criteria, claimed emission reductions may not occur, or occur in the timeframe predicted. C ommenters stated such a result undermines Congress's statutory intent that state plans be " satisfactory " and that BSER be adequately demonstrated, and would stand in stark contrast to the real, quantifiable emission reductions achievable through increased reliance on clean

- burning natural gas resources.

5.3.9 EM&V Documentation in a 111(d) state implement ation plan

This section addresses comments on the level of documentation needed to incorporate EE as a compliance strategy in state plans and to justify actual energy savings that can be credited for compliance.

Commenters have raised a number of issues re lated to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments on some specific components that should be required for an adequate state plan that incorporates EE as a compliance measure.
Response 1: The EPA’s proposed EM&V approach requires states in the state measures approach, and EE and RE providers under the rate

- based emission trading approach, to address the following key considerations in their EM&V plans:

• How significant changes in independent variable conditions (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates will be analyzed.409 • How the initial installation of EE will be verified for EE program categories that involve the di rect installation of measures.

• How avoided T&D systems losses can be included in EE savings values.

• How the duration of EE program or project electricity savings will be determined using annual verification assessments, industry

- standard persistence studie s, deemed estimates of effective useful life (EUL), or a combination of all three.

• How the rigor of MWh savings values will be determined, and the methods used to control the types of bias or error relevant inherent to the applied EM&V techniques.

• How doub le counting will be avoided through the use of tracking and accounting procedures to ensure that two or more programs do not separately claim savings from the same EE project or measure.

Regarding the stringency of EM&V requirements, the EPA’s approach pro vides flexibility to states when developing their EM&V plans. This flexibility will make it easier for states to incorporate their existing programs into their state plans, and design new programs that can be tailored to the needs of individual states. Add itional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan

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

Commenters stated that EPA should require that s tate plans explain, at a minimum, the following points:

• The baseline against which states claim energy efficiency savings;

• How states are factoring the effects of their program on energy efficiency savings (e.g. how the state represents net versus gross s avings and takes into account market trends on claimed and evaluated savings);

• How frequently the state will project and report savings (e.g. annually, biannually, and with or without true

- ups). States should be required to conduct reporting according to a consistent timeline;

• An evaluation plan that reflects one of the industry best

- practice EMV protocols referenced in U.S. EPA's draft regulations (or a different U.S. EPA

- certified protocol of comparable robustness), including a framework for how the state will prioritize what type of evaluation is most useful and relevant for the types of programs the state includes in its plan;410 • Data collection expectations (e.g. location, measure savings, customer type) during implementation to enable basic evaluation aft er execution;

• How states model and justify claimed energy efficiency savings, including the granularity at which the state is evaluating savings (e.g.
program

- level savings; activity

- level savings, or measure

- level savings).

Commenters stated that EPA's pr oposed requirement for EM&V plans for energy efficiency measures with a rate

- based approach is more stringent than EPA SIP requirements for creditable reductions from energy efficiency measures; and will discourage the use of energy efficiency in the 111(d ) plans. Commenters stated the EPA should have developed the guidance for the EM&V plans in time for the proposal of the emission guidelines so that states could comment on the specific details. Commenters were concerned that the EM&V plan guidance will no t be available until so late in the process that it will result in either a needless waste of state resources or the inability to incorporate the energy efficiency measures due to timeline constraints.

Comment 2: Comments that the EPA should develop an EM &V plan template and recommended criteria or documented energy savings.

Response 2: Regarding the suggested criteria for inclusion in state plans, all of these criteria are a part of the EM&V plan template the EPA is providing in the EM&V guidance document . For a full list of recommended criteria to include in EM&V plans, see the draft EM&V guidance document. With the use of consistent terminology, the EPA’s approach and terminology are informed by sources such as the State Energy Efficiency (SEE) Action Ne twork Program Impact Evaluation Guide. For more details on how the EPA uses particular EM&V terminology, see the glossary section of the draft EM&V guidance document. Regarding standardized reporting templates, the EPA is providing these in the draft EM&V guidance document. Regarding the proposal of a national EE registry, the EPA’s approach provides flexibility to the states on how to design their registries and therefore will not require states to submit to a national registry. To ensure the credibility o f state registries for trading programs, the EPA provides recommended criteria in the draft EM&V guidance document.
The following are summaries of the specific public comments under this comment:

Commenters stated that EPA should develop an EM&V Plan templ ate with specific plan components to guide states on what needs to be in plans. Commenters stated EPA should designate DOE to be the lead agency in developing reporting templates. Commenters stated that Connecticut believes that the following components sh ould be included in state plans:

• Name of organization that will prepare evaluated energy savings reports.

• Relationship of organization preparing the report to the subject energy efficiency program and program administrators.411 • Schedule of when the reports will be prepared and time period they will

cover.

• Name of the state or regional entity that will review and certify the evaluated savings.

• Manner in which evaluated energy savings reports will be made publicly available.

• Multi

- year evaluation plan, with ti ming of evaluation efforts and processes including planning, implementation, reporting, and updating.

Commenters supported EPA's proposed criteria for documentation of energy savings:

• Energy savings documentation should be provided at a level of detail that allows for recalculation of programs energy savings totals; and

• EM&V information in state plans should be provided in a consistent manner across states to allow for comparison, benchmarking, and more efficient review of plans by the public and the EPA

. To achieve these criteria, commenters recommended that, as a minimum, EPA do the following:

• EPA should ensure consistent use of EM&V terminology in its guidance, and refer to the State Energy Efficiency (SEE) Action Network Program Impact Evaluation Gu ide 3 Glossary as a the source of definitions, and direct states to use this Glossary in development of their EM&V plans and reporting their EE savings.

• EPA should create a standardized EE reporting form that reports energy savings at the program level, using existing standardized EE savings reporting templates or platforms (e.g., Regional Energy Efficiency Database (REED), EIA's Form 861 Schedule D, Consortium for Energy Efficiency's Annual Industry Report, LBNL EE reporting database, etc.). In order to support EPA's ability to recalculate claimed energy savings, EPA should consider a reporting construct similar to the Efficiency Power Plant planning tool developed by the Regulatory Assistance Project (RAP).

• EPA should develop a standardized form for stat es to identify the EM&V approaches or methods used to evaluate their programs, building on existing standardized EM&V reporting forms (e.g., the recently developed Standardized EM&V Methods Reporting Forms by NEEP and the on

- line format developed by the Re gional EM&V Forum).

• EPA should consider supporting the development of a national EE registry (e.g., The Climate Registry proposed EE Registry) to support412 state documentation of energy savings, underlying EM&V methods used and level of rigor (e.g., confiden ce/precision level and treatment of systemic error), and associated avoided emissions, using standardized forms. Such a registry could also support the exchange of tradable efficiency credits across states and help avoid double

- counting of energy efficienc y credits.

Commenters stated EPA should explore, via the US DOE State Energy Efficiency Action Network (SEE Action) and/or a professional organization such as the International Energy Program Evaluation Conference (IEPEC), the use of certified evaluators b y states to report energy savings to help ensure that qualified persons with appropriate training and experience were responsible for managing the state's EM&V activities set forth in their EM&V plan in accordance with EPA's requirements and guidance. Comm enters stated that as an alternative (or supplement) to certification, EPA should support EM&V training to help states new to EM&V to identify and retain qualified practitioners.

Comment 3 : Comments that EM&V should be based on actual data on building per formance and real utility bills, and listing some protocols that now exist to directly obtain utility bill data for evaluating residential EE based on whole house performance

. Response 3 : Regarding the development of standards and protocols to evaluate EE programs, the EPA’s proposed approach does not prescribe particular EM&V methods, but instead recommends existing industry standards for certain program types that lead to rigorous and credible EM&V results. As EM&V methodologies for certain EE program typ es mature, the EPA will update its guidance to states and ERC programs accordingly. If deemed savings are used, the EPA’s approach recommends the technical reference manual for these approaches be reviewed and updated at least once every three years.
Regar ding guidance to states and ERC programs, the EPA is providing a draft EM&V guidance document to states and ERC programs that describes the process and technical criteria for meeting the requirements for conducting EM&V of energy impacts (MWh) resulting fr om demand

- side EE and RE generation programs implemented in support of state plans. The EPA’s proposed approach recognizes states will have individual circumstances and provides flexibility when choosing EM&V methods. The EPA’s proposed approach also allow s for a mix of different EM&V protocols for different energy efficiency measures. The EPA’s guidance document lays out program

- specific EM&V criteria. The EPA’s approach also allows for emerging EM&V methods to be used.

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

Commenters stated that section 111(d) requires that plans generate reliable, verifiable and enforceable greenhouse gas reductions. Commenters stated that energy efficiency efforts can meet these requirements, an d in many cases at lower cost than other options. Because energy efficiency programs and policies may vary significantly, commenters suggested that the EPA should invite multiple approaches to achieving quantifiable and reliable reductions, while413 encouragi ng a move away from deemed savings estimates to savings based on actual building performance and real utility bills. Commenters stated that the EPA should work with states to develop clear paths to evaluate and approve 111(d) plans, as well as clear and tr ansparent reporting protocols to determine whether carbon reductions are occurring as planned. Commenters recommended that EPA work with DOE to provide guidance to states/regions/tribes to provide commonsense policies and protocols to allow for data transf er while addressing privacy and security concerns. Commenters stated that this approach would help create a transparent system to calculate and quantify energy savings so that utilities, investors, building owners, and contractors can all be accountable to actual results.

Commenters stated that the EPA should support the integration of national energy efficiency data standards and savings prediction calculation standards into existing and new EM&V protocols and encourage reporting procedures that 1) use st andardized data collection methods and data transfer protocols to aid in aggregating actual energy savings results from energy efficiency activities; 2) use actual utility bill data to provide the ability to compare apples

- to

- apples when estimating improve ments and assessing results, and 3) that simplify the ability to report results to regulatory, legislative and consumer stakeholders in a meaningful way. Commenters stated that examples of such standards specifically for residential energy efficiency inclu de:

• BPI

- 2100: Standard for Home Performance

- Related Data Collection

• BPI

- 2200: Standard for Home Performance

- Related Data Transfer and

• ANSI/BPI

- 2400

- S

- 2012 Standard Practice for Standardized Qualification of Whole

- House Energy Savings Predictions by Calibr ation to Energy Use History (The Delta Standard)

Commenters stated that a large state

- regulated program sponsor recently tested the application of these standards to real whole house program data resulted in the program predictions meeting actual savings a t a rate of 90%. Commenters noted that while these standards have gained consensus they are yet to be incorporated into the state

- level Technical Resource Manuals that guide the implementation of energy efficiency programs by regulated utilities. Commenter s suggested that states need to be encouraged to adopt emerging EM&V approaches that can demonstrate improvements in the quality and accuracy of savings whole house predictions. Commenters stated that a system of accountability can be established by levera ging existing tools, such as the BPI Data Standards and DOE's Standard Energy Efficiency Database (SEED). Commenters stated that a move to real and verifiable savings, with data to support the results, is absolutely critical with the prediction tools avail able to assist states/regions/tribes in planning their initiatives. Commenters noted that also in use for residential purposes, DOE's Home Energy Score provides consistent, low

- cost energy efficiency assessments and carbon savings estimates that can be val idated by actual energy savings, and support installation of energy efficiency measures by home owners, as well as supporting appropriate valuation of energy efficient homes in the real estate market.414 Comment 4 : Comments that suggest to encourage EE, the EPA should publish a list of approvable EM&V protocols for Energy Savings Performance Contracts.

Response 4 : The EPA’s draft EM&V guidance published with the proposed Federal Plan provides links to and information about specific protocols for performance contracts and other EE strategies. The use of protocols is also addressed in Section VIII.K of the preamble.

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

Commenters stated that the EPA can assist states by identifying app rovable approaches for key compliance criteria that will facilitate inclusion of Energy Savings Performance Contract (ESPC) project

- related emission reductions. Commenters stated that the EPA, possibly in consultation with DOE, should identify acceptable E M&V protocols (e.g., IPMVP, FEMP M&V Protocol, etc.) for use on EE projects and create a process for accepting additional protocols and methods.

In regard to auditing, commenters stated that the EPA, possibly in consultation with DOE, should describe mode l approaches for audits to ensure EM&V is properly employed. For project

level audits, commenters stated that the EPA should encourage states to identify types and formats for project data subject to audit to maximize ease and consistency of project audits

. Commenters stated that the EPA should also suggest an appropriate approach for frequency and sample size of audits to ensure a balance of rigor with costs. For program

- level auditing, commenters stated that the EPA should advise states on obligations to audit data collection and aggregation processes.

Comment 5 : Comments suggesting that industrial customers are often unwilling to make their EE investments public because they consider energy usage information to be competitively sensitive information.

Response 5 : The state measures approach allows for a statewide entity to be responsible for the management of EE programs. While states will interact directly with EPA to submit state plans and progress reports, the EPA is providing flexibility for states to decide ho w to best manage their EE programs. Under the rate

- based emission trading approach , individual project providers will be responsible for managing EE/RE projects and programs, and submitting EM&V documentation to state trading programs for verification. For more information regarding the eligibility requirements for demand

- side EE see Section VIII.K.1.a.(3). For more information about rate

- based emission trading approach and the issuance of ERCs for demand

- side EE measures, see Section VIII.2.
The following are summaries of the specific public comments under this comment:

Commenters stated industrial customers are often unwilling to make their energy efficiency investments public, because they consider their energy usage information to be competitive
secrets. Commenters explained that " e Project Builder " (ePB) is a PC project savings calculation and database system that has been commissioned by the US Federal Energy Management Program (FEMP) and has been built and will be hosted and maintained by the415 Lawrence Berkeley National Laboratory (LBNL). Commenters stated that ePB is the successor to an ESCO Project Database of more than 5,000 projects that LBNL built and has hosted for the past 15 years and that ePB is ready for immediate use. Commenters added that se veral leading national EE organizations have been working with The Climate Registry on a plan for a registry to be used for CPP compliance that is described in a white paper available at the following URL: http://www.theclimateregistry.org. Commenters sugg ested that this registry might be developed for use with projects other than PC, such as non

- ratepayer residential EE programs or industrial EE.

5.3.10 CHP/cogeneration

This section provides comments on quantification, monitoring, and verification of CHP and cogeneration programs and measures.

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

Comment 1 : Comments that the EPA should clarify whether or not generation from new or uprated non

- affected CHP units must meet an EM&V requirement, and if so it should be accomplished using revenue

- quality electric meters.

Response 1 : The EM&V requirements for CHP are addressed in the draft guidance doc ument and section IV.D.8 of the preamble to the proposed Federal Plan.

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

Commenters asked EPA to clarify whether or not generation from new or uprated non

- affected CHP units must meet an EM&V requirement, and if so it should be accomplished using revenue

quality electric meters. Commenters also advocated that CO 2 emitted from non

- affected CHP units should not be included in the determination of the emission reductions credited to those units. But if the final rule requires this CO 2 to be accounted for, commenters stated the rule should not require CEMS on these non

- affected units.

Commenters stated that regardless of the amount of credit provided for thermal output, each EGU should be allowed to select the measurement technologies that best suit its needs under the circumstances, and to determine the best QA measures. Commenters stated certain technologies (like ultrasonic flowmeters and coriolis meters) typically are not used for s team measurements due to the high temperature applications and costs, and it would not be appropriate for EPA to attempt to impose their use. Commenters stated that although some manufacturer's may claim that their more complex and costly equipment provide s greater accuracy than the widely used differential pressure type flow meters, those benefits often are not realized when the meters are used in real world plant applications. Commenters stated different types of meters, instruments, and calculation metho ds also provide varying levels of accuracy depending on the steam conditions, which can vary from source to source (e.g., some steam is supplied at conditions that416 are barely superheated or barely at the saturation temperature). Moreover, commenters stated some equipment simply would not benefit from any periodic QA. Commenters stated that for example, thermocouples and resistance temperature detectors either work or fail completely. Commenters added that because removing such sensors for calibration may be difficult, and even dangerous in high pressure processes, there is no benefit to removing them until they fail and have to be replaced.

Commenters also stated that manufacturers' recommendations also are not universally appropriate for ongoing maintenanc e or QA, and are not appropriate for use in rules because they vary from vendor to vendor and can change over time. Moreover, commenters stated the industry cannot comment on the reasonableness of requirements, procedures, or specifications that are not in cluded in the proposed rule. Commenters also stated that ASME Performance Test Codes are not appropriate for ongoing QA because they were designed for performance testing, not long term performance. Although most flow meters probably would meet the ASME me asurement of fluid flow in closed conduits (" MFC ") standards generally, commenters stated they do not believe that EPA has justified imposition of such standards for this rule, and any requirement for their use would have to refer simply to the standard se ries as a whole in order to cover the entire range of flow meter types and conditions at existing plants.

Comment 2 : Comments that the EPA should provide guidance on EM&V for CHP systems.

Response 2 : The EPA’s proposed criteria for EM&V for CHP systems ar e discussed in section IV.D.8 of the preamble to the proposed Federal Plan.

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

Commenters recommended that the EPA provide guidance on evaluation, monitoring and verification (EM &V) programs for CHP systems, but cautioned that such guidance should not preclude use of valid methodologies already in use in some states.

Commenters added that, because states may choose to adopt state

- based or mass

- based approaches to comply with the Clean Power Plan, EPA guidance will be necessary and helpful to states navigating the many options for compliance.

5.3.11 Other

This section addresses any other comments on EM&V for EE programs.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.417 Comment 1: Comments stating that the EPA should acknowledge and support state program competency in energy program design and delivery.
Response 1: One of EPA’s overarching objectives for EM&V criteria is to avoid excessive interference with EM&V practices that are already robust, transparent and working well at the state level. Therefore, the minimum criteria for EM&V in an approvable state plan esta blish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the final rule.
All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidelines. The EPA position is that any demand

- side EE program and project that results in MWh savings is potentially eligible, provided that it meets the criteria for eligibi lity described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and the proposed Federal Plan

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

Commenters stated the EPA should acknowledge and support state program competency in energy program design and delivery. Commenters noted that s tate EE program experience, energy savings goals, and structures have varied based on state circumstances. Commenters stated the EPA should therefore recognize:

• Historical emissions reductions: the EPA should allow states to recognize verifiable past emissions reductions from existing EE programs to the extent that EE program measures co ntinue to provide quantifiable emissions reductions.

• Future emissions reductions: the EPA should allow states to recognize future emissions reductions from verifiable EE programs and activities that were initiated after the promulgation of the final rule. The EPA should allow states to take credit for all new activities, programs and installations utilizing EM&V protocols and approaches as noted in their
comments.

Comment 2: Comments concerning the use of existing conditions as a baseline

. Response 2: Based on public input and assessments of current practice, the EPA has determined that " common practice baselines " (CPB) should be used as the basis for determining savings. A CPB is the system or measure a typical consumer or building owner would have con tinued with or installed at the time of the project implementation, in the absence of a decision to pursue EE. More details regarding the CPB will be provided in the guidance document.

The following are summaries of the specific public comments under this comment:418 Commenters discussed how to account for EE savings. Commenters stated that to encourage simple measurement and ensure that there are not large disparities in reported CO 2 reductions and savings across states, energy savings should be calculated u sing existing conditions as the measurement baseline, rather than a counterfactual condition (one that may be subject to multiple interpretations due to baseline data and its availability). Commenters stated that using existing conditions to measure energy savings appropriately provides more benefit to those areas or technologies where the installed equipment is least efficient. Commenters noted that this is consistent with the CO 2 reduction goals of the Proposed Rule. Commenters stated that in addition, wh ile some states currently expend considerable resources to create counterfactual baselines, others do not. Commenters stated that a form of existing baseline is already used to measure EE savings in several areas including the Northeast EE Partnership, Col orado, Maine, New Jersey, and Michigan. Commenters stated that utilizing existing conditions to establish baselines will provide more consistency in implementation of the Proposed Rule across states.

Comment 3 : Comments suggesting that the rule allow credit for natural gas conservation
programs. Response 3: The EPA recognizes the benefits of EE programs targeting the direct use of natural gas. However, the EPA’s approach only includes EE savings from demand side efficiency programs that target electric ity consumption.
The following are summaries of the specific public comments under this comment:

Commenters stated EPA's proposed regulation does not consider natural gas conservation programs. Commenters noted that many utilities around the country have m ade significant investments in natural gas efficiency. Commenters stated that natural gas efficiency programs are pertinent because methane emissions are also tied to natural gas combustion. Commenters recommended the EPA provide flexibility to modify the energy

- efficiency programs proposed to comply with the Clean Power Plan over time because utilities modify current programs with state energy efficiency regulated cycles to account for changes in the market and available technology.

Comment 4: Comments ur ging the EPA, when developing the final EM&V standards, to encourage the use emerging software technologies that can accurately determine energy savings in real time.

Response 4: Thank you for pointing out the EE savings measurement software. The EPA’s
pr oposed approach allows for energy modeling software to be incorporated in state EM&V plans as long as the software uses methods that are rigorous, credible, and consistent with industry

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

Commenters urged EPA, when developing the final EM&V standards, to encourage the use emerging software technologies that can accurately determine energy savings in real time.419 Commenters were promoting the use of Optix Quantify, a specific software product by their company, Energy Savvy. Commenters stated the software creates a model that estimates energy usage based on an analysis of pre

- project energy usage patterns at premises, and then the model compares actual measu red energy use to modeled energy use to estimate energy savings from the energy efficiency measures. Commenters stated that the advantages of using the Optix model

are:

• Better accuracy of EM&V that many current protocols.

• Speed of EM&V is much faster that after the fact evaluations.

• Transparency of the estimates.

• Consistency across similar users.

• Reduced cost of EM&V.

• Real

- time feedback to the users can help increase actual energy savings achieved by energy efficiency programs by identifying shortfalls imme diately.

• Integrates the measurement of effects across multiple energy efficiency

measures.

Comment 5 : Comments recommending national EM&V standards for home EE programs, and advocating a national registry

.
Response 5 : The EPA has decided not to develop a national EM&V standard and national registry. One of the EPA’s overarching EM&V objectives includes avoiding excessive interference with EM&V practices that are already robust, transparent and working well. Therefore, the minimum criteria for EM&V in an ap provable state plan establish a floor for EM&V practices to ensure credibility and certainty in savings estimates across jurisdictions.
The following are summaries of the specific public comments under this comment:

Commenters recommended national EM&V st andards for home energy efficiency programs, and advocated that a national registry is the most effective way to standardize EM&V methodologies, reduce the burden on states, and encourage participation by the private sector. Commenters encouraged EPA to re view the registry program for energy efficiency recommended by The Climate Registry. Commenters stated that EM&V for energy efficiency measures was too arduous and expensive for programs other than those managed by regulated utilities. Non

- utility provider s would resist the same level of EM&V required of utilities, and it would be difficult to enforce because these entities are not regulated by the PUC.420 Comment 6 : Comments supporting EE measures and stating the EPA should adopt two tiers of EE evaluation, measurement, and verification procedures to enable a wide range of efficiency

measures.

Response 6 : The EPA’s proposed approach does not divide EE measures into tiers. The EPA position is that any demand

- side EE program and project that results in MWh sav ings is potentially eligible, provided that it meets the criteria for eligibility described in section VIII.K.1.a.(2) of the preamble, and that supporting EM&V is rigorous, complete and consistent with the criteria provided in the emission guidelines and t he state plan. Additional implementing EM&V guidance will be provided in the draft guidance that will be released with the proposed Federal Plan. All EE/RE used to adjust an emissions rate must address the criteria established in the final emissions guidel ines. The EPA welcomes stakeholder input on the draft guidance.

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

Commenters supported EE measures and stated EPA should adopt two tiers of EE evaluation, measurement, and verifi cation procedures to enable a wide range of efficiency measures.

Commenters stated EPA should adopt two tiers of energy efficiency EM&V procedures to enable a wide range of efficiency measures. Commenters stated EPA should not adopt a specified list of EE measures; rather adopt a specified standard for EM&V and a correlated level of certainty a state must provide in compliance plans. Commenters supported EPA's proposal to "not limit the types of demand

- side EE measures and programs that ca n be included in a state plan. " To enable this commenters recommended the EPA allow a tiered approach where the rigor of the EM&V is balanced by a range of uncertainty in the estimated impact of the EE program of activity. By adopting a specified list, commenters stated EP A could foreclose the development of innovative EE measures and programs.

Comment 7 : Comments proposing a methodology to model the benefits of ER programs that is designed to capture only energy savings and GHG reductions that are directly induced by reba tes.

Response 7 : For all EM&V submittals addressing demand

- side EE, the applicable metric is electricity savings, which is defined as a reduction in electricity consumption. EE savings must be determined and reported in units of gross MWh, except in cases where gross savings values are not available (e.g., randomized control trials). In these instances, net savings can be reported.

Based on public input and assessments of current practice, the EPA has determined that

" common practice baselines " (CPB) should be used as the basis for determining savings. A CPB is the system or measure a typical consumer or building owner would have continued with or installed at the time of the project implementation, in the absence of a decision to pursue EE.421 EM&V plans must describe the baselines to be used with clear documentation and discussion of the rationale, applicability, and relevant data sources, protocols, and guidance documents used for defining the CPB.

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

Commenters noted that their methodology to model the benefits of ER programs is designed to capture only energy savings and GHG reductions that are directly induced by rebates and to exclude " business as usual " savings that would occur because of normal product turnover in the marketplace. Thus, commenters said " free riders " who would purchase a new product with or without the rebate are not counted. As explained in the appendix to their comments, commenters made this calculation by expa nding the methodology used by DOE in its Uniform Methods Project (UMP) protocol for determining free ridership in rebate

- driven refrigerator recycling programs and taking into account several studies of free ridership in state rebate programs.

Comment 8 : Comments stating that claimed emission reductions should not be counted unless and until verified.

Response 8 : The agency agrees with the commenters and is finalizing that emission reductions must be evaluated, measured, and verified.

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

Commenters stated that claimed emission reductions should not be counted unless and until verified.

5.4 QUANTIFICATION, MONITORING, AND VERI FICATION FOR RENEWAB LE ENERGY PROGRAMS AND MEASURES

T his section addresses comments on methods for quantifying, monitoring, and verifying renewable energy program measures. We have organized the comments in this section under 8 different subsections 5.4.1 to 5.4.8. Responses to the comment topics of these su bsections are discussed below along with summaries to the specific comments.

5.4.1 Renewable portfolio standards: build renewable generating facilities

This section discusses the concerns with installing DG facilities, and also installation of newer technology DG installations.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.422 Comment 1: Comments suggesting that distributed generation (DG) installations are situational and requirements for them should be developed at the local distribution system level rather than being set using a national rule.

Response 1: In section V of the preamble of the final rule the EPA addresses how the rule estab lishes emission guidelines, and the BSER is the central determination that the EPA must make in doing so. After identifying the BSER, the EPA determines the performance levels

– - in this case, the CO 2 emission performance rates.

In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standard s, which we refer to as an " emission standards " state plan type. The second, which we refer to as a

" state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of r egulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Under the emission standards state plan type, one approach is a rate

- based emission standard for affe cted EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacit y, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters agreed that the EPA's projection regarding additional renewable that can be added to the electric system to decrease future utilization of fossil

- fuel generation is more workable,
cost

- efficient, realistic and practical than the al ternative of subtracting from baseline generation raised in the NODA. However, commenters disagreed with the many of the assumptions embodied in EPA's method. Specifically, commenters contended that each utility has a unique situation that must be assessed before determining to what degree renewable energy can be deployed. Commenters contended that DG installations are inherently situational and need to be molded at the local distribution system level. Commenters explained that locally owned and controlled utilities know how to facilitate new, more efficient, and cleaner ways of meeting customer demand. Commenters stated that EPA’s proposal oversteps community

- based initiatives in favor of a brute force modeling approach. Commenters contended that EPA should423 recognize that utilities (and states) are in the best position to optimize the integration of renewable DG and maximize the flow of benefits to all customers and resulting increased costs. Commenters stated that forcing rapid development of renewable gene rating resources will result in a sub

- optimal power cost curve for consumers. Commenters added that many attributes of a DG installation affect the ability of those systems to reduce integration costs or turn them into grid benefits and cost savings, such as location, size, and dispatchability. Commenters then added that to achieve maximum benefit from DG, coordinated deployment is critical. Commenters contended that EPA did not asses how building block 3 could create additional issues and costs for consume rs, or how states can make optimal environmental dispatch decisions that properly reflect cost and power quality concerns.

Comment 2: Comments supporting the use of advance pumped storage hydro as a technology that could provide non

- carbon based reserves

. Response 2: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII. K of the preamble to the final rule. Section K.1.a addresses how emission reduction measures that provide substitute generation f or affected EGUs or avoid the need for generation from affected EGUs are counted in rate

- based state plans.

It specifically clarifies the treatment of energy storage in Section VIII.k.1.a.(5). Energy storage is not directly recognized as an eligible measure that can be used to adjust a CO 2 emission rate, because storage does not directly substitute for electric generation from the grid or avoid electricity use from the grid. The electric generation that is input to an energy storage unit may be used to adjust a CO 2 emission rate, but the output from the energy storage unit may not. However, the final rule acknowledges the value of energy storage as an enabling measure that facilitates greater use of RE, which can be used to adjust a CO 2 emission rate.

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

Commenters stated that as the U.S. shifts to a system dominated by renewable sources, there is an increasing need for strategically located large capacity plants that can provide short term reserve and address unscheduled changes in output (reliability) and control (regulation) frequency and voltage. Commenters supported using advanced pumped storage hydro (ASPSH) as a technology that could provide non

- carbon based reserves because its matur e and tested and can be constructed today. Commenters stated that an executive order was issued to federal agencies directing them to in a collaborative effort that identifies possible locations for pumped storage plants within or adjacent to national park s or similar areas where the federal government has authority to fast track licensing and environmental approvals.

Comment 3: Comments suggesting to c redit utilities when distributed generation is incentivized.
Response 3: EPA did not prescribed specific approaches or RE measures like incentivizing distributed generation (DG). In section VIII.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the statutory424 requirements of CAA sect ion 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. For more information about specific RE measures to adjust the CO 2 emission rate of an affected EGU to reflect RE, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. For EM&V requirements relevant to RE resources, see section VIII.K.3. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, program s or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

Commenters recommended that a utility should not receive c redit simply for having distributed generation interconnected with its system. Commenters contended that it is essential that the utility have offered some kind of incentive. Commenters stated that extensive experience in states has shown that distributed solar is most likely to be installed where net metering is available, and that special fees on net metering customers or failure to roll credits over from month to month stifle DG development. Commenters added that feed

- in or value of solar tariffs that ar e less than the retail rate, or that fail to offer sufficient long

- term price guarantees do not incentivize DG. Commenters concluded that DG installed under these circumstances should not be credited to the utility. Commenters noted that a new model being proposed in some states is for the utility to directly own and install distributed generation at its customers’ locations. Commenters stated that since the utility owns the system, it would clearly be able to use that systems output for compliance purposes . Commenters also noted the high upfront capital costs associated with distributed generation lend themselves to investment by third parties, including compliance entities. Commenters supported offering rebates for a substantial portion of the installation cost of a rooftop solar system should be an approved compliance measure, especially for EGUs that are not part of a vertically integrated utility.

Comment 4: Requiring reliable quantification and verification of distributed generation without requiring revenue

- grade metering

. Response 4: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count an d when such actions count generally in section VIII.K.1.for RE resources used to adjust a CO 2 rate.
Evaluation, measurement, and verification (EM&V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s final emission gu idelines require that all RE providers demonstrate that they will quantify and verify MWh using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Rule in section IV.D.8. States may also submit other425 means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the presumptively a pprovable approach.

States may leverage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of RECs. Many existing REC tracking systems already include well

- established safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in relation to the final emission guidelines. With respect to actual monitoring requirements, many existing REC reg istries include provisions for the monitoring of MWh of generation that would be appropriate to meet state plan requirements pursuant to the final rule, such as requirements to use a revenue quality meter.

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

Commenters urged EPA to include in the final rule specific requirements for reliably quantifying and verifying distributed generation without a requirement for revenue

- grade metering. Commenters explained that unlike utility s cale generation, or larger distributed generation systems installed based on PURPA or feed

- in tariffs, distributed generation units do not typically have revenue

- grade metering but rely on inverter readings of generation instead. Commenters added that in m any cases it would be prohibitively expensive to retrofit installed DG systems with revenue

- grade metering, or require those meters on all future installed systems, given their small size. Commenters added that not all REC tracking systems permit distribut ed generation systems that lack revenue

- grade metering to register as REC generators. Commenters supported allowing a utility to use those RECs towards compliance if a DG system meets the requirements to register its RECs, and those requirements meet EPAs standards for data quality. Commenters suggested that alternative measurement and verification for DG systems should be used only where revenue grade metering is absent or RECs cannot otherwise be registered.

Commenters noted that capacity

- based estimates can provide a solid basis for quantifying DG system output, but noted that these estimates should take into account the size, orientation and vintage of the system, as newer systems are slightly more efficient. Commenters stated that if EPA allows the use of capacity

- based estimates, it must require rigorous verification of those estimates with spot metering at a statistically

- valid sampling of sites. Commenters added that EPA should also state whether the utility or other entity seeking credit for DG can validate capacity

- based estimates using sophisticated software resources that report to owners and utility whether they are getting the expected generation from their systems or whether the system is experiencing a malfunction or needs maintenance. Comment ers also stated that EPA should offer guidance on these and other methods for verifying capacity

- based estimates of distributed generation, but must impose some kind of additional validation measures. Commenters concluded that when the generation of a dist ributed system is considered, the utility or other entity claiming credit should account for the fact that DG avoids line losses due to its proximity to load, and this should be factored in when determining the effective generation levels of these systems.426 5.4.2 Renewable portfolio standards: bilateral contract model

This section discusses long

- term contracting and renewable energy power purchase agreements.

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

Comment 1: Comments supporting long

- term contracting by utilities.

Response 1: EPA did not prescribed specific approaches like long

- term contracting by utilities for RE. In section VIII.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the statutory require ments of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

The EPA addresses considerations f or incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1. and
more spec ifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

Commenters encouraged EPA to support long

- term contracting by utilities. Commenters stated that long

- term power purchase agreements (PPAs), generally for 10 to 30 years, can help create market security sought by project developers and their financiers. Commenters stated that renewable portfolio standard implementation experience shows tha t programs have been the most successful when developers have been able to secure long

- term contracts with credit

worthy counter

- parties. Commenters stated that long

- term contracting provides a major step in financial certainty and once that is in place, t he next areas of risk then shift to consideration of project development and operational risk. Commenters stated that in particular, interconnection risk and transparency in operations have simple solutions when paired with long

- term contracting policy sol utions. Commenters explained that with regard to interconnection risk, mitigation in the form of a guaranteed interconnection if the PPA meets the standardized requirements of the long

- term contracting program would be helpful. Commenters added that with r espect to transparency in operations, making the contract price known and certain, making the contract duration follow the long

- term financing (10

- 20 years), and operating a procurement system that is clear and easy to participate in (preferably a first

- co me, first

- serve approach) are means to help the renewable developer achieve certainty in interconnection and operation, thereby reducing risk.427 Comment 2: Commenters supported the EPA affirming state plans can count renewable energy power purchase agreemen ts as a compliance element in the CPP.

Response 2: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which a ctions count and when such actions count generally in section VIII.K .1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K. 2.

In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a

" state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely , through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while acc ommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Under the emission standards state plan type, one approach is a rate

- b ased emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach. The EPA addresses considerations for the use of the BSER a nd non

- BSER measures to achieve an emission rate

based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common own ership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity (e.g., RE PPAs), or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters stated that because their utility, Platte River, is a not

- for

- profit public power utility, tax credits are not directly available to Platte River to offset costs of zero emission resour ces such as wind and solar. Commenters added that to take advantage of tax credits, Platte River enters into power purchase agreements (PPA) for the life of renewable resources developed by taxable entities, and these PPAs are an alternative to direct owne rship, but provide the same benefit of promoting the expansion of zero emission resources. Commenters supported the CPP affirming that state plans can count renewable energy PPAs as a compliance element.428 5.4.3 Renewable portfolio standards: REC model

This section discusses use of existing REC tracking systems, other approaches for accounting for RECs other than tracking systems, the types of RECs that can be used for the CPP, data that should be recorded in REC tracking systems, issues with overlapping CPP and state REC requirements, expiration/retirement of RECs, REC ownership and retirement ramifications, verification measures for existing REC tracking systems, establishing renewable energy carbon attributes, application of tax incentives associated with RECs, methodologies to calculate avoided emissions, and incorporating emission reductions from voluntary renewable energy
programs.
Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Respons es are also provided for these topics.

Comment 1: Comments supporting allowing states to have multiple options in complying with the CPP.

Response 1: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and more specifically in section VI II.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for int eractions between ERCs and RECs, are addressed in section VIII.K.2.
In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a

" state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs. Unde r the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this ap proach.

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

Commenters supported allowing states with multiple options for emission reduction strategies and for capturing the benefits of state renewable energy programs, includin g RPS and voluntary standards.429 Comment 2: Comments supporting the use of existing REC tracking systems for the CPP.
Response 2: In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of sta te plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a " state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricit y sector that reduce CO 2 emissions from affected EGUs.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM& V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

In VIII.K.3.b in the preamble to the final rule, the EPA addresses requirements for EM&V and M&V submittals for energy generating resources, including RE re sources. States may leverage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of RECs. Many existing REC tracking systems already include well

- establishe d safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in relation to the final emission guidelines.

The state measures approach allows for a statewide entity to be responsible for the management of RE programs. While states will interact directly with EPA to submit state plans and progress reports, the EPA is providing flexibility for states to decide how to best manage their RE programs. Under the rate

- based emission trading appro ach, individual project providers will be responsible for managing RE projects and programs, and submitting EM&V documentation to state trading programs for verification.

For more information on EM&V provisions, see section IV.D.8 of the preamble to the pr oposed Federal Plan and the draft EM&V guidance document.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.430 Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the po tential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

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

Several commenters supported using existing REC tracking and accounting systems for the CPP. Some commenters stated that existing tracking systems are in use, widespread, and ensure each REC i s only counted once and provided examples of existing tracking systems. Some commenters added that EPA only needs to build on these concepts to provide a unified system for tracking and trading between states. Commenters also added that not using existing tracking systems has the potential to create uncertainty and confusion for status quo RPS compliance. Commenters stated that creating new reporting systems for 111(d) could cause confusion in the marketplace. Commenters added that existing tracking systems are already set up to track compliance with existing state RES laws and verify claims for emission reductions and other attributes of RECs that are purchased through voluntary markets.

Commenters supported tracking systems as long as the credit for the en ergy resides with the REC owner. Commenters added that the REC holder is in the best position to determine which state should receive credit for incentivizing renewable energy production. Commenters cautioned against arguments about current REC pricing com pared to the often relatively large size of other investments in RE in an effort to persuade EPA to assign avoided emissions from RE to the largest investor, regardless of whether or not they also own the RECs. Commenters stated that REC prices vary tremen dously across the country based on regional market dynamics. Commenters stated EPA should make its determination about RECs as the tracking mechanism for avoided emissions from RE under 111(d) irrespective of current REC prices.

Commenters suggested existi ng REC tracking systems could be expanded to include new renewable that may not qualify under existing RPS state laws but do under the CPP. Commenters stated that through use of the REC system, EPA can ensure that when a REC is retired the same entity that retires the REC gets the carbon reduction credit or the state that bought the REC and retires it gets the credit. Commenters stated that RECs for 111(d) compliance should not be tracked separately from voluntary and other RECs that are not used for 111(d) compliance because this could increase the risk of double counting and decrease transparency.

Comment 3: Comments supporting the use of existing multi

- state REC tracking systems.431 Response 3: In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a " state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entiti es, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other pro grams that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

In VIII.K.3.b in the preamble to the final rule, the EPA addresses requirements for EM&V and M &V submittals for energy generating resources, including RE resources. States may leverage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of RECs. Many existing REC tracking systems already include well

- established safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in relation to the final emission guidelines.

The state measure s approach allows for a statewide entity to be responsible for the management of RE programs. While states will interact directly with EPA to submit state plans and progress reports, the EPA is providing flexibility for states to decide how to best manage their RE programs. Under the rate

- based emission trading approach, individual project providers will be responsible for managing RE projects and programs, and submitting EM&V documentation to state trading programs for verification.

For more information on EM&V provisions, see section IV.D.8 of the preamble to the proposed Federal Plan and the draft EM&V guidance document. The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A .5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/opera tor of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy sav ings from a qualifying measure, such as a renewable energy certificate432 (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewab le portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in vol untary markets may interact with ERCs.

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

Several commenters supported using existing multi

- state tracking systems to track RECs. Commenters asserted that requiring states to trac k and retire RECs for claimed RE generation, whether in

- state or out

- of

- state, would help ensure that multiple states do not claim credit for the same unit(s) of RE generation. Commenters added that a REC tracking approach should be applied uniformly to al l states regardless of whether they use a rate

- based or mass

- based approach. Commenters added that tracking systems could readily be adapted to keep track of certificates that may need to be monitored as part of a state's [Section ] 111 (d) clean power plan even though the certificates do not count toward the RPS (because the power comes from a generator whose technology is not eligible for that RPS or was built before a State's RPS became effective).

Commenters recommended EPA recognize multi

- state tracking systems such as the Western Renewable Energy Generation Information System (WREGIS) and codify that renewable energy tracked using renewable energy credits (RECs) under an RPS program is credited to the state receiving the RECs unless a multi

- state modular agreement is in place. Commenters contended that EPA must to use RECs like that provided by the Midwest Renewable Energy Tracking System (M

- RETS) to track and account for renewable generation. Commenters described the M

RETS system and how RECs work. Comm enters concluded that EPA must be clear in its final rulemaking how a state like Minnesota could rely upon RECs tracked in M

- RETS, and whether any additional information or changes to the system would be required for Clean Power Plan compliance purposes. C ommenters added that systems, like M

- RETS, are structured in a way that allows it to adapt to changes in policies and stakeholder needs. Commenters noted that changes are frequently made to M

- RETS functionality as a result of alterations in state renewable energy policies and could also be made to accommodate the needs of states for 111(d) compliance. Commenters concluded that RECs may not need to be managed any differently for 111(d) than they are currently set up for state RPS programs. Commenters added t hat the systems are flexible, were developed with the help of stakeholder input, and are familiar to generators and utilities. Commenters added that using existing systems will ensure uniform standards for proper accounting of RECs and increase the potenti al for cost

- effective compliance and emission reduction under the Clean Power Plan. Commenters concluded that including renewable resources as part of the Clean Power Plan without relying on the existing framework or tracking systems and protocols will res ult in confusion and wasted time and money. Commenters provided details on the inventorying and tracking of attributes in the New England Power Pool Generation Information System (NEPOOL GIS). Commenters indicated that within this system, qualifying genera tors can transfer their RECs to load serving entities that are acquiring RECs in order to comply with the RPS. Commenters added that the system has the ability to allow for the transfer of RECs to be used in another region for RPS compliance, by allowing t he associated power to be exported to other regions so that the REC is available for compliance. Commenters433 also stated that the NEPOOL GIS and PJMGATS systems in the Northeastern U.S. are set

- up to track all generation sources to support power source disc losure programs and to track CO 2 emissions, other pollutants, and other power attributes, and these all generation tracking systems are also designed to match the emissions and other attributes of electricity supply with demand within a region and for impo rts into a region, which could also help facilitate compliance with state implementation plans. Commenters recommended that EPA should further reach out to technical professionals and stakeholders with extensive experience in using the nation's key REC
tra cking systems to ensure harmonization between EPA's compliance approaches and these systems. Commenters specified that the final rules should ensure that the key system in place in the West (WREGIS) is fully compatible with the final rule and supporting te chnical guidance (a more likely source of potential incompatibility). Commenters added that EPA should endeavor to ensure that any reporting or tracking systems EPA develops are able to directly import data from WREGIS data systems to maximize consistency and minimize administrative burden for state agencies.

Commenters contended that although established, the REC markets are still relatively small compared to other commodities, and any federal rules should not detract from the limited liquidity in the REC markets. Commenters recommended that the states that built the tracking systems collaborate to develop and implement the changes for compliance with the proposed rules.

Comment 4: Comments opposing establishing new regional renewables clearing houses and supporting existing regional tracking systems.

Response 4: The EPA does not require wholesale changes to electric utility structuring. The EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

In section VI II.K.3.b, the EPA clarified that for energy generating resources, including RE, states may leverage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of R ECs. Many existing REC tracking systems already include well

- established safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in relation to the final emission guidelines.

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

Commenters opposed establishing regional renewables clearing houses because they serve to hamper or prevent the efficient operation of Independent System Operators whose purpose is to
p rovide for least

- cost power dispatch and system reliability. Commenters stated that electric utilities have used regional entities to track generation for renewable energy resources and identify parties that have received or allocated credit for these reso urces. Commenters added that this sort of tracking system has been successfully applied by MRETS, the Midwest Renewable434 Energy Tracking System. Commenters also added that actual power transactions are facilitated through the Midcontinent Independent System Operator, who has the resources for facilitation of reliable, least

- cost dispatch to Minnesota and neighboring states and provinces. Commenters concluded that EPA does not have the authority, nor should it attempt, to create new entities that would seek t o displace, preempt or compete with the electric utility power market infrastructure managed with MISO.

Comment 5: Comments supporting using all

- generation tracking systems to calculate in

- state emissions from affected EGUs and to allocate emissions to LSEs/EDUs.

Response 5: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

In VIII.K.3.b in the preamble to the final rule, the EPA addresses requirements for EM&V and M&V submittals for energy generating resources, including RE resources. States may leverage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of RECs, including all

- generation tracking systems. Many existing REC tracking systems already include well

- established safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in relation to the final emission guidelines.

For more information on EM&V provisions, see section IV.D.8 of the pr eamble to the proposed Federal Plan and the draft EM&V guidance document.

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

Commenters stated that all

- generation tracking systems, though not needed to track use and emissions o f imported and exported generation from affected EGUs since the Proposed Rule sets generation

- based (statewide) targets and compliance for states (where they exist), can also be used by states to calculate in

- state emissions from affected EGUs and to alloc ate emissions to LSEs/electric distribution utilities (EDUs), where these are regulated under state plans.

Comment 6: Comments supporting establishing a Renewable Energy Carbon Attribute to document its renewable emissions calculations.

Response 6: The EP A addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an aff ected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an or ganized market.435 The EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. As for geographic eligibility, the commenters will find the EPA has clarified which actio ns count and when such actions count generally in section VIII.K .1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO2 rate. Requirements for rate

- based emission trading programs and the issuance and trackin g of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

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

Commenters recommended that EPA establish the concept of a Renewable Energy Carbon Attribute (RECA) such that one RECA represents the CO 2 reduction attribute of one megawatt

hour from an eligible renewable energy source. Commenters added that in order for a state to include a specific amount of renewable energy production in its annual state emissions calcula tion, the state would provide documentation that it possesses an equivalent amount of RECAs. Commenters recommended that states be permitted to use RECAs from renewable resources in any other state with or without the actual electricity generated by the el igible renewable energy resource, so long as this does not create a conflict with existing state RPS laws, rules and regulations.

Comment 7: Comments requesting clarification to whether states will be able to claim credit for tax incentives and other financial assistance programs if they do not require RE generators to transfer their RECs as a condition for receiving financial assistance.

Response 7: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in se ction VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K .1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources

use d to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed i n section VIII.K.2.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate436 (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourages the st ates to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generati ng capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA also addresses additional considerations for EM&V of RE included in state measures type plans in section VIII.K.3 of the preamble to the final rule. Under the state measures plan type, state measures must be satisfactorily described in the supporting material for a state plan submittal. The supporting ma terial would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifi able, enforceable, non

- duplicative and permanent. These requirements are described in more detail at section VIII.D.2.

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

Commenters contended that States need guidance on whether they will able to claim credit for tax incentives and other financial assistance programs if they do not require RE generators to transfer their RECs as a condition of receiving financial assistance. Commenters stated that most federal or state legislatio n that provides financial incentives for the development of renewable energy is silent about the ownership of associated RECs. Commenters added that RE projects that receive state financial incentives often retain the associated RECs rather than transfer t hem (or a portion thereof) to the incentive program administrator. Commenters continued that this is in part because the states objective is to allow renewable energy projects to maximize other revenue sources, such as REC sales, so that state subsidies ca n eventually be reduced, and because RECs have historically had little value to state incentive program administrators. Commenters expressed concern that States might have difficulty claiming credit under the Clean Power Plan for these kinds of RE policies if RECs become viewed as the sine qua non of entitlement to RE credit. Commenters also asked whether states offering tax incentives or other financial assistance must obtain a portion of the RECs from projects they fund in order to claim any credit under the CPP

Comment 8: Comments requesting clarification regarding if states are required to adjust their emission rate based on avoided CO 2 emissions, whether more precise information about the time and location of generation will be needed than is currently tracked in REC systems.437 Response 8: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quan tified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are spe cifically addressed in section VIII.K.3.

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

Commenters requested clarification on if EPA requires states to adjust their emission rate based on avoided CO 2 emissions, whether more precise information about the time and location of generation will be needed than is currently tracked in the REC systems. Commenters stated that most exchanges currently track only the month of generation, which is not detailed en ough information to use in a dispatch model or AVERT to estimate avoided CO 2 emissions, as EPA has suggested it might require.

Commenters added that REC trading systems should track the date of commercial operation of a particular renewable energy resource to allow states and EPA to assess whether the RE generation comes from a resource eligible for compliance. Commenters also stated that REC trading systems must provide sufficient detail about the type of renewable energy resource that generated th e electricity in order to allow states and EPA to assess whether it is an eligible compliance resource. Commenters contended this will be necessary if EPA allows only some biomass or hydropower resources to be eligible, for example, or if states choose to limit the kinds of resources that qualify as renewable in their plans.

Comment 9: Commenters suggested several different methods for calculating avoided emissions reductions.
Response 9: For RE MWhs and rate

- based state plans, the EPA addresses the genera l accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- emitting and low

- emit ting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate.

To the extent that qualifying zero

- emitting and low

- emitting reso urces result in reduced generation and CO 2 emissions from an individual affected EGU, those emission impacts are reflected in lower reported CO 2 emissions and a reduction in MWh generation from the affected EGU. However, while there will be a reduction in CO 2 emissions at the affected EGU, the fact that both CO 2 emissions and MWh generation are reduced means that such impacts do not alter438 the reported CO 2 emission rate of the affected EGU. As a result, the MWh of replacement generation must be added to the denominator of the reported CO 2 emission rate, in order to represent those impacts in the form of an adjusted CO 2 emission rate.

The reported CO 2 emissi ons reflect the actual emission reduction from the deployment of qualifying non

- emitting and low emitting resources across the regional grid. Further adjustment of the CO 2 emissions, such as through the subtraction of emissions estimated by applying an emi ssion factor to the MWhs, would double count CO 2 emission impacts across the grid.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potent ial for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

Evaluation, measurem ent, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3. For more information on EM&V provisions, see section IV.D.8 of the preamble to the proposed Federal Plan and the draft EM&V guidan ce document.

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

Commenters contended that EPA should require states to calculate the avoided emissions associated with each REC based on the net emissions displaced on the margin by the RE generation associated with the REC. Commenters stated that this will encourage RE development and deployment in the most carbon

- intensive regions of the country by recognizing and rewarding RE that displaces the greatest amount of high carbon pol lution

- emitting generation. Commenters added that while each unit of RE generation used for Section 111(d) compliance must have an associated REC, each REC may or may not have an equivalent avoided emissions value, depending on the type of RE generation re presented by the REC and where it is located.

Commenters recommended that EPA ensure that RECs represent actual net emission reductions based on the hourly marginal emission rate for the load zone in which the RE generation was built. Commenters added tha t because the point of the rule is to reduce carbon emissions, it makes sense for credit for renewable energy to be based on how much carbon emissions from affected power plants are actually reduced. Commenters also stated that electricity generation happe ns in real time, so to the extent possible, avoided emissions should be calculated based on real

- time data. Commenters contended that this approach encourages renewable energy development in areas with high carbon

- intensive generation, which means the RE w ill displace439 more carbon emissions than if built in other areas. Commenters added that each unit of RE that displaces fossil

- fired generation on the margin, as is often the case in the Midwest, should count more towards Section 111(d) compliance than RE th at displaces lower

- carbon forms of generation. Commenters stated that this approach recognizes the importance of accounting for the type of RE generated and where it is located to ensure the success of the Clean Power Plan in achieving expected emissions r eductions. Commenters then added that once the avoided emissions for a REC are calculated and entered into an EPA

- approved REC tracking system, the REC can be used for Section 111(d) compliance. Commenters stated that for a state using a rate

based approac h, the avoided emissions represented by the REC would be subtracted from the numerator of an entities or the states emission rate. Commenters added that in a mass

- based state, the avoided emissions value of an out

- of

- state REC would simply be used to reduc e the overall emissions emitted by the unit or in the state.

Comment 10: Comments supporting/opposing the incorporation of emission reductions from voluntary renewable energy programs into the CPP.

Response 10: In section VIII.C on state plan approaches, the EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which is r eferred to as an " emission standards " state plan type. The second, which we refer to as a " state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

These two types of state plans and their respective approaches allow state s to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Un der the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/op erator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need no t, involve an organized market.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are add ressed in section VIII.K.2.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate440 (REC). An ERC may be issued, however, b ased on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions between ERCs and RECs and encourage s the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

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

Several commenters contended that voluntary green power programs should not be counted toward compliance with the Clean Power Plan. Commenters stated that this would ensure the validity of renewable energy claims and would avoid double counting. C ommenters added that customers who voluntarily purchase renewable energy want to know that they are achieving incremental emission reductions and other environmental benefits that go beyond what is required under existing laws. Commenters suggested a simil ar approach as the NEPOOL GIS and WREGIS tracking systems that make an adjustment for the voluntary market related to the implementation of RGGI and California cap and trade markets. Commenters stated to ensure the RE sought by participating ratepayers is in addition to that already compelled by the State, Minnesota does not allow green pricing RECs to count toward the State RES. Commenters stated that Minnesota utilities must create separate REC retirement accounts to avoid counting green pricing RECs towa rd the utilities' MN RES or other state's RPS and green pricing programs. Commenters added that if it were possible that the renewable power for which customers were paying a premium would have been acquired by the utility anyway for compliance with the Cl ean Power Plan, this would undermine the main attraction of green pricing programs.

Commenters supported incorporating the Voluntary Renewable Energy (VRE) market into the Clean Power Plan. Commenters provided background on VREs and indicated that VRE
purc hases have continued to climb with a year

- on

- year positive growth rate, despite the recent economic recession and lack of legal mandates. Commenters stated that the voluntary and compliance markets co

- exist, and they are essential to the growth of renewabl e energy generation. Commenters requested that EPA outline a basic framework for states that will ensure that renewable energy purchased to meet a mandate or voluntary objective is not credited towards more than one state's target.

Commenters stated that i n the voluntary renewable energy (VRE) market and in many state RPS programs across the country, RECs are already defined as including avoided emissions benefits such that the voluntary purchaser or RPS program (and therefore utility customers) can claim
t hat their generation avoids emissions on the grid. Commenters stated that this is an important benefit in the voluntary market and one which eight states participating in the RGGI and California have recognized. Commenters added that most state and trackin g system definitions of RECs and green attributes support the use of RECs for tracking avoided emissions from RE under 111(d) in that avoided emissions and other derived attributes are either already explicitly included in definitions of RECs or attributes or they are implicitly included in "all environmental benefits," "whole certificate," or similar inclusive language. Commenters added that variations in state REC or attribute definitions should not be used as grounds to disaggregate the REC or allow doub le counting of avoided emissions attributes under 111(d).441 Commenters stated that over 50 percent of RECs currently sold through exchanges are entered into voluntary markets. Commenters concluded that this represents 50 percent of the current renewable ener gy generating capacity that may not be available for CPP compliance.

Commenters added that regulation of power plant emissions will affect the impact of voluntary actions to use RE or EE, and the Clean Power Plan has the potential to negatively affect the U.S. VRE market. Commenters explained that thousands of businesses and organizations, including the more than 1,300 participating in the EPA's Green Power Partnership, along with hundreds of thousands of individuals purchase green power and RECs in the U. S. VRE market, amounting to voluntary use of billions of kilowatt

- hours of RE annually. Commenters added that where RE that has been sold in the voluntary market is included in 111(d) compliance, these voluntary actions to purchase and develop RE will no l onger be going beyond what is required by law and will no longer qualify as "regulatory surplus" because they get factored into the reductions that a state can report to EPA. Commenters added that they will be subsidizing state compliance and perhaps allow others not to take action. Commenters also noted that certain VRE measures and programs may not meet EPA's requirement for enforceability of measures included in state plans. Commenters provided an example of a utility green pricing program that likely wi ll not be enforceable in terms of generating reductions since states cannot "enforce or guarantee participation in a voluntary program, even if they require an LSE to offer such a program.

Comment 11: Comments supporting the use of in

- state REC that are n ot connected to an affected EGU.

Response 11: The EPA addresses considerations for incorporating CO 2 emission reduction from measures that are grid

- connected in state plans in section VIII.K.1 of the preamble to the final rule. Eligible measures must be grid

- connected. This eligibility criterion aligns with RE generation in building block 3 of the BSER, which substitutes for the need for generation from affected EGUs.

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

Commente rs supported allowing an in

- state administrative REC that captures renewable energy and energy efficiency projects that are not connected to an affected EGU. Commenters stated that given the lack of interconnections between Alaska's EGUs and its rural elec tric utilities, and the compelling policy rationale for continued investment in rural communities, EPA should allow offsets for reduced or avoided carbon emissions in rural communities to count toward compliance. Commenters stated that such an in

- state REC program would parallel the interstate REC programs and would recognize, but not require, reduced carbon emissions resulting from replacing diesel (or other fossil fuel) generation with less

- carbon intensive generation, such as renewables. Commenters added that the quantifiable emission reductions would then be applied in the formula for determining compliance with the mandated state

- wide emission rate. Commenters explained that an in

- state REC for Alaska would apply to the same industry sector and would ac hieve the same goal of reducing CO 2 emissions, and the emission reductions would be accomplished through the same mechanism of replacing or reducing fossil generation with RE and EE programs. Commenters added that in many cases, the off

- grid projects would affect small442 electric systems

- consisting of a single, identifiable fossil

- fuel powered EGU. Commenters concluded that there is no possibility that the new RE or EE measures would be offsetting emissions from a new EGU (regulated under 111(b)), offsettin g other RE generation, or are otherwise already required by another regulatory requirement for a different source category. Commenters added that there would also not be a potential for double counting RE/EE credits, and the offset of fossil generation is direct and quantifiable. Commenters stated that this approach would provide Alaska greater access to building blocks 3 and 4, achieve EPA's goal of reducing carbon emissions from fossil fuel electric generating units, and avoid the counterproductive result of depriving our rural communities of state support.

Comment 12: Comments supporting/opposing the type of renewable energy measures that may be considered for compliance tools.
Response 12: The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. The EPA also addresses the use of biomass, hydroelectric power, and waste

- to

energy in section VIII.K.1 . ( 3).

The EPA addresses cons iderations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1. a nd more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects an d addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

A discussion regarding the use of some biomass feedstocks for compliance purposes can be found in Section VIII.I.2.c and Section VIII.K.1 of the preamble.

A discussion regarding the current status of the development of the revised Framework for Assessing Biogenic CO2 Emissions from Stationary Sources and how information from the revised Framework and the related peer review processes could be used to inform how states and EPA assess biogenic CO2 can be found in Section VIII.I.2.c and Section VIII.K.1. For more information regarding the Framework , see: http://epa.gov/climatechan ge/ghgemissions/biogenic

emissions.html

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

Commenters disagreed with EPA limiting the type of renewable energy measures that may be considered as compliance tools. Commenters stated that by placing limitations on the types of renewable energy measures considered, EPA establishes a more onerous burd en on states to comply with EPA mandates and impairs the ability of building block 3 to be implemented to its full potential as a low

- cost means of reducing carbon emissions. Commenters supported allowing all emission reductions resulting from a range of r enewable technologies, such as biomass,443 incremental hydroelectric power, and marine renewable energy, to be acceptable in a state compliance plan.

Commenters supported allowing generation from biomass in a state compliance plan similar to

non

- emitting gen eration and consistent with EPA's forthcoming biogenic carbon dioxide accounting framework and recommended that EPA finalize and publish this framework as soon as possible. Commenters added that adding carbon capture and sequestration (CCS) technology
to a biomass facility can lead to a net sequestration of carbon and emissions from such facilities should be calculated in the same way as for a coal facility with CCS. Commenters stated that this method of calculation for a biomass facility with CCS potential ly leads to negative net emissions from those facilities.

Several commenters supported allowing hydroelectric power projects to provide compliance credit as these types of upgrades extend the hydroelectric power system and provide for real emission reduct ions. Commenters stated that the proposal appears to exclude RE MWh from existing hydro resources from crediting toward compliance with rate goals. Commenters questioned if this exclusion is intended to apply to states that count existing hydro toward the RPS targets that were used to set goals. Commenters recommended that EPA consider best practices in the states when developing the methodology for determining the estimates and accounting for this technology as it can vary widely among operators. Commenter s also stated that incremental hydropower is an efficiency improvement and EPA should consider providing states guidance on the appropriate measure life for such an upgrade.

Commenters supported EPA allowing offshore wind and wave and other marine renewab le resources to provide compliance credit in the same manner as other renewable energy technologies, whether they are located in state territorial waters or federal waters. Commenters stated that marine energy is an emerging renewable energy sector that of fers unique benefits to coastal communities with limited power generation options.

Commenters recommended that EPA only accept or certify RECs representing generation from carbon pollution

- free wind power and solar energy. Commenters stated that in combina tion with the avoided emissions measurement criteria outlined below, this will promote consistent accounting for emissions reductions associated with RE across states. Commenters opposed allowing nuclear power generation to generate RECs for Section 111(d) compliance. Commenters stated that this approach would reduce confusion related to different states definitions of "renewable energy." Commenters contended that EPA should not accept or certify RECs associated with GHG

- emitting sources as Section 111(d) c ompliant. Commenters stated that if EPA allows states to rely on carbon

- emitting renewable energy in their SIPs, avoided emissions associated with a carbon

- emitting REC should be net of any carbon emissions associated with that generation.

Comment 13: Com ment s addressing RECs that expire.

Response 13: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which act ions count and when such actions count generally in section444 VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate.
The EPA addresses considerations for eligibility dates for generation and capac ity in state plans in section VIII.K.1.a.(2) of the preamble to the final rule. Electricity generation that occurs during a plan performance period may be applied to adjust a CO 2 emission rate. Specifically, this means that any quantified and verified MWh of electricity generation that occur in 2022 and future years, from an eligible measure, may be applied toward adjusting a CO 2 emission rate. The eligible measures themselves may be installed in any year after 2012. Specifically, RE generating capacity mea sures that are installed after 2012 are eligible for use in adjusting a CO 2 emission rate.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing th e potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

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

Commenters noted that REC contract expirations can run the gamut from short

- term contracts to long

- term contracts up to 15 to 20 years. Commenters stated that when contracts expire, the

ow nership of the future RECs reverts back to the owner of the generating assets for deployment with that state for 111(d) compliance. Commenters concluded that EPA will need to consider, and states will need to work to address through existing systems.

Comm ent 14: Comments regarding the retirement of RECs for 111(d) compliance as part of the state plan.
Response 14: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

The EPA addresses considerations for ERC issuance in section VIII.K.2 of the preamble to the final rule. The EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulat ory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that445 represents a zero

- emission MWh from a qualifying m easure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating comp liance with a rate

- based emission standard in such an approved state plan. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure. Such other instruments may be i ssued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) speci fies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, whi ch could, but need not, involve an organized market.

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

Commenters contended that EPA should require that RECs for 111(d) compliance retired on behalf of a state for 111(d) compli ance or a state mechanism that has been included in the state plan. Commenters supported requiring documentation of retirement according to tracking system procedures when RECs in tracking systems are used to comply with 111(d). Commenters stated that EPA can limit RE that is eligible for 111(d) compliance to facilities that are participating in tracking systems, or, where RE generation facilities are not participating in a tracking system, which is sometimes the case for smaller and distributed generation facilities, RECs can be created, transferred and retired contractually, in which case verification of unique ownership and complete retirement of RECs for 111(d) compliance must be performed manually. Commenters added that RECs may not need to be managed a ny differently for 111(d) than they are currently for a state RPS program, depending on how the RPS is set up. Commenters asserted that the state must demonstrate to EPA that RECs have been retired in

- state for the RPS or another measure included the state plan. Commenters clarified that this does not require that the retiring party (e.g. LSEs or individual EGU owners/users complying with the RPS) have a 111(d) compliance obligation. Commenters stated that tracking systems can easily add a 111(d) compliance retirement reason/category, functionality that allows a states to select both state RPS and 111(d) compliance as retirement reasons where RPS programs are included in state plans, new identifications or "tags" for RECs that have been included in state pla ns, additional memo fields, and other features to facilitate their use by states for 111(d) compliance. Commenters added that 111(d) avoided emissions values can be tracked with individual RECs in tracking systems, provided that precise enough information is available.

Comment 15: Comments on the recognition of retirement of long

- term REC bundled PPA's.446 Response 15: The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for ERC issuance in section VIII.K.2 of the preamble to the final rule. The EPA notes t hat non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. The E PA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission sta ndard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved state plan. An ERC is issued separately from any other in struments that may be issued for a MWh of energy generation or energy savings from a qualifying measure. Such other instruments may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in vol untary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.

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

Commenter s stated that TVA has historically entered into, and plans to continue to enter into, numerous long

- term REC bundled PPAs representing a significant ratepayer investment. Commenters added that the retirement of these RECs by TVA within a particular state f or 111(d) Block 3 compliance purposes must be recognized by EPA. Commenters also stated that if a REC has been exported out of a particular state via bundled PPA, that 1 MWh of renewable energy cannot be also counted by the generating state for 111(d) comp liance purposes.

Comment 16: Comments regarding REC ownership and retirement ramifications.

Response 16: The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for ERC issuance in section VIII.K.2 of the preamble to the final rule. The EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. The EPA defi nes an ERC in the emission guidelines as a tradable compliance instrument that447 represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard i n an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved state plan. An ERC is issued separately from any other instrumen ts that may be issued for a MWh of energy generation or energy savings from a qualifying measure. Such other instruments may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.

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

Commenters state d that for states using a rate

- based approach, an EPA requirement that REC ownership and retirement determines a claim on avoided emissions from RE for 111(d) compliance means that the state may not make adjustments for RE to its emission rate (for the
pur pose of either state plan development or emission performance compliance reporting) without RECs and unique REC retirement.

Comment 17: Comments suggesting that CPP would negatively impact utility REC based
programs.
Response 17: The EPA addresses conside rations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can eithe r acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for ERC issuance in section VIII.K.2 of the preamble to the final rule. The EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying meas ure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating complia nce with a rate

- based emission standard in such an approved state plan. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure. Such other instruments may be issu ed for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.448 The following are summaries of the specific public comments under this comment:

Commenters contended that compliance with the proposed rule could negatively impact utility REC based programs. Commenters stated that while the Clean Power Plan leverages an RPS concept to set compliance targets, renewable energy is far more complex, Contractual obligations exists that go well beyond the state RPS concept used to create baselines and compliance targets. Commenters listed a number of renewable energy programs used by TVA, including Green Power Switch, Renewable Standard Offer, Solar Solutions Initiative, Green Power Providers, Dispersed Power Production Program, Distributed Generation

- Integrated Value, and Wind Energy Contracts. Com menters stated that EPA should allow credit for compliance for all utility REC

- based programs for which the utility owns and retires the REC.

Comment 18: Comments regarding verification measures for existing REC tracking systems

. Response 18: The EPA addr esses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically ad dressed in section VIII.K.3. This section identifies and discusses the EM&V requirements used. States must submit these criteria as specified, or alternatively, states may submit certain established standard industry practices described in section VIII.K.3 as presumptively approvable. States may also submit other means of meeting the criteria so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing criteria are as adequately stringent as the pres umptively approvable approach.

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

Commenters stated that EPA should assess what type of verification measures each of the REC tracking systems has in place, such as gathering and making available data on how the system operator verifies the claims of generators, how often meters must be tested, whether generators are subject to occasional inspection, and other means of ensuring the accuracy of the RECs generated and preventing frau d. Commenters supported requiring REC system operators to undergo initial and periodic audits. Commenters contended that EPA should exercise due diligence in understanding and, if necessary, strengthening the safeguards built into these systems which will factor heavily into CPP compliance. Commenters added that if EPA determines that existing REC verification procedures are not adequate to ensure accuracy and avoid fraud, it should work with the RE generators and REC tracking system operators to bring thos e procedures up to standard. Commenters concluded that EPA must not allow RECs generated through such systems to count towards CPP compliance. Commenters stated that this can be ensured by requiring the REC tracking system operator to add a field to the sy stem indicating whether the REC meets EPA's data quality standards.

Comment 19: Comments regarding requiring REC tracking systems to record whether a RE resource is eligible for CPP compliance.449 Response 19: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 e mission rate, resulting in a lower adjusted CO 2 emission rate.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clari fied which actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the iss uance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

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

Commenters contended that EPA must clarify that energy

- producing technologies will quali fy for Clean Power Plan compliance as a "renewable energy resources" only if they emit zero carbon dioxide. Commenters stated that because EPAs methodology for crediting renewable energy involves either adding RE MWhs to the denominator of the emission rat e or subtracting the emissions avoided at a displaced fossil EGU from the numerator, it would not be appropriate for EPA to allow states to credit in this way purportedly renewable resources that generate carbon emissions. Commenters suggested that EPA sho uld exclude from its definition of renewable resources technologies such as "clean" coal, waste coal, combustion of municipal solid waste and pulping process byproducts (black liquor), and biomass

- generated fuels. Commenters suggested EPA should require RE C tracking systems to add a field verifying whether a particular RE resources is eligible for CPP compliance to implement this limitation. Commenters added that REC tracking systems already contain fields to track eligibility for particular state RPS requi rements, so should have no difficulty adding such a field for the CPP once provided with a definition by EPA.

Comment 20: Comments supporting the development of credit markets for 111(d) compliance.

Response 20: In section VIII.C on state plan approaches, the EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission450 standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a " state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Und er the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this a pproach.

The EPA addresses considerations for ERC issuance in section VIII.K.2 of the preamble to the final rule. The EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other stat e regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qua lifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstra ting compliance with a rate

- based emission standard in such an approved state plan. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure. Such other instruments may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.G of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

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

Commenters urged EPA to support the development of credit markets for 111(d) compliance. Commen ters suggested that such markets should function similar to existing REC markets, which verify and track credits to avoid double counting, and states may elect to utilize the existing REC market as a component of their compliance plans to the extent that R ECs have equivalent attributes. Commenters recommended that EPA issue guidance for state plans that clarifies the use of compliance markets as a part of state plans. Commenters provided an example of some states being interested in submitting partial joint plans that reference the use of a national 111(d) energy credit for compliance without entering into memoranda of understandings with each state that might be a generator or purchaser of renewable energy credits. Commenters stated that EPA should ensure i t does not create a barrier for this compliance option. If requested by states, EPA may also want to consider developing a national tracking system for 111(d)451 compliance credits to facilitate this multi

- state dynamic. Commenters supported the option for
st ates to coordinate compliance as a means to mitigate the different treatment that results by using a state

- by

- state assessment of the technical and market potential for renewable energy to establish the state goals and by using RECs to demonstrate complian ce.

Comment 21: Comments requesting direction on how EPA will measure compliance with Block 3 for states that have not adopted an RPS.
Response 21: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in section V III.K.1.a.

The EPA addresses considerations for eligibility dates for generation and capacity in state plans in section VIII.K.1.a.(2) of the preamble to the final rule. The eligible measures themselves may be installed in any year after 2012. Specifically , RE generating capacity measures that are installed after 2012 are eligible for use in adjusting a CO 2 emission rate. Electricity generation that occur during a plan performance period may be applied to adjust a CO 2 emission rate. Specifically, this means that any quantified and verified MWh of electricity generation that occur in 2022 and future years, from an eligible measure, may be applied toward adjusting a CO 2 emission rate.

VIII.L addresses the treatment of interstate effects, including those effec ts of importing RE. Under all types of state plans, states must ensure that the measures and associated CO 2 emission reductions counted as part of meeting their plan requirements are not duplicative of any measures that are counted by another state. Inters tate effects make this more difficult because states may be responsible for the deployment of measures that have effects on generation and emissions beyond the state borders. Depending on how these measures are accounted for, the reductions could be counte d by both the state that deployed the measure, and the state that reports a reduction in fossil generation or reported emissions.

States with rate

- based plans must demonstrate that the RE that they use to adjust their CO 2 emission rate are non

- duplicative. Double

- counting of MWhs in the denominator can be avoided because adding the MWh that the affected EGU is responsible for deploying to the denominator is relatively straightforward to quantify and assign, and aligns well with the MWh

- denominated trading s ystem described in this final rule. As long as it is assured that the MWhs of RE are only being claimed by one state, as is outlined in section VIII.D.2.b, then there is no double

- counting of MWh.

The EPA addresses considerations for the use of the BSER an d non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common owne rship of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.452 Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

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

Commenters questioned how EPA will measure compliance with B lock 3 for states, like Wyoming, that have not adopted an RPS. Commenters contended that EPAs approach is supported only by reaching a number that is equivalent to what an RPS could achieve. Commenters provided an example of a company in Wyoming that acqui red wind facilities not due to renewable portfolio standard requirements in any state, but because they contributed to the company's diverse and cost

- effective portfolio of resources. Commenters stated that the absence of a direct link between an RPS and r eliable data does not mean there is no reliable data to support a compliance calculation. Commenters added that EPA used EIA data demonstrated performance to calculate a Block 3 goal, albeit not for the precise reasons EPA has articulated. Commenters also stated that if reported EIA data has been good enough to establish performance targets, both EPA and Wyoming should able to rely on this data to measure ongoing performance during the glide path years, whether or not Wyoming adopts an RPS. Commenters conte nded that as long as performance can be reliably measured, there is no reason why EPA needs to have the state control the underlying motivations and incentives that cause the performance. Commenters added that direct controls over new renewables credited t o the state could raise more questions than it answers. Commenters questioned that if the State were to adopt an RPS, would that in some way retroactively cause performance previously unrelated to the RPS to be treated as being caused by the RPS and if the state failed to achieve its goal, would EPA really pursue enforcement against a small, recalcitrant rural utility. Commenters asked in such a case what compliance could it require when the company asserts that its wind acquisitions were motivated by pract ical and economic judgments unrelated to an RPS? Commenters requested that EPA consider it sufficient that EPA has reliable data to determine the required rate of emissions, which includes data concerning renewables, and therefore to determine an overall r ate for state compliance. Commenters concluded that it should be enough that a State plan can offer a compliance path for its overall goal, which may include options related to other blocks or strictly to inside the fence measures, as long as those measure s are clearly defined.

Comment 22: Comments supporting allowing only bundled RECs to be counted towards meeting the state carbon emission rate goals.453 Response 22: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a.

In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a

" state measures " plan type, would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Under the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission t rading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V .A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/ope rator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters contended that only b undled RECs should be counted towards meeting the state carbon emission rate goals. Commenters expressed concern that there would be an adverse effect on states if unbundled RECs are allowed to be counted toward a state's emission goals. Commenters explain ed that allowing an entity to count the environmental attributes of renewable energy without taking the energy itself may increase the build out of renewable capacity in states with the capacity and weather conditions to support robust wind or solar resour ces. Commenters continued that because utilities must purchase the energy produced from those intermittent resources pursuant to Public Utility Regulatory Policy Act rules, utilities would have to manage the integration of that energy onto their systems. C ommenters added that the benefit of RECs would be retained by the owner of the systems, but the associated integration costs could be passed on to the local ratepayers. Other commenters supported allowing unbundled RECs to be eligible for compliance. Comme nters stated that it is not necessary to require that RECs be bundled with electricity for the purposes of 111(d) compliance. Commenters added that if only electricity bundled with RECs determine claims on RE for 111(d) compliance (i.e. both electricity an d the REC are required), then there is no double counting within 111(d) or with RPSs and the voluntary market. Commenters cautioned that this would severely limit use of RPS for 111(d) where state RPS programs allow unbundled RECs to be used

- states could not in this454 case count all of their RPS toward 111(d) compliance. Commenters stated that it is the REC that makes bundled electricity a compliance option that avoids double counting and under the Proposed Rule, all that matters with respect to RE is wheth er the RE creates emissions reductions either in state or out of state and whether these reductions have been allocated without double counting. Commenters concluded that beyond this, for 111(d), it does not matter whether the state with the REC (and there fore the avoided emissions) also uses the electricity generated at the renewable plant.

Commenters stated that if RECs are unbundled and sold to a state outside of the region where the renewable generation is located, an adjustment would be needed to trans fer the emission reductions from the generating state or region to the purchasing state. Commenters noted that several tracking systems already have the ability to track unbundled REC imports and exports between regions and tracking systems. Commenters add ed that while allowing the use of unbundled RECs for state compliance with the CPP introduces some accounting complexities, it has the important advantages of giving states more flexibility in complying with the rule and lowering the cost of compliance. Co mmenters continued that while states that sell RECS to other states would not be able to use those RECs or the associated renewable generation installed in their state for compliance, they would receive important economic benefits such as revenue from the sale of RECs as well as the construction, operation and manufacturing jobs and other local economic development benefits.

Comment 23: Comments opposing disaggregating avoided emissions from RECs.

Response 23: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifyi ng zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a.

In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirement s for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a

" state measures " plan type, would allow the sta te mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affecte d EGUs.

Under the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantag es of this approach.

The EPA addresses considerations for ERC issuance in section VIII.K.2 of the preamble to the final rule. In that section, the EPA notes that non

– ERC certificates may be issued by states and455 other bodies for MWh of energy generation tha t are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generati on or energy savings from a qualifying measure. Such other instruments may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same da ta and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.

The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measu re that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating complian ce with a rate

- based emission standard in such an approved state plan.

The EPA addresses considerations for the use of measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, secti on V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through a n intermediary, which could, but need not, involve an organized market.

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

Commenters stated that avoided emissions must not be disaggregated from RECs for 111(d) for a number of reasons. Commenters stated that disaggregating this benefit would not simplify 111(d) compliance since a tracking mechanism for avoided emissions would still be required. Commenters added that where only states with generation that is displaced by RE could claim avoided emissions from RE under 111(d), rate

- based states would still need to prove that emissions were avoided/displaced due to RE and not counted in other states, just without using RECs, which is the existing and most effective instrument. Commen ters also stated that disaggregation would disrupt state RPS programs, many of which are intended to help reduce emissions from electricity. Commenters explained that if emissions are displaced out of state due to the RPS program and those avoided emission s remained out of state, the RPS program and customers in the RPS state could not claim the full emissions benefit of their generation. Commenters added that disaggregation would limit the use of RPS programs for 111(d) where RPS programs allow for use of unbundled RECs. Commenters also added disaggregation would disrupt the voluntary market by removing a critical benefit to voluntary consumers, "regulatory surplus," without any way to restore it using the REC, since RECs are the currency of RE in the volun tary market. Commenters contended that disaggregation may produce an "unfair" outcome if the state where the emissions are displaced is not paying for the attributes/reductions. Commenters concluded that disaggregation, whether this involves creating

a new instrument or not, but especially if it involves creating a new instrument, will increase the costs of compliance for states, since they will have to buy the new instrument on top of the RPS456 or otherwise obtain avoided emissions which have been separated from the REC. Commenters added that for the same reasons, it is inadvisable to create or allow the use of a separate, alternative compliance instrument to track avoided emissions from RE, which would have the same effect as disaggregating the REC. Commente rs cautioned that some states may oppose the use of RECs for 111(d) compliance and/or favor the disaggregation of avoided emissions benefit on the basis that RECs could be difficult or costly to obtain for some distributed generation (DG) solar facilities, especially where third

- party solar installer companies currently retain the RECs for generation from leased equipment. Commenters contended that this should also not be used as grounds to disaggregate RECs or allow for 111(d) compliance without RECs. Comm enters added that States could require REC purchase or create DG solar policies that include the option to acquire RECs from DG owners who take advantage of state incentive and other programs supporting the development of DG solar in order to mitigate this issue. Commenters provided an example where in the West there are large amounts of electricity flowing from EGUs in the intermountain states to the coastal states. Commenters stated that use of unbundled RECs for 111(d) compliance would allow for RECs to flow from west to east to balance out the carbon emissions in the east that result from EGU power flows from east to west.

Comment 24: Comments supporting keeping RECs not used for RPS compliance separate from those used for RPS compliance.
Response 24: I n section VIII.C on state plan approaches, EPA addresses the choice states have with the state plan approach they adopt and submit in section VIII.C of the preamble to the final rule. The EPA clarifies that states may adopt and submit either of two differe nt types of state plans

– emission standards plans or state measures plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards. The second would allow the stat e mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

Under the state measures plan type, measures must be satisfacto rily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, enforceable, non

- duplicative and permanent. These requirements are described in more detail at section VIII.D.2.

Under the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

The EPA addresses ERC issuance and RECs in section VIII.K.2 of the preamble to the final rule. In that section, the EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulatory requirements, such as
st ate RPS, or by individuals to make environmental or other claims in voluntary markets. An ERC is issued separately from any other instruments that may be issued for a MWh of energy457 generation or energy savings from a qualifying measure. Such other instrume nts may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC track ing systems for issuance of RECs and EECs. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an a ffected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved state pla n.
These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will depl oy in the electricity sector that reduce CO 2 emissions from affected EGUs.

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

Commenters noted that many RECs are not used for RPS compliance and not all utilities in a
state are necessarily regulated by the entities with authority to enforce an RPS requirement. Commenters stated that if EPA chooses to endorse or allow states to use RECs to facilitate renewable energy tracking/compliance related to the CPP, this compliance would ne ed to remain separate from RPS compliance

.

Comment 25: Comments requesting the EPA to define the unit of compliance with the CPP.

Response 25: In section VIII.C on state plan approaches, EPA addresses the choice states have with the state plan approach th ey adopt and submit in section VIII.C of the preamble to the final rule. The EPA clarifies that states may adopt and submit either of two different types of state plans

– emission standards plans or state measures plans. The first would apply all requireme nts for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards. The second would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

In a state measures state plan type, states may allow the use of RECs to quantify and verify the

zero

- emission MWh of RE used to meet a state measure requirement, such as an RPS. M easures must be satisfactorily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable em ission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, enforceable,

non

- duplicative and permanent. These requirements are described in more detail at section VIII. K

. 4

.458 Under the emiss ion standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

The EPA addresses ERC issuance and RECs in section VIII.K.2 of the preamble to the final rule. In that section, the EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state reg ulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualify ing measure. Such other instruments may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requirements) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements us ed by existing REC and EEC tracking systems for issuance of RECs and EECs. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measure that may be used to adjust the re ported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standa rd in such an approved state plan.

These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that s tates have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

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

Commenters stated that the EPA should more clearly define the unit of compliance, which may, or may not be, consistent with the definition, scope, and objectives of state RECs. Commenters also agreed that there could be several different attributes associated with the generation of electricity from a renewable resource, one of which may be the GHG emissions reduction attribute. Commenters strongly encouraged the EPA to clarify that only the GHG attribute associated with the power generation is covered by the program, and that RECs, if used form compliance with the CPP, must include the GHG attribute because states' treatment of environmental attributes under RECs vary widely. Commenters also requested EPA to clarify that instruments other than a REC can be used as part of tracking and measuring compliance, such as an independ ent GHG mitigation attribute.

Comment 26: Comments requesting guidance that clarifies the use of renewable energy compliance markets as part of state plans.
Response 26: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section459 VIII.K .1 and more specifically in section VIII. K.3 on EM&V requirements f or RE resources used to adjust a CO 2 rate. Section VIII.L features the treatment of interstate effects.

In section VIII.C on state plan approaches, EPA addresses the choice states have with the state plan approach they adopt and submit in section VIII.C of the preamble to the final rule. The EPA clarifies that states may adopt and submit either of two different types of state plans

– emission standards plans or state measures plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards. The second would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

Under the state measures plan type, measures must be satisfactorily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the
state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, enforceable, non

- duplicative and permanent. These requir ements are described in more detail at section VIII.D.2.

Under the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emis sion trading in state plans, due to the advantages of this approach. Requirements for
rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for intera ctions between ERCs and RECs, are addressed in section VIII.K.2.

In that section, the EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a rene wable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an appro ved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved state plan.

The EPA is aware of the potential for interactions between ERC s and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

These two types of state plans and their respec tive approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory460 requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissi ons from affected EGUs.

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

Commenters recommended that EPA issue guidance for state plans that clarifies the use of renewable energy compliance markets as a part of state plans. C ommenters explained that States need guidance as to how to account for the interstate impacts of renewable energy and end

- use efficiency, so that they can develop plans that do not risk disapproval because of a perception that they rely on reductions that have been double counted.

Comment 27: Comments requesting guidance in using RECs in the CPP.
Response 27: In section VIII.C on state plan approaches, EPA addresses the choice states have with the state plan approach they adopt and submit in section VIII.C of the preamble to the final rule. The EPA clarifies that states may adopt and submit either of two different types of state plans

– emission standards plans or state measures plans. The first would apply all requirements for meeting the emission guidelin es to affected EGUs in the form of federally enforceable emission standards. The second would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other program s that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

In a state measures state plan type, states may allow the use of RECs to quantify and verify the

zero

- emission MWh of RE used to meet a state measure requirement, such as an RPS. M easures must be satisfactorily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would app ly to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, enforceable,

non

- duplicative and permanent. These requirements are described in more detail at sec tion VIII. K

. 4

.
The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requireme nts for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

In that section, the EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy generation that are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other cl aims in voluntary markets. An ERC is issued separately from any other instruments that may be issued for a MWh of energy461 generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, ba sed on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument t hat represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an E RC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved state plan.

The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

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

Commenters contended that EPA sh ould provide clean guidance and default principles for using RECs. Commenters stated that EPA should provide default guidance explaining how states should measure the CO 2 emission reductions attributable to a tier of tradable RECs as distinct from the actu al RE generated.

Comment 28: Comments stating that EPA should recognize RECs instead of the actual RE as the basis for CPP compliance.
Response 28: In section VIII.C on state plan approaches, EPA addresses the choice states have with the state plan approach they adopt and submit in section VIII.C of the preamble to the final rule. The EPA clarifies that states may adopt and submit either of two diffe rent types of state plans

– emission standards plans or state measures plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards. The second would allow the st ate mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affect ed EGUs.

In a state measures state plan type, states may allow the use of RECs to quantify and verify the

zero

- emission MWh of RE used to meet a state measure requirement, such as an RPS. M easures must be satisfactorily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate th at the state measures are quantifiable, verifiable, enforceable,

non

- duplicative and permanent. These requirements are described in more detail at section VIII. K

. 4

.462 The commenters will find the EPA has clarified which actions count and when such actions

co unt generally in section VIII.K.1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying R E measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

In that section, the EPA notes that non

– ERC certificates may be issued by states and other bodies for MWh of energy gen eration that are used to meet other state regulatory requirements, such as state RPS, or by individuals to make environmental or other claims in voluntary markets. An ERC is issued separately from any other instruments that may be issued for a MWh of energ y generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a rate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved st ate plan.

The EPA is aware of the potential for interactions between ERCs and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

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

Commenters stated that EPA should recognize RECs, rather than the actual RE, as the most efficient basis for CPP compliance.

Comment 29: Comments suggesting that the EPA should ensure that state RPS policies do not compete with the market

- based emissions reduction policies by driving very high cost CO 2 emission reductions in existing CO 2 trading markets
Response 29: In section VIII.C on sta te plan approaches, EPA addresses the choice states have with the state plan approach they adopt and submit in section VIII.C of the preamble to the final rule. The EPA clarifies that states may adopt and submit either of two different types of state plans

– emission standards plans or state measures plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards. The second would allow the state mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory463 requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

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

Commenters stated that EPA should make clear that if a state were to implement a market

- based trading program to limit CO 2 , care should be taken to ensure that state RPS policies do not

co mpete with the market

- based emissions reduction policies by driving very high cost CO 2 emission reductions in existing CO 2 trading markets. Commenters explained that an RPS drives very costly emissions reductions, bypassing more cost effective emission red uction options the market would otherwise implement to meet the cap. Commenters stated that EPA should assist states by making clear the relative costs of different approaches, including the cost implications of layering policies on top of market

- based app roaches. Commenters added that if the state does not implement a CO 2 trading program, an RPS may be considered by some to be necessary. Commenters also added that if a state were to implement a CO 2 trading program, it should NOT then implement an RPS, as t his can create the distortions cited above and severely harm the cost effectiveness of a market

- based emission reduction program.

Comment 30: Comments suggesting to revise RPS structure to address emissions that may be generated from fossil fuels to make up variability in renewables or give additional credit when baseload fossil fuels are displaced by renewable power.

Response 30: In section V.A.3.b of the preamble to the final rule, the agency stated the June 2014 proposal's RPS

- based proposed methodology is not used in the final rule. Further details regarding the final rule’s quantification of RE generation are provided in section V.E.

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

Commenters stated that the proposed RPS structure needs to be adjusted to address emissions that may be produced from fossil fuels required to firm variable resources, and/or adjusted to give additional credit when baseload fossil fuels are displaced by baseload renewable power. (For example, a carbon

- reduction multiplier could be applied.) Commenters added that RPS structures, which historically were designed to promote new production over existing power sources, should be designed to protect and sustain investment in existing renewable power
pr oduction facilities.

Comment 31: Comments suggesting that single RECs should be able to be used for multiple state programs as long as it is not used for compliance with more than one state’s 111(d) compliance plan.

Response 31: In section VIII.D, EPA cla rifies that states may allow the use of RECs in a state measures state plan type to quantify and verify the zero

- emission MWh of RE used to meet a state measure requirement, such as an RPS, consistent with the requirements at section VIII.K.2 and section V III.L of the final preamble.464 In section VIII.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO2 emissions from affected EGUs.

Under a rate

- based approach, a state may include in its plan a number of provisions to facilitate affected EGU compliance with the emission standards. This could include implementing a market

- based emission trading program, which enables EGUs to generate a nd procure Emission Rate Credits (ERCs), a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions. Considerations and requirements for
rate

- based trading programs are discussed i n section VIII.K

Eligible measures that may generate ERCs, as well as the accounting method for adjusting a CO 2 emission rate, are discussed in section VIII.K.1. Requirements for rate

- based emission trading approaches and addressing the potential for inter actions between ERCs and RECs are discussed in section VIII.K.2. Quantification and verification requirements for measures eligible to generate ERCs are discussed in section VIII.K.3.

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

For more information on EM&V provisions, see section IV.D.8 of the preamble to the proposed Federal Plan and the draft EM&V guidance document.

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

Commenters stated that RECs bundle together a number of environmental attributes associated with renewable energy generation and a reduction in carbon emissions attributable to renewable energy generation is but one stick in that bundle. Commenters contended that the final rule should specify that a single REC can be utilized for multiple programs so long as it is not utilized for compliance with more than one state's Section 111(d) compliance plan. Commen ters suggested that the same REC can be assigned attributes to comply with a states RPS programs, as well as a 111(d) program. Commenters stated that this approach provides maximum flexibility to states and regulated parties, recognizes the importance of r enewable energy generation in reducing greenhouse gas emissions from the power sector, and encourages additional renewable energy development.465 Comment 32: Commenters emphasized that REC systems need strenuous verification procedures.

Response 32: For RE M Whs and rate

- based state plans, the EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 e mission rate, resulting in a lower adjusted CO 2 emission rate.

To the extent that qualifying zero

- emitting and low

- emitting resources result in reduced generation and CO 2 emissions from an individual affected EGU, those emission impacts are reflected in l ower reported CO 2 emissions and a reduction in MWh generation from the affected EGU. However, while there will be a reduction in CO 2 emissions at the affected EGU, the fact that both CO 2 emissions and MWh generation are reduced means that such impacts do n ot alter the reported CO 2 emission rate of the affected EGU. As a result, the MWh of replacement generation must be added to the denominator of the reported CO 2 emission rate, in order to represent those impacts in the form of an adjusted CO 2 emission rate

. The reported CO 2 emissions reflect the actual emission reduction from the deployment of qualifying non

- emitting and low emitting resources across the regional grid. Further adjustment of the CO 2 emissions, such as through the subtraction of emissions es timated by applying an emission factor to the MWhs, would double count CO 2 emission impacts across the grid.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3. For more information on EM&V provisions, see section IV.D.8 of the preamble to the proposed Federal Plan and the draft EM&V guidance document.

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

Commenters contended that nothing in the rule is as important as a system that verifies reductions and enforces the failure of states to meet targets. Commenters contended that the REC system is insufficient to verify reductions. Commenters explained that States targets must not be466 weakened by a REC system that allows false accounting, accounting for previous renewable projects, or projects that aren't a carbon benefit. Commenters stated that the rule will succeed or fail based upon EPAs ability to force states to transparently verify true reductions.

Comment 33: Commenters expressed concern that the public will not pay for REC usage.

Respo nse 33: EPA did not require specific approaches like REC procurement for RE. In section VIII.C on state plan approaches, EPA clarifies that the types of state plans that states may adopt and submit allow states to meet the statutory requirements of CAA section 11 1(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO2 emissions from affected EGUs.

Under a rate

- based approach, a state may include in its plan a number of provisions to facilitate affected EGU compliance with the emission standards. This could include implementing a market

- based emission trading program, which enables EGUs to generate and procure Emission Rate Credits (ERCs), a tradable comp liance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions. Considerations and requirements for
rate

- based trading programs are discussed in section VIII.K.

For RE measures, section V.A.5.a(3) s pecifies that an owner/operator of an affected EGU, whether regulated or unregulated, can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transactio n for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. For more info rmation about specific RE measures to adjust the CO 2 emission rate of an affected EGU to reflect RE, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. For EM&V requirements relevant to RE resources, see section V III.K.3. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII. K.2.

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

Under a mass

- based approach, there are incentives to take actions at affected EGUs to reduce C O 2 emissions, as well as the use of strategies such as RE and demand

- side EE as complementary measures that reduce CO 2 emissions. However, unlike under a rate

- based467 approach, for this latter set of measures there is no need to address and describe these st ate measures in a state plan submission or quantify and verify the RE and EE MWh of generation and savings.

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

Commenters contended that although many people support the idea of r enewable energy, most are not willing to pay for it. Commenters provided an example of lack of REC usage in South Carolina.

Comment 34 : Comments opposing requiring REC credits be used to demonstrate compliance with 111(d). The EPA should not supersede State requirements and goals
Response 34: EPA did not require specific approaches like REC procurement for RE. In section VIII.C on state plan approaches, EPA clarifies that the types of state plans that states may adopt and submit allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Under a rate

- based approach, a state may include in its plan a number of provisions to facilitate affected EGU compliance with the emission standards. This could include implementing a market

- based emission trading program, which enables EGUs to generate a nd procure Emission Rate Credits (ERCs), a tradable compliance unit representing one MWh of electric generation (or reduced electricity use) with zero associated CO 2 emissions. Considerations and requirements for
rate

- based trading programs are discussed i n section VIII.K.

For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU, whether regulated or unregulated, can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner /operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. For more information about specific RE measures to adjust the CO 2 emission rate of an affected EGU to reflect RE, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. For E M&V requirements relevant to RE resources, see section VIII.K.3. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactio ns between ERCs and RECs, are addressed in section VIII.K.2.

An ERC is issued separately from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure, such as a renewable energy certificate (REC). An ERC may be issued, however, based on the same data and verification requirements used by existing REC tracking systems for issuance of RECs that are used to meet state renewable portfolio standards. The EPA is aware of the potential for interactions be tween ERCs468 and RECs and encourages the states to consider, when developing their state plan, how existing instruments that are used to meet other regulatory requirements or in voluntary markets may interact with ERCs.

Under a mass

- based approach, there are incentives to take actions at affected EGUs to reduce CO 2 emissions, as well as the use of strategies such as RE and demand

- side EE as complementary measures that reduce CO 2 emissions. However, unlike under a rate

- based approach, for this latter set of me asures there is no need to address and describe these state measures in a state plan submission or quantify and verify the RE and EE MWh of generation and savings.

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

Commenters o pposed requiring REC credits be used to demonstrate compliance with 111(d). Commenters explained that RECs are created under individual state laws and are defined by states, typically as part of their renewable portfolio standard programs. Commenters added that often, states have different definitions in law or regulation as to what types of environmental attributes are included in a REC. Commenters also stated that some states include emission reductions in the definition of REC while other states do not. Commenters stated that because state RPS programs and 111(d) are separate programs with separate goals and requirements, RECs and 111(d) compliance should be considered separately. Commenters stated that North Carolina has adopted a state

- mandated Renewabl e Energy and Energy Efficiency Portfolio Standard (REPS) under which, electric utilities in North Carolina are required to meet up to 10% of their energy needs through renewable energy resources or energy efficiency measures by 2018. Commenters added that North Carolina's REPS requirement is mandated by law, administered by the North Carolina Utilities Commission, and tracked through the issuance of Renewable Energy Certificates (RECs). Commenters contended that EPA should also accept the methods of evaluat ion, monitoring and verification for renewable resources and energy efficiency that North Carolina has adopted as part of its REPS without any modifications. Commenters concluded that EPA should not supersede these goals and impose additional or different requirements on the state. Commenters added that stakeholders in North Carolina spent an enormous amount of time and effort to reach agreement on the goals established by the REPS and produced a REPS that would reflect the particular characteristics and ne eds of North Carolina. Commenters concluded that EPA should honor the processes in which North Carolina stakeholders engaged to produce a REPS Law and, therefore, should not impose any additional requirements.

Comment 35: Comments stating that the EPA sho uld be clear that where a utility's REC retirement would comply with a state RPS but not with 111(d), the state will not be able to count that renewable energy.

Response 35: For RE MWhs and rate

- based state plans, the EPA addresses the general accounting a pproach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- emitting and low

- emitting resources , as469 described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower adjusted CO2 emission rate.

To the extent that qualifying zero

- emitting and low

- emitting resources result i n reduced generation and CO2 emissions from an individual affected EGU, those emission impacts are reflected in lower reported CO2 emissions and a reduction in MWh generation from the affected EGU. However, while there will be a reduction in CO2 emissions at the affected EGU, the fact that both CO2 emissions and MWh generation are reduced means that such impacts do not alter the reported CO2 emission rate of the affected EGU. As a result, the MWh of replacement generation must be added to the denominator of the reported CO2 emission rate, in order to represent those impacts in the form of an adjusted CO2 emission rate.

The reported CO 2 emissions reflect the actual emission reduction from the deployment of qualifying non

- emitting and low emitting resources across the regional grid. Further adjustment of the CO 2 emissions, such as through the subtraction of emissions estimated by applying an emission factor to the MWhs, would double count CO 2 emission impacts across the grid.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

Evaluation, me asurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3. For more information on EM&V provisions, see section IV.D.8 of the preamble to the proposed Federal Plan and the draft EM&V guidance document.

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

Commenters stated that EPA should be clear that where a utility's REC retirement would comply with a state RPS but not with 111(d), the state will not be abl e to count that renewable energy. Commenters contended that the state must either discount the RPS for 111(d) compliance, modify the RPS, or require separate REC retirements in connection with 111(d) compliance. Commenters concluded that many states have " cost

- caps" and alternative compliance payments or mechanisms; those off

- ramps from state RPS likewise cannot be credited for 111(d).

Comment 36: Comments regarding the identification of other approaches for compliance instead of REC tracking.470 Response 36: For RE MWhs and rate

- based state plans, the EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on
q uantified and verified MWh from qualifying zero

- emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower adjusted CO2 emission rat e.
To the extent that qualifying zero

- emitting and low

- emitting resources result in reduced generation and CO2 emissions from an individual affected EGU, those emission impacts are reflected in lower reported CO2 emissions and a reduction in MWh generatio n from the affected EGU. However, while there will be a reduction in CO2 emissions at the affected EGU, the fact that both CO2 emissions and MWh generation are reduced means that such impacts do not alter the reported CO2 emission rate of the affected EGU. As a result, the MWh of replacement generation must be added to the denominator of the reported CO2 emission rate, in order to represent those impacts in the form of an adjusted CO2 emission rate.

The reported CO 2 emissions reflect the actual emission reduction from the deployment of qualifying non

- emitting and low emitting resources across the regional grid. Further adjustment of the CO 2 emissions, such as through the subtraction of emissions estimated by applying an emission factor to the MWhs, would double count CO 2 emission impacts across the grid.

For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU, whether regulated or unregulated, can either acquire ERCs through common owner ship of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for i ncorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule.

Evaluation, measurement, and verification (EM&V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s fin al emission guidelines require that all RE providers demonstrate that they will quantify and verify MWh using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Rule in section IV.D.8. States may also submit other means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the
p resumptively approvable approach.

States may leverage the programs and infrastructure they have in place for achievement of their RPS and take advantage of registries in place for the issuance and tracking of RECs. Many existing REC tracking systems already include well

- established safeguards, documentation requirements, and procedures for registry operations that could be adapted to serve similar functions in relation to the final emission guidelines. With respect to actual monitoring requirements, m any existing REC registries include provisions for the monitoring of MWh of generation that would be appropriate to meet state plan requirements pursuant to the final rule, such as requirements to use a revenue quality meter.471 For more information on EM&V p rovisions, see section IV.D.8 of the preamble to the proposed Federal Plan and the draft EM&V guidance document.

Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or proj ects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

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

Commenters supported participation in an existing REC or generation tracking system is the most effective means for demonstrating compliance and avoiding double count ing, but noted there are at least two other approaches that could also be acceptable in addition to REC tracking. Commenters explained this includes renewable generation from 1) power purchase agreements and 2) facilities owned by utilities that are being used for compliance with state RESs or to meet voluntary state renewable energy goals, but are not part of REC tracking systems. Commenters stated that to be eligible for compliance with the rule, the EPA should require states to demonstrate that the renew ables generation and associated CO 2 reduction from these approaches is not being claimed by another state. Commenters added that the general principle should be that the renewable generation and the associated CO 2 reductions and other attributes should go to purchaser of this generation, regardless of where the generation is located.

Comment 37: Comments stating that there should not be an issue with states getting credit for renewable energy built on tribal lands.

Response 37: The EPA appreciates the commenters’ response to address EPA’s concerns regarding RE credits built in Indian country. The EPA has clarified the treatment of RE resources across states in the final rule. This is discussed in section VIII.K.1.a.(2) of the preamble to the final rule. The EPA clarified that RE resources located in Indian country could be used to meet the emission guidelines in a state plan.

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

Commenters addressed EPA's concern, that there may be a problem getting credit for renewable energy built on Tribal lands in

- state, by their interpretation that given that the proposed rule strongly encourages new clean energy projects, there is every indication that states will be free to claim credit fo r Tribal projects that are built in

- state and serve in

- state electric load.472 Comment 38: Comments regarding the r etirement of RECs and importing renewable energy from other states that utilize RECs.

Response 38: In a state measures state plan type, states may allow the use of RECs to quantify and verify the zero

- emission MWh of RE used to meet a state measure requirement, such as an RPS. M easures must be satisfactorily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, e nforceable, non

- duplicative and permanent. These requirements are described in more detail at section VIII. K

. 4

. In section V.A.3.b of the preamble to the final rule, the agency stated the June 2014 proposal's RPS

- based proposed methodology is not used in t he final rule. Further details regarding the final rule’s quantification of RE generation are provided in section V.E.

The EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to th e final rule. For more information about specific RE measures to adjust the CO2 emission rate of an affected EGU to reflect RE, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. Requirements for rate

based emissi on trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A. 5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operat or of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters stated that EPA should a llow states to incorporate elements of a state's renewable portfolio standard into its compliance plan. Commenters explained that EPAs calculation of state goals does not include each states specific qualifying renewable energy for states with an RPS.473 Commenters stated that EPA should allow states to set state

- specific renewable targets based on qualifying renewable energy as it is defined in that state. Commenters provided an example in Michigan where qualifying renewable energy includes generation fro m municipal solid waste, coke oven gas, and woody biomass and therefore these generation sources should be allowed in setting renewable goals for Michigan. Commenters concluded that if these sources are not included, then the calculation of the state renew able generation goal for building block 3 should be adjusted downward.

Commenters also stated that utilities satisfy the RPS based on expiring RECs; however, RECs have a 3 year lifespan and as a result, utilities can comply with the RPS regulation using R ECs from previous years. Commenters stated that retiring RECs does not necessarily equate to renewable generation capacity for a given year. Commenters added that Michigan grants incentive RECs (i.e. non

- generation

- based RECs) for renewable energy projects that use Michigan labor and materials or for certain types of generation. Commenters expressed concern that these RECs, which count towards RPS compliance, may be challenging to incorporate into an approvable Sec. 111(d) state compliance plan.

Commenters also added that EPA should recognize that many states import renewable energy from other states and utilize RECs to comply with a states RPS. Commenters stated that EPA should not limit states ability to include renewable generation not represented by a R EC in state 111(d) compliance plans. Commenters added that RECs are not the only way in which compliance with RPS programs is measured, and provided an example of electric utilities building in

- state and out

- of

- state renewable energy facilities and power from these facilities being used to satisfy RPS requirements without the creation of a REC. Commenters added that companies also engage in bilateral contracts for renewable energy that can be used to satisfy RES requirements.

5.4.4 Renewable portfolio sta ndards: Small distributed generators

This section discusses changing generating power from big power stations to DG energy, the role of government in developing DG sources, how to promote DG, and the type of recordkeeping and verification needed for DG sou rces.
Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided for these topics.

Comment 1: Comments supporting changing generating power from big power stations to DG
energy.
Response 1: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added474 to the denominator of an affected EGU’s reported CO 2 em ission rate, resulting in a lower adjusted CO 2 emission rate.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarif ied which actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate.
The following are summaries of the specific public comments under this comment:

Several commenters supported changing generating power from big power stations to distributed generation energy. Commenters contended that generating energy in large facilities and taking it miles away is inefficient.

Comment 2: Comments stating that in developing DG resources, the role of the government is to develop decision tools and data and not pick winners and losers.
Response 2: EPA did not prescribed specific approaches or measures like RE distributed generation (DG). In section VI II.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other
progr ams that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Under a rate

- based approach, a state may include in its plan a number of provisions to facilitate affected EGU compliance with the emission standards. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1.

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

Commenters stated that in developing DG resources, the role of the government is to develop decisional tools and trusted data , and not to pick winners and losers. Commenters stated that EPA needs to provide improved policy resources, and develop objective case study data on cross resource optimization. Commenters added that this type of optimization promises to allow communities to make objective and informed tradeoffs resulting in DG projects that are most beneficial to the community.

Comment 3: Comments supporting unregulated generation assets not owned and operated by a vertically integrated utility to be physically located i n the state.475 Response 3: In section VIII.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of r egulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Under a rate

- based approach, a state may include in its plan a number of provisions to facilitate aff ected EGU compliance with the emission standards. For more information about specific methods to adjust the CO 2 emission rate of an affected EGU to reflect RE and eligibility requirements for resources that can be used to adjust a CO 2 emission rate, includ ing eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1.

For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU, whether regulated or unregulated, can either acquire ERCs through common owners hip of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters agreed with EPA that unregulated generation assets not owned and operated by a vertically integrated utility may be physically located in such a state. Commenters contended that the unregulated plants are often merchant generators that do not serve load. Commenters added that as such they have no means of implementing demand side energy efficiency and renewable energy programs or recovering costs (with regulated rates of return). Commenters stated that in recognition of the fact that such unregulated generation does exist in these states, EPA acknowledges that a state plan may need to treat such unregulated generation differently. Commenters suggested that EPA take a stronger position on this point and provide clearer guidance to the states. Commenters specifically suggested that that EPA direct states utilizing the utility

- driven portfolio approach to limit compliance obligations solely to direct within the fenceline CO 2 emission reductions and not subj ect them to the entire suite of obligations under a state plan.

Comment 4: Comments supporting cost

- based principles for DG because benefits and costs to the distribution system vary greatly with penetration of DG.

Response 4: The EPA addresses the genera l accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emit ting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate.

The EPA addresses considerations for incorporating CO 2 emission re duction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and476 more specifically in section VIII.K.3 on E M&V requirements for RE resources used to adjust a CO 2 rate.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters contended that cost

- based principles are critical for distributed generation b ecause benefits and costs to the distribution system vary greatly with penetration of DG. Commenters stated that rates paid to DG customers should be consistent with conventional methods used by utilities to value energy resources and compensate comparable utility

- scale resources. Commenters added that under that framework, utility

- sponsored community solar is likely to yield greater net benefits than rooftop solar. Commenters contended that in some PV deployment models, the value to some individual consume rs may be greater, but inequalities will be introduced and overall costs to the community will be higher.

Comment 5: Comments suggesting that utilities should be required to keep accurate records regarding installation dates of DG systems and their antici pated service life, and EPA must require regular and comprehensive auditing

. Response 5: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 em ission rate, resulting in a lower adjusted CO 2 emission rate.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarif ied which actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate.
Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

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

Commenters stated that in order for DG measures to meet the permanence requirements, utilities

s hould be required to keep accurate records regarding installation dates of DG systems and their anticipated service life. Commenters stated that EPA must require regular, comprehensive477 auditing of in

- place systems to ensure that damaged or disconnected sys tems are no longer counted towards the utility's compliance. Commenters stated that EPA must offer further guidance about the policy issues unique to distributed generation, including those topics highlighted above. Commenters added that without detailed g uidance and some assurance about what kinds of distributed generation policy tools will count for compliance, states may choose less environmentally beneficial tools rather than DG to achieve their target emission rates.

5.4.5 Feed

- in tariffs

This section discusses establishing DG sources via feed

- in tariff contracts.

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

Comment 1: Comments supporting utilities procuring DG resources via feed

- in tariff contracts.

Response 1: The EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, r esulting in a lower adjusted CO2 emission rate.

In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guideli nes to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a

" state measures " plan type, would allow the state mass CO2 emission goals to be a chieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS.

Under the state measures plan type, state measures must be satisfactorily described in the
suppo rting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, enforceable, non

- duplicative and permanent. These requirements are described in more detail at section VIII.D.2.

Under the emission standards state plan type, one approach is a rate

- based e mission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

The following are summaries of the specific public comments und er this comment:478 Commenters supported utilities efficiently procuring distributed generation resources via feed

- in tariff contracts, which are standard offer, fixed price, long

- term power purchase agreements. Commenters noted that a FERC order in 2011 rega rding implementation by the California Public Utilities Commission of a feed

- in tariff to support development of combined heat and power generation paves the way for even greater use of feed

- in tariffs to meet state RPS and other policy objectives. Comment ers added that in this order FERC found the concept of a multi

- tiered avoided cost rate structure to be consistent with the avoided cost rate requirements set forth in the Public Utilities Regulatory Policy Act (PURPA) and its subsequent regulations. Comme nters concluded that this ruling affords states greater ability to establish feed

- in tariff rates at levels that would support private investment, including in renewable energy generation.

5.4.6 State tax incentives

This section discusses tax incentives to promote use of renewable energy and rebates for end users of renewable energy.

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

Comment 1: Commenters supported tax incentives to promote use of renewable energy.
Response 1: EPA encourages the use of innovative RE program design and financing as enabling measures that facilitate greater use of RE. In the final rule, however, financing program strategies are not directly recognized as an eligible measure that can be used to adjust a CO2 emission rate, because financing does not directly substitute for electric generation from the grid or avoid electricity use from the grid.

For RE MWhs and rate

- based state plans, the EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower adjusted CO2 emission rate.

To the extent that qualifying zero

- emitting and low

- emitting resources result in reduced generation and CO2 emissions from an individual affected EGU, those emission impacts are reflected in lower reported CO2 emissions and a reduction in MWh generation from the affected EG U. However, while there will be a reduction in CO2 emissions at the affected EGU, the fact that both CO2 emissions and MWh generation are reduced means that such impacts do not alter the reported CO2 emission rate of the affected EGU. As a result, the MWh of replacement generation must be added to the denominator of the reported CO2 emission rate, in order to represent those impacts in the form of an adjusted CO2 emission rate.479 The reported CO 2 emissions reflect the actual emission reduction from the deployment of qualifying non

- emitting and low emitting resources across the regional grid. Further adjustment of the CO 2 emissions, such as through the subtraction of emissions estimated by applying an emission factor to the MWhs, would double count CO 2 emission impacts across the grid.

For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU, whether regulated or unregulated, can either acquire ERCs through common owner ship of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

The EPA addresses considerations for i ncorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s fina l emission guidelines require that all RE providers demonstrate that they will quantify and verify MWh using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Rule in section IV.D.8. States may also submit other means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the pr esumptively approvable approach.

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

Several commenters supported state tax incentives to promote renewable energy projects. Commenters added that States can do much to encourage a nd support distributed generation specifically, such as tax credits. Commenters affirmed that State and municipal tax incentives, regulations, and product rebate programs that are intended to accelerate investments in energy efficiency outcomes and energy

- efficient technologies can reduce emissions, improve communities, and save consumers money. Commenters listed several tax incentives and rebate programs that have been implemented in a number of states, and could be easily replicated by others: (1) Persona l and corporate tax credits and deductions: In return for investing in energy efficiency and/or renewable energy technologies that reduce CO 2 emissions, state could offer individuals or corporations tax credits or deductions; (2) Property tax exemptions: F or investments made to reduce the CO 2 emissions of a property (e.g., energy efficiency or distributed energy generation), states or local jurisdictions could offer property tax exemptions to encourage the deployment of CO 2 - saving technologies; (3) Sales t ax exemptions: For qualifying purchases of CO 2 - saving technologies, some states have waived sales tax; (4) Product rebates: Direct product rebates could be offered to consumers of CO 2 - saving technologies. Commenters expected after the climate power plan, even more support for renewable energy resources with tax credits, grants, and other possibilities and not any limitation or quantity regulations. Commenters added that State support can address many of the market gaps in private sector renewable energy f inance and be most helpful in accelerating private sector investment in the clean energy sector. Commenters explained that states provide various types of credit supports to stimulate private sector investment in breakthroughs, including in more establishe d renewable energy technologies. Commenters stated that State aid focused on more established technologies, like commercial wind, solar, biomass, geothermal and other technologies, would address the480 short

- term challenges of the present credit limitation of the tax equity market, accelerate conventional renewables deployment in the near term, and help ensure sufficient depth to the renewable project finance market. Commenters added that the lower credit risks for a portfolio of these technologies would allow state incentives to maximize leverage and private

- sector financing on an aggregate level. Commenters added that States have a variety of financial tools at its disposal, including equity or quasi

- equity instruments, letters of credits, insurance products, and secondary market support, and would have the ability to charge revenue

- generating fees or take equity or convertible debt stakes in lieu of credit subsidy costs. Commenters stated that the Proposed Rule will result in enormous expenditures for combine d cycle natural gas plants over the course of a relatively short time frame. Commenters added that public policy should support the continued role of municipal power providers by helping these not

- for

- profit entities finance the plants necessary to continu e their role in the power generation business. Commenters added that when enough financial incentive is available, solutions to problems are able to be found.

Comment 2: Comments supporting rebates for the end user of renewable energy.

Response 2: EPA encourages the use of innovative RE program design and financing as enabling measures that facilitate greater use of RE. In the final rule, however, financing program strategies are not directly recognized as an eligible measure that can be used to adjust a CO2 emission rate, because financing does not directly substitute for electric generation from the grid or avoid electricity use from the grid.

For RE MWhs and rate

- based state plans, the EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- emitting and low

- emitting resources, as described in sections V III.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower adjusted CO2 emission rate.

To the extent that qualifying zero

- emitting and low

- emitting resources result in reduced generation and CO2 emissions from an individual affected EGU, those emission impacts are reflected in lower reported CO2 emissions and a reduction in MWh generation from the affected EGU. However, while there will be a reduction in CO2 emissions at the affected EGU, the fac t that both CO2 emissions and MWh generation are reduced means that such impacts do not alter the reported CO2 emission rate of the affected EGU. As a result, the MWh of replacement generation must be added to the denominator of the reported CO2 emission r ate, in order to represent those impacts in the form of an adjusted CO2 emission rate.

The reported CO 2 emissions reflect the actual emission reduction from the deployment of qualifying non

- emitting and low emitting resources across the regional grid. Fur ther adjustment of the CO 2 emissions, such as through the subtraction of emissions estimated by applying an emission factor to the MWhs, would double count CO 2 emission impacts across the grid.

For RE measures, section V.A.5.a(3) specifies that an owner/op erator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral481 transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need no t, involve an organized market.

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

Commenters stated that the proposed rule does not contain incentives for the end user. Commenters supported allowing a federal rebate in lieu of a credit to the end user for purchasing some of their electricity from a renewable energy source. Commenters contended that if EPA were to allow the end user to have a rebate to pay the same price as the competitive electricity, the benefits would be fa r more than seven dollars in return for each dollar spent that is in the proposed rule because in addition to smog control more jobs would be created.

Comment 3: Comments supporting increasing the percentage rate applied to Federal tax credits for energy efficient equipment and renewable energy.
Response 3: EPA encourages the use of innovative EE and RE program design and financing as enabling measures that facilitate greater use of RE and demand

- side EE. In the final rule, however, financing program strat egies are not directly recognized as an eligible measure that can be used to adjust a CO 2 emission rate, because financing does not directly substitute for electric generation from the grid or avoid electricity use from the grid.

For RE MWh and rate

- based state plans, the EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh f rom qualifying zero

- emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower adjusted CO2 emission rate.

In section VIII.K.1.a.2, the EPA clarifies that all EE measures must result in electricity savings at a building, facility, or other end

- use location that is connected to the electricity grid. EE measures only avoid electric generation from grid

- connected EGUs if the electrical l oads where the efficiency improvements are made are interconnected to the grid.

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

Commenters encouraged the EPA to urge Congress to increase the percentage rate which may be appl ied to the Federal tax credit for equipment such as water heaters, wind turbines and solar electric generation, and extend the period in which the credit may be taken into the interim period to incentivize homeowners to take advantage of the tax credit and energy savings in addition to supporting the goal of the Clean Power Plan.

Comment 4: Comments supporting incentives for property owners to increase energy efficiency of property.482 Response 4: EPA encourages the use of innovative EE program design and financing as enabling measures that facilitate greater use of RE and demand

- side EE. In the final rule, however, financing program strategies are not directly recognized as an eligible measure tha t can be used to adjust a CO 2 emission rate, because financing does not directly substitute for electric generation from the grid or avoid electricity use from the grid.

In section VIII.K.1.a.2, the EPA clarifies that all EE measures must result in electr icity savings at a building, facility, or other end

- use location that is connected to the electricity grid. EE measures only avoid electric generation from grid

- connected EGUs if the electrical loads where the efficiency improvements are made are interconn ected to the grid.

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

Commenters urged that, in an effort to include all citizens regardless of tax status from participation in the Clean Power Plan, the EPA encourage Congress t o develop tax incentive programs aimed at landlords and property owners to increase the energy efficiency of their rental properties. Commenters stated these incentive support the goal of the Clean Power Plan and also improves the health and wellbeing of t he Nations most underrepresented citizens who will be impacted the most by increased energy costs.

5.4.7 Options

This section discusses allowing states to customize monitoring, verification, and evaluation requirements, requests for additional guidance on acceptable renewable energy methods that can be included in state plans, and accounting for renewable generation.

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

Comment 1: Comments supporting allowing states to establish monitoring, verification, and evaluation requirements to customize for sources in their state.
Response 1: The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

This section identifies and discusses the EM&V requirements used. States must submit these criteria as specified, or alternatively, states may submit certain established standard industry practices described in section VIII.K.3 as presumptively approvable. States may also submit other means of meeting the criteria so long as the state satisfactorily demonstrates in the state plan submittal t hat such alternative means of addressing criteria are as adequately stringent as the presumptively approvable approach. Electricity T&D measures that improve the efficiency of the T&D system and/or reduce electricity use may be used to adjust a CO 2 emissio n rate. This483 includes T&D measures that reduce losses of electricity during delivery from a generator to an end

- user (sometimes referred to as " line losses " ) and T&D measures that reduce electricity use at the end

- user, such as conservation voltage reducti on (CVR).

To be eligible, T&D measures must be installed after 2012. This general eligibility requirement is discussed in section VIII.K.1.a.(2). The MWh of avoided losses or reduction in end

- use that result from T&D measures must be appropriately quantifi ed and verified, as discussed in section VIII.K.3.

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

Commenters recommended that states be permitted to establish general Monitoring, Verification and Evaluation (MV&E) requireme nts and be allowed flexibility to customize approaches for different programs, measures and processes. Commenters added that a similar approach should be extended to transmission and distribution efficiencies. Commenters noted that MV&E standards vary broa dly within the industry and standardization will be difficult due to numerous factors (e.g. treatment of free ridership, spillover, net to gross savings, equipment performance under different climate conditions, etc.) and MV&E protocol development will req uire a significant statewide effort. Commenters also noted that retention of independent third parties to conduct program reviews is not without cost, and may run upwards of $1 MM per year for a utility, thereby impacting costs to consumers.

Comment 2: Comments requesting that the EPA to develop guidance materials on acceptable energy methods that could be included as part of a State Plan.

Response 2: The EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in se ction VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources

use d to adjust a CO2 rate. This section identifies and discusses the EM&V requirements used. States must submit these criteria as specified, or alternatively, states may submit certain established standard industry practices described in section VIII.K.3 as p resumptively approvable. States may also submit other means of meeting the requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as adequately stringent as the p resumptively approvable approach.

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

Commenters supported EPA developing guidance materials on acceptable renewable
energy methods that could be included as part of an approvable state plan. Commenters stated that the EPA should issue a guidance document as soon as possible and seek public comment on that document so that states will have a better idea of how to develop a state plan. Commenters added that such a guidance document s hould include the analytic methods, assumptions, and data sources that the state will employ during the state performance periods to determine the energy savings and energy generation related to renewable energy and EE measures. Commenters484 disagreed with l imiting the type of renewable energy measures that may be considered as compliance tools.

Comment 3: Comments suggesting that the EPA rules should require explicit explanation of how integration requirements will be provided for the renewable resources pr oposed for compliance with achieving the targeted reductions in CO 2

. Response 3: The EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, result ing in a lower adjusted CO2 emission rate.

EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ER Cs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve

an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters recommended that the EPA rules require explicit explanation of how integration requirements will be provided for the renewable resources proposed for compliance with achieving the targeted reductions in CO 2 . Commenters contended that significant construction of new renewable or gas generating resources will generally require new transmission and/or pipeline infrastructure and significant construction of new large wind resources to serve the loads and compliance needs of other states wi ll create major transmission costs in addition to the regulation needs addressed in the previous paragraph. Commenters added that these costs must be taken into account when selecting locations for new generation and must be reflected in the planning and i nvestment decisions of the consuming utilities. Commenters stated that the proposed rules are silent on these issues. Commenters contended that solving this issue will require more than interstate cooperation on development of compliance plans; it will hav e to involve the utilities who will make the investments and whose customers will pay the bills. Commenters recommended that the EPA rules explicitly require projected locations of renewable resources proposed for Building Block 3, identification of the ta rgeted utility that will use the485 power, and an evaluation of the transmission requirements and costs associated with them and an explanation of who will pay those costs.

Comment 4: Comments suggesting that regional modular plans should be allowed to ensur e proper accounting for renewable generation.
Response 4: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be ad justed based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate.

VIII.L addresses the treatment of interstate effects, including those effects of importing RE. Under all types of state plans, states must ensure that the measures and associated CO 2 emission reductions counted as part of meeting their plan requirements are not duplicative of any measures that are counted by another state. Interstate effects make this more difficult because states may be responsible for the deployment of measures that have effects on generation and emissions beyond the state borders. Depending on how these measures are accounted for, the reductions could be counted by both the state that deployed the measure, and the state that reports a reduction in fossil generation or reported emissions.

States with rate

- based plans must demonstrate that the RE and demand

- side EE that they use to adjust their CO 2 emission rate are non

- duplicative. Double

- counting of MWhs in the denominator can be avoided because adding the MWh that t he affected EGU is responsible for deploying to the denominator is relatively straightforward to quantify and assign, and aligns well with the MWh

- denominated trading system described in this final rule. As long as it is assured that the MWhs of RE and dem and

- side EE are only being claimed by one state, as is outlined in section VIII.C.2, then there is no double

- counting of MWh.

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

Commenters stated that to ensure proper accounting for renewable generation within a regional modular plans should be allowed. Commenters explained that allowing multi

- state flexibility in a modular way could address individual renewable energy needs, would incentivize additional renewable energy investme nts, and ensure imported renewable energy dependent markets like California's to continue on its path towards compliance with the goal while supporting state energy policies. However, Commenters contended that the proposed rule is silent on the issue of di sagreements between states that may wish to claim the same renewable resources leading to confusion and possible double counting.

Comment 5: Comments suggesting that only CEMS measuring CO 2 emissions from existing

non

- exempted EGUs should be counted towards section 111(d) compliance regardless of whether the goal is based on a mass emission (tons) or lb/MWh rate limit.486 Response 5: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The comme nters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.

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

Commenters stated that only CEMS measured CO 2 emissions from existing non

- exempted EGUs should be counted towards section 111(d) compliance regardless of whether the goal is based on a mass emission (tons) or lb/MWh rate limit. Commenters added that CO 2 emissions from exempted EGUs should not be counted, and CO 2 emissions from new and modified EGUs are regulated separately and should not be considered or included in the proposed section 111(d) existing unit ru le.

5.4.8 Other

This section discusses how utilities subsidize renewable energy through rate increases, additional considerations EPA must make in regarding the renewable energy and not only RECs, requests EPA to provide guidance on customer installed ren ewable resources, requests for EPA to develop a SIP model, recognizing the burden of state regulators to assess the CPP, incorporating outside the fence measures within the building bock approach to reduce emissions, incorporating life cycle analysis into how each type of energy production is incentivized

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

Comment 1: Comments suggesting that the E PA did not consider how large scale utility projects are subsidized through increases in utility rates in the CPP.

Response 1: The EPA addresses the quantification of RE generation potential for the BSER in section V.E.6 of the preamble to the final rule. The quantification of RE potential for the BSER did not include distributed generation, such as PV. The analysis of RE as the BSER in section V.E found the costs of RE to be declining and increasing cost

- competitive. In assessing the cost487 of CO2 emission reductions from RE in V.E.8, the EPA believes that RE generation at the levels represented in building block 3 can be achieved at reasonable costs.

As for RE and rate

- base state plans, EPA encourages the use of innovative RE program design and financing as enabling measures that facilitate greater use of RE. In the final rule, however, financing program strategies are not directly recognized as an eligible measure that can be used to adjust a CO2 emission rate, because financing does not directly substitute for electric generation from the grid or avoid electricity use from the grid.

For RE MWhs and rate

- based state plans, the EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- e mitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 emission rate, resulting in a lower adjusted CO2 emission rate.

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

Commenters stated that many renewable generation projects currently benefit from various types of societal subsidies, such as federal and state tax credits, grants, renewable energy credits (RECs), and local property tax r elief. Commenters added that ratemaking mechanisms such as net metering can lead to de facto subsidization in the form of cross

- customer cost

- shifting. Commenters explained that larger scale, utility

- owned projects are effectively subsidized by all
custome rs through higher utility rates when project costs exceed the economic value of the output. Commenters stated that these subsidies are crucial for the development of renewable energy sources. Commenters contended that EPA did not consider these subsidies a nd doesn't acknowledge in its proposal how rapid and disproportionately large expenditures on renewable projects might increase rates and significantly decrease the marginal value of such projects to the community. Commenters explained the subsidization th at results from cross

- customer cost shifting and stated that cost

- shifting issues are particularly pronounced with net

- metered projects. Commenters added that the subsidization arises because the generator output displaces utility production and sales. Com menters provided an example of when the output of the consumer

owned PV system is less than or equal to the customers usage, total utility sales are reduced and total utility revenue declines by an amount equal to the volumetric ($/kWh or $/kW) rate under which the customer is taking service, times the volume of solar output. Commenters added that the utility's total cost will decline, by an amount equal to the projects output times the unitized ($/kWh or $/kW) marginal costs that are avoided as a result of the solar production, which is likely to be less than the amount the customer avoids paying. Commenters concluded that revenue and cost both decline, but whenever the volumetric electric rate exceeds the unitized avoided cost, the utility will face a net revenue loss unless it makes up the shortfall by raising rates and shifting costs to its non

- PV customers.

Comment 2: Comments suggesting that the EPA provide guidance to states on how to account for customer

- installed renewable resources aside from those specifically sanctioned (and paid for) either by the utilities within a state or by the state itself.488 Response 2: The EPA addresses considerations for incorporating CO2 emission reduction from measures that are grid

- connected in state plans in section VII I.K.1.a of the preamble to the final rule. Eligible measures must be grid

- connected. This eligibility criterion aligns with RE generation in building block 3 of the BSER, which substitutes for the need for generation from affected EGUs.

The EPA addresses c onsiderations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

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

Commenters contended that EPA did not provide any guidance to the states on how to account for customer

- installed renewable resources aside from those specifically sanctioned (and paid for) either by the utilities within a state or by the state itself. Commenters stated that where utilities actually provide the economic incentives for their customers to leave (in the form of solar rebates, special tariff s, etc.), the regulated community has access to data on installed capacity and net generation, and can factor these data into their RPS calculations and other reports to regulatory authorities. Commenters added that these utility

- funded departures readily lend themselves to the evaluation, measurement, and verification protocols, as proposed. Commenters cautioned that once the price of electricity reaches a point that customers elect to leave the grid on their own utilities stand a high probability of losin g access to these data. Commenters concluded that as a result, a significant amount of renewable generation data will be unavailable for compliance accounting, and would force utilities and states to over

- comply in those programs for which they do have con trol.

Comment 3: Comments suggesting that developing a reliable, cost

- effective energy supply requires serious evaluation of integration and reliability needs and careful, targeted procurement of energy resources that work well together, and cannot be acc omplished by only counting RECs.

Response 3: The EPA addresses the general accounting approach for adjusting a CO2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO2 e mission rate, resulting in a lower adjusted CO2 emission rate.

The EPA addresses considerations for the use of the BSER and non

- BSER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE me asures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for E RCs through an intermediary, which could, but need not, involve an organized market.489 The following are summaries of the specific public comments under this comment:

Commenters stated that reliable, cost

- effective energy supply require serious evaluation of integration and reliability needs and careful, targeted procurement of energy resources that work well together. Commenters explained that renewable energy can contribute to grid reliability and to reasonable energy costs. Commenters stated that effective valuation of renewable energy measures and programs relative to all requirements

- i.e., greenhouse gas reductions and a reliable,
cost

- effective energy supply

- can be relatively straightforward, but it cannot be accomplished in a simplistic fashion, such as only counting renewable energy credits. Commenters stated that the effect on the grid of the variety of renewable energy measures deployed, and the resulting impact on the operations of EGUs, must also be assessed; the nature of renewable energy procureme nt, including diversity in location (as overconcentration of renewable energy resources in a limited number of areas decreases reliability) as well as energy type can then be adjusted to improve the emissions profile of EGUs and of the power sector as a wh ole.

Comment 4: Comments supporting the EPA to provide incentives to induce the public to increase insulation usage.

Response 4: The EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the pre amble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, are specifically addressed in section VIII.K.3.

This section identifies and discusses the EM&V requirements used. States must submit these requirements as specified, or alternatively, states may submit certain established standard industry practices described in section VIII.K.3 as presumptively approvable. States may also submit other means of meeting the requirements so long as the st ate satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as adequately stringent as the presumptively approvable approach.

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

Commenters stated that if EPA is providing any kind of incentive or any kind of inducement to increase insulation the quantification and verification should be simple, streamlined and easy.

Comment 5: Comments suggesting that the EPA has not prov ided a model SIP for states or offered any guidance as to the policies allowed in a SIP.

Response 5: In section VIII.C.2, the EPA notes it is proposing model rules for both mass

- based and rate

- based emission trading programs. Regarding RE and rate

- based em ission plans, the EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which RE actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO2490 rate. For more information on EM&V provisions, see section IV.D.8 of the preamble to the proposed Federal Plan and th e draft EM&V guidance document.

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

Commenters contended that EPA has not provided a model SIP for states or offered any guidance as to the policies allowed in a SIP. Commenters st ated that guidance should detail how states can diversify and de

- carbonize their energy portfolios with renewable energy, which provides the greatest long

- term benefit to public health, national security, and our economy.

Comment 6: Commenters stated that most of the work assessing the CPP will fall on state air regulators who are ill equipped for the work.

Response 6: In section VIII.C.2, the EPA notes it is proposing model rules for both mass

- based and rate

- based emission trading programs.

Regarding RE a nd rate

- based emission plans, the EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO2 rate. Evaluation, measurement, and verification (EM&V) requirements for RE, including tracking systems, a re specifically addressed in section VIII.K.3.

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

Commenters contended that most of the work assessing the CPP will fall on state air regulators who are ill equipped for the work.

Comment 7: Comments stating that the EPA provided inadequate guidance and consideration of the regional systems currently in place to manage electricity in rural non

- coal producing, no

- coal fired generation with the boarders of Idaho.

Response 7: In section VIII.C on state plan approaches, EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requirements for meeting the emission guidelines to affected EGUs in the form of federally e nforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a " state measures " plan type, would allow the state mass CO2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accom modating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO2 emissions from affected EGUs.491 Under the emission standards state plan type, one approach is a rate

- bas ed emission standard for affected EGUs, which may include use of emission trading and ERCs. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.

ER Cs may be issued for qualifying measures. Qualifying measures that can be used to adjust the CO2 emission rate of an affected EGU are discussed at subsection VIII.K.1, and include RE, demand

- side EE, and other measures, such as DSM, CHP and incremental nuc lear generation.

The EPA defines an ERC in the emission guidelines as a tradable compliance instrument that represents a zero

- emission MWh from a qualifying measure that may be used to adjust the reported CO 2 emission rate of an affected EGU subject to a r ate

- based emission standard in an approved state plan under CAA section 111(d). The sole purpose of an ERC is for use by an affected EGU in demonstrating compliance with a rate

- based emission standard in such an approved state plan.

An ERC is issued separa tely from any other instruments that may be issued for a MWh of energy generation or energy savings from a qualifying measure. Such other instruments may be issued for use in meeting other regulatory requirements (e.g., such as state RPS and EERS requireme nts) or for use in voluntary markets. An ERC may be issued based on the same data and verification requirements used by existing REC and EEC tracking systems for issuance of RECs and EECs.

The EPA addresses considerations for the use of the BSER and non

- BS ER measures to achieve an emission rate

- based standard in section V.A.5 and V.A.6 of the preamble to the final rule. For RE measures, section V.A.5.a(3) specifies that an owner/operator of an affected EGU can either acquire ERCs through common ownership of RE generating capacity, a bilateral transaction with the owner/operator of the RE generating capacity, or a transaction for ERCs through an intermediary, which could, but need not, involve an organized market.

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

Commenters contended that there has been inadequate guidance and consideration of the regional systems currently in place to manage electricity in rural non

- coal producing, no

- coal fired generation with the boarders of Id aho. Commenters contended that the CPP increases complexity to systems that have been put into place over a long period of time and cannot be quickly or simply changed to obtain compliance from your new rule mandates and very short

term compliance schedule

.

Comment 8: Comments supporting the EPA to provide incentives to states that have already met the renewable energy target so they can continue to promote renewable energy.

Response 8: Under the emission standards state plan type, one approach is a rate

- based emission standard for affected EGUs, which may include use of emission trading and ERCs. Under a

mass

- based emission standard, trading of emission allowance is another approach. The EPA anticipates the use of emission trading in state plans, due to the advantages of this approach.492 The following are summaries of the specific public comments under this comment:

Commenters supported incentivizing states that have already met the renewable energy target to continue promoting renewable development and consider the "added" renewable generation as an overall contribution to the regional renewable energy target so it would better align with current market structures for RES.

Comment 9: Comments supporting incorporating outside the fence measures within t he building block approach for reducing emissions.

Response 9: The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to the final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

emitting and low

- emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of an affected EGU’s reported CO 2 emission rate, resulting in a lower adj usted CO 2 emission rate.

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

Commenters supported incorporating outside the fence measures within the building block approach for reducing emissions. Commenters stated that this pr ovides a flexible framework for states to decide how best to achieve their emission rate reduction targets effectively including the use of renewable energy and energy efficiency cost . Commenters concluded that allowing states to use renewables and efficie ncy for compliance is a smart strategy that builds on the successes of what states are already doing and have been doing for more than a decade.

Comment 10: Comments that the EPA should incorporate life cycle costs into how each type of energy production is incentivized.

Response 10: EPA did not prescribed specific approaches like life cycle cost accounting. In section VIII.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the sta tutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

Regarding RE and rat e

- based emission plans, the EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EPA has clarified which actions count and when such actions count generally in section VIII.K.1 and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate. Requirements for rate

- based emission trading programs and the issuance and tracking of ERCs, including qu alifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII.K.2.493 The following are summaries of the specific public comments under this comment:

Commenters requested EPA to i ncorporate life cycle costs into how each type of energy production is incentivized.

Comment 11: Comments suggesting that the EPA clarify in its section 111(d) guidance that a broad variety of credible state clean energy programs are acceptable in state p lans to achieve compliance with applicable performance standards.

Response 11: In section VIII.C on state plan approaches, the EPA clarifies that states may adopt and submit either of two different types of state plans. The first would apply all requiremen ts for meeting the emission guidelines to affected EGUs in the form of federally enforceable emission standards, which we refer to as an " emission standards " state plan type. The second, which we refer to as a " state measures " plan type, would allow the st ate mass CO 2 emission goals to be achieved by affected EGUs in part, or entirely, through state measures that apply to affected EGUs, other entities, or some combination thereof, such as a RPS. These two types of state plans and their respective approaches allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affect ed EGUs.

Under the state measures plan type, state measures must be satisfactorily described in the supporting material for a state plan submittal. The supporting material would need to demonstrate that the state measures meet the same integrity elements that would apply to federally enforceable emission standards. Specifically, the state plan submittal must demonstrate that the state measures are quantifiable, verifiable, enforceable, non

- duplicative and permanent. These requirements are described in more detail at section VIII.D.2.

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

Commenters requested EPA clarify through its Section 111(d) guidance that a broad variety of credible state clean energy programs are acceptable in state plans to achieve compliance with applicable performance standards. Commenters suggested that the state would work with its public utility commi ssion, environmental regulator and other state institutions to develop the plan. Commenters continued that the state would analyze whether its current resource plans and state clean energy programs would meet its emission targets. Commenters added that if the current programs are achieving sufficient progress in reductions, the state would submit its plans. Commenters also stated that if the resource plans show that the current plans and state clean energy programs would not meet the Section 111(d)

- based ta rgets, the state would consider whether to adopt more or more stringent clean energy programs or whether plant

- based measures may be necessary.494 5.5 REPORTING AND RECORDKEEPING FOR DEMAND

- SIDE ENERGY EFFICIENCY PROGRAMS AND MEASURES

This section addresses comments on Reporting and Recordkeeping for Demand

- Side Energy Efficiency Programs and Measures. We have organized the comments in this section under two subsectio ns, 5.5.1 and 5.5.2 . Responses to the comment topics of these subsections are discussed below along with summaries of the specific public comments.

5.5.1 Reporting for EE programs and measures

This section discusses the reporting requirements for energy efficiency programs and measures, including content of reports and timing, and the broader topic of emission monitoring and verification (EM&V).

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) b elow. Responses are also provided for these topics.

Comment 1: Comments urging the EPA to defer recordkeeping and reporting requirements to states, since states should be allowed to implement 111(d) programs in the most efficient manner possible.

Respons e 1: The EPA disagrees with the commenters and is not deferring recordkeeping and reporting requirements. State plans must contain requirements for tracking and reporting actual plan performance during implementation, which includes reporting of CO 2 emissi ons from affected EGUs. Affected EGUs must comply with emissions monitoring and reporting requirements that are largely incorporated from 40 CFR part 75 monitoring and reporting requirements. The majority of affected EGUs are already familiar with the repo rting requirements of part 75, and because of this, the EPA has chosen to streamline the applicable reporting requirements for affected EGUs under the state plans in the final rule. For more information on recordkeeping and reporting requirements, see sect ion VIII.F.1 of the preamble to the final rule.

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

Several commenters urged, for similar reasons, for EPA to defer recordkeeping and reporting requirements to states, as the state s should be allowed to implement 111(d) programs in the most efficient manner possible. Commenters argued that the proposed rule imposes excessive reporting requirements, and in some cases the state plan requirements being proposed go beyond SIP requiremen ts for the NAAQS. Commenters further stated that some components of the proposed state plan requirements exceed EPA's legal authority under CAA section 111, continuing that EPA's role in the state plan process is oversight and approval, not implementation. Commenters stated that EPA's State Plan TSD did little more than summarize current efforts by states to address reporting and recordkeeping requirements being used to495 implement existing RE and EE programs. Commenters contended that the TSD also suggests t hat EPA might require more information than these current programs require, but argued that EPA provided no basis for requiring additional information. Commenters further argued that EPA's goals are based on a Building Block analysis of what states are currently achieving through their own RE and EE programs, so therefore it is unreasonable for EPA to also find that these very same programs are insufficiently reliable due to their reporting and recordkeeping requirements. Commenters stated that EPA shoul d lower the cost of compliance by minimizing new regulatory burdens on states through reliance on existing reports from EE authorities within a state where sufficient to demonstrate implementation.

Commenters noted that they have already developed an auto mated software system solution for EE data management and reporting, and urged EPA not to designate the use of specific software that would undermine the work they have already done to improve accuracy and efficiency of EE data collection. Commenters state d that they expect minimum reporting requirements, but encouraged EPA to review existing state reporting programs to help set such minimum requirements. Commenters offered to provide EPA more information or to arrange a demonstration of their EE data manag ement and reporting system.

Commenters stated that some state

- run energy efficiency programs (i.e. the Guaranteed Energy Savings Program (GESP) and Local Energy Efficiency Program (LEEP)), will have measurement and verification protocols as built in requirements. Commenters stated that it is their goal to aggregate these savings through the Buildings, Benchmarking and Beyond (B3) tool and measurement and verification reporting, and the use of designated software or reporting requirements by the EPA sh ould be avoided.

Commenters recommended that EPA provide states with reporting flexibility because utilities may have different fiscal year periods that are used to track compliance with EE targets. Commenters added that utilities should not be penalized w ith additional recordkeeping and reporting requirements solely because they use a different fiscal year than another utility.

Comment 2 : Comments suggesting that the EPA should promote standardized data collection, reporting and EM&V practices for EE. Com menters recommend various existing tools and documents to enable this.

Response 2 : The EPA appreciates this comment. The EPA recognizes that there are many states with established EM&V methods to determine energy savings from demand

- side EE programs using existing protocols, guidelines, and guidance documents. The EPA heard overwhelmingly from commenters that such protocols, guidelines, and guidance documents are currently in wide use, and that this use should be continued and encouraged in the context of s tate plans. The agency agrees with this observation and therefore supports their use in generating ERCs in emission standard plans and adjusting rates in state measures plans. The EPA’s proposed approach provides flexibility to states on EM&V approaches as long as EM&V meets a minimum level of credibility, and the EM&V approach is robust, transparent, and systematic.496 The following are summaries of the specific public comments under this comment:

Commenters urged EPA to require standardized treatment of EE in state plans, including data collection, reporting, and EM&V practices.

Commenters noted that they had invested significant resources to program evaluation, and had in many cases enlisted regional and national groups in helping develop uniform protocol s. Commenters stated they were pleased to see their work acknowledged in the proposal, but urged EPA to require rigorous standardized treatment of EE in state plans. Commenters recommended EPA develop a common terminology among states, and suggested using the glossary developed by DOE/EPA State and Local Energy Efficiency Action Network in its publication, "Energy Efficiency Program Impact Evaluation Guide," Appendix A. The complete reference for this document is: Glossary of Terms, Version 2.1, A project o f the Regional Evaluation, Measurement and Verification Forum, Prepared by Paul Horowitz PAH Associates, Facilitated by Northeast Energy Efficiency Partnerships. https://www4.eere.energy.gov/seeaction/system/files/documents/emv_ee_program_impact_guide _0.pdf

. Commenters stated that not all EE programs are cr eated equally, and suggested a new screening effort, called the Resource Value Framework (RVF) which provides a tool for public utility commissions to ensure their cost

- effectiveness tests are balanced, transparent, and account for public policy goals. Com menters urged EPA to recommend states use RVF to test their 111(d) compliance for cost

- effectiveness.

Comment 3 : Comments suggesting that the EPA develop a nation

- wide registry of EE measures, such as that proposed by The Climate Registry. Commenters also suggested recommendations on EE reporting for non

- PUC regulated programs; additional reporting elements for EE activities; and interim period reporting frequency.

Response 3 : Regarding the proposal of a national EE registry, the EPA’s proposed approach
pr ovides flexibility to the states on how to design their registries and therefore will not require states to submit to a national registry of EE measures. To ensure the credibility of state registries for trading programs, the EPA provides recommended crite ria in the draft EM&V guidance document. The EPA is also providing a template for an EM&V plan in its draft EM&V guidance document.

The EPA addresses the general accounting approach for adjusting a CO 2 emission rate in section VIII.K.1 of the preamble to t he final rule. The reported CO 2 emission rate of an affected EGU may be adjusted based on quantified and verified MWh from qualifying zero

- emitting and low

emitting resources, as described in sections VIII.K.1.a. These MWh are added to the denominator of a n affected EGU’s reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Under all types of state plans, states must ensure that the measures and associated CO 2 emission reductions counted as part of meeting their plan requirements are not duplicative of any measures that are counted by another state. Interstate effects make this more difficult because states may be responsible for the deployment of measures that have effects on497 generation and emissions beyond the state borders. Dependi ng on how these measures are accounted for, the reductions could be counted by both the state that deployed the measure, and the state that reports a reduction in fossil generation or reported emissions.

States with rate

- based plans must demonstrate that t he RE and demand

- side EE that they use to adjust their CO 2 emission rate are non

- duplicative. Double

- counting of MWhs in the denominator can be avoided because adding the MWh that the affected EGU is responsible for deploying to the denominator is relative ly straightforward to quantify and assign, and aligns well with the MWh

- denominated trading system described in this final rule. As long as it is assured that the MWhs of RE and demand

- side EE are only being claimed by one state, as is outlined in section VIII.C.2, then there is no double

- counting of MWh.

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

Commenters urges EPA to develop a nation

- wide registry of EE measures, such as that proposed by The Climate Registry (TCR). Commenters noted that a flexible nation

- wide registry would provide a consistent framework to track and report realized EE savings and could serve as the foundation for an energy efficiency crediting and trading platform. Commenters stated that this would also provide EPA confidence that energy savings are being reported across states in a consistent and comparable manner. Commenters noted that TCR has established a roadmap for developing and implanting an EE registry in the white paper: An Energy Efficienc y Registry; a Flexible and Transparent way to Track and Report Energy Efficiency under the Clean Power Plan.

Commenters said that states will need guidance from EPA on how to aggregate data from private

- sector delivered EE, such as IEE, to be counted as a compliance mechanism. Commenters suggested that a national registry could be created for this purpose, as it would be the most efficient approach with the greatest degree of consistency in all aspects of including project

- related GHG reductions in 111(d) compliance. Alternately, commenters said, a SEO (or another designated Agency) can aggregate (directly or via a third party) data from all IEE projects in the state and determine the avoided emissions achieved. Commenters added that a state could choose to have a state

- run or utility

- run EE program aggregate data from IEE savings and, in such states, the state

- run or utility

- run program could choose to direct additional incentives to IEE projects to increase the quantity of cost

- effective EE delivered. Comm enters said that a national registry would be useful in eliminating any double

- counting of GHG emission reductions from EE projects and, by identifying those measures or projects that benefited from a utility rate subsidy or other incentive, aggregators ca n ensure that GHG reductions are claimed only under the appropriate EE program for compliance purposes. Commenters said that by using a national registry, the EPA could ensure uniformity of EE

derived GHG benefits , which would allow EE credit to be applie d anywhere within a regional electric grid without creating a concern about double

- counting of GHG reductions. Commenters stated this approach would eliminate the need for the EE penalty. Finally, Commenters said, a national or state

- based registry functio n for IEE projects through 111(d) will help EPA establish a set of 111(d) compliance tools that will work in either a state

- driven portfolio approach or an EGU

- obligated compliance approach.498 Commenters agreed that that a registry of performance contractin g (PC) projects, maintained by a reputable third party which certifies the standards for both calculating and verifying project savings, will allow state air regulators to use performance contracting in their compliance plans, and will allow the EPA to eva luate these plans with confidence. Commenters stated that M&V can be performed by certified third party experts that include both the staff of national laboratories (for federal projects) and private sector companies, many of which have been providing serv ices to public sector agencies that host PC projects for more than a decade. Commenters added that a registry can convert energy savings into units of CO 2 reduction by using the certified savings from each project and conversion factors specified by the EP A or state air regulators. Commenters noted that a registry can also provide a standard bookkeeping method and a database of the certified savings for the life of the project. Finally, commenters said, a registry that can certify their project energy savin gs without exposing their projects to public disclosure can also encourage industrial customers to allow their projects to be used for state CPP compliance.

Commenters described several other actions that should be taken to facilitate the use of IEE

resou rces including the following:

• Registration and verification including some sort of centralized registry and a credit trading system

• Data standardization to ensure that M&V reports are prepared in a manner that enables effective and efficient evaluation o f the program

Commenters suggested that a statewide entity should be responsible for managing all energy efficiency programs, so that the plan could account also for electricity savings associated with savings of natural gas or propane use from programs l ike duct sealing and insulation.

Commenters noted concerns about varying EM&V reporting elements from state to state, as well as different formats, and recommended that EPA designate US DOE to develop a sample template reporting form. However, commenters a dded, consideration should be given to not creating additional burden to states in developing duplicative reporting where EE program administrators are already reporting to PUC, Energy Information Administration (EIA) and regional system planners. Commente rs encouraged EPA to require certification of reported EE savings impacts, and that EPA should consider the value and role of a national EE registry, such as that proposed by TCR.

Commenters further suggested that EPA recognize that EE activities not neces sarily be limited to PUC regulated programs, but could include other types of state EE activities, such as municipal, community, or private investments. Commenters stated EPA should enable state plan and reporting requirements to incorporate or include a r ange of EE activities.

Commenters recommended EPA require reporting of the following additional information with regard to state's EE activities covered under their state plan:

• Description of any modifications to program implementation relative to that spe cified in the compliance plan (i.e., changes in measures or programs);499 • If applicable, a description of variations between expected and realized savings caused by either applying the latest EM&V results or on differences in the measures installed.

Commenters also offered suggestions on frequency of reporting, notably that EPA require interim reporting during the 2020

- 2030 timeframe so states can demonstrate progress towards their EE goals and avoided emissions. Commenters added that this interim rep orting should be on a 3

- year basis, starting in 2022.

5.5.2 Other

This section contains comments on reporting and recordkeeping of end

- use energy efficiency programs and measures that do not fit in section 5.5.1.

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

Comment 1: Comments on record retention period and opposing retention of " on site " electronic files when facilities use an offsite central location for electronic record storage and backup

. Response 1: The EPA is finalizing that states must include in their plans a record retention requirement for affected EGUs of not less than 5 years following the date of each compliance period, compliance true

- up period, occurrence, measurement, maintenance, corrective action, report, or record, whichever is latest,. that affected EGUs must maintain each record onsite for at least 2 years after the da te of the occurrence of each record and may maintain records offsite and electronically for the remaining years. Each record must be in a form suitable and readily available for expeditious review. The EPA finds that these final recordkeeping requirements are appropriate and consistent with the requirements for other CAA section 111(d) emission guidelines. See section VIII.D.2 of the preamble to the final rule for more information.

Affected EGUs must comply with emissions monitoring and reporting requiremen ts that are largely incorporated from 40 CFR part 75 monitoring and reporting requirements. The majority of affected EGUs are already familiar with the reporting requirements of part 75, and because of this, the EPA has chosen to streamline the applicable reporting requirements for affected EGUs under the state plans in the final rule. For more information on recordkeeping and reporting requirements, see section VIII.F.1 of the preamble to the final rule.

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

Commenters opposed the proposed 10

- year record retention period for all of the supporting information, unless EPA can show a special need as required under the Paperwork Reduction Act regulations. 5 C.F.R. section 1320.5(d)(2)(i v). Commenters continued to explain that, unless the EPA or a state intend to audit the accuracy of a certified report by referencing supporting information, they should do so within a reasonable period of time (e.g., 3 years). Commenters500 noted that Part 7 5 contains a 3

- year record retention requirement, and that EPA has not provided any information in the proposal to suggest that this time period is not adequate. Commenters suggested that compliance with Part 75 recordkeeping requirements should be suffici ent for state plan approval.

Commenters opposed the proposed on

- site requirement if it means that retention of electronic records that can be accessed "on site" (even if they are physically located offsite) would not be sufficient. Commenters stated that f acilities may use an offsite central location for electronic record storage and backup, and that as long as the facility can access the information on site, there is no reason for the electronic records to be physically located there.501 5.6 REPORT ING AND RECORDKEEPIN G FOR RENEWABLE ENER GY PROGRAMS AND MEASURES

This section addresses comments on reporting and recordkeeping renewable energy programs and measures. We have organized the comments in this section under 7 different subsections, 5.6.1 to 5 .6.7. Responses to the comment topics of these subsections are discussed below along with summaries to the specific comments.

5.6.1 Reporting for renewable energy programs and measures

This section discusses issues with the proposed reporting requirements renewable energy programs. The comments in this section address quantification and verification procedures.

Commenters have raised a number of issues related to this subsection which are organized by topics (comments) below. Responses are also provided fo r these topics.

Comment 1: Comments suggesting that the EPA defer to states as to how emission reductions are verified and quantified in order to allow flexibility.

Response 1: The EPA addresses considerations for incorporating CO2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s final emission guide lines require that all RE providers demonstrate that they will quantify and verify MWh using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Rule in se ction IV.D.8. States may also submit other means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the presumptively appr ovable approach.

Section VIII.K.1.a addresses how emission reduction measures that provide substitute generation for affected EGUs are counted in rate

- based state plans. This section describes the basic accounting method for adjusting a CO2 emission rate. The section also describes general eligibility requirements for measures that may be used for adjusting a CO2 emission rate. Section VIII.K.1.b. addresses measures that may not be used to adjust the CO2 emission rate of an affected EGU in a state plan, and explains the basis for this exclusion. The measures included in sections VIII.K.1.a.(3)

- (10) are not exhaustive. A measure that is not specifically discussed in this section VIII.K.1 may be included in a state plan, provided the measure meets all requirements specified in the emission guidelines.5 02 Section VIII.K.1 also discusses the basic accounting method for adjusting the reported CO 2 emission rate of an affected EGU, through the use of measures that substitute for or avoid generation from affected EGUs. That method is based on adding MWh from such measures to the denominator of an affected EGU’s reported CO 2 emission rate (lb CO 2 /MWh). Those additional MWh are based on quantified and verified electri city generation or electricity savings from eligible measures.

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

Commenters supported the need to ensure that greenhouse gas emission reductions are quantified and verified. Comm enters (encouraged EPA to defer to the states as to how the quantification and verification are done. Commenters (stated that flexibility in determining quantification and verification methods and requirements will allow states to utilize, modify, add

- to a nd build

- on established state or multi

- state practices. Commenters added that flexibility is also needed to account for differences among and within the building blocks, such as project scale, numbers, location, incremental cost implications, as well as th e feasibility and availability of direct and indirect quantification and verification methods may vary among and within the building blocks. Commenters stated that tailoring of quantification and verification procedures will be especially important to avoi d unnecessarily restricting the use of decentralized, on

- site renewable energy and energy efficiency tools that can assist in meeting greenhouse gas emission goals when used in appropriate situations. Commenters suggested several sources of information for quantifying, monitoring and verifying renewable energy and demand

- side energy efficiency for GHP systems. Commenters contended that GHP systems are appropriate for inclusion in State Implementation Plans and requested that any future EPA guidance allow fo r their inclusion under a streamlined review process.

Commenters stated that while it is important for states to retain flexibility under the proposed rule, such flexibility must have limits, particularly regarding states abilities to develop their own

ev aluation, measurement and compliance calculations.

Comment 2: Comments suggesting that the EPA provide a consistent approach for states to calculate compliance.

Response 2: The EPA addresses considerations for incorporating CO 2 emission reduction

measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM&V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s final emission guidelines require that all RE pr oviders demonstrate that they will quantify and verify MWh using best

- practice EM&V approaches. One way to make this demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Rule in section IV.D.8. States may als o submit other means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing requirements are as stringent as the presumptively approvable approach.

The followi ng are summaries of the specific public comments under this comment:503 Commenters contended that EPA should strengthen the proposed rule by providing a consistent approach for states to calculate compliance. Commenters cautioned that leaving states with discretion regarding compliance calculations (e.g., permitting states to calculate energy efficiency and renewable energy using an avoided emissions or an avoided generation approach) may result in states seeking the compliance calculation most favorable t o them and potentially weaken actual carbon reductions.

5.6.2 Typical Reporting and Compliance Requirements under State RPS

This section discusses reporting and recordkeeping requirements in State Plans. The comments in this section address incorporating new recordkeeping and reporting requirements in state plans, compliance during times of major interruptions, the use of alternative compliance payment mechanisms to support compliance, and concerns that energy efficiency improvements will become legally en forceable.

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

Comment 1: State plans should/should not specify new periodic reporting requirem ents.
Response 1: The EPA addresses state plan performance demonstrations in section VIII.F and specifies reporting requirements for affected EGUs in VIII.F.1. The EPA finalizes that states can choose to set shorter compliance periods for their emission st andards but no longer than the compliance periods the EPA is finalizing in this rulemaking.

As for having affected EGUs report directly to the EPA and the state, affected EGUs must comply with emissions monitoring and reporting requirements that are large ly incorporated from 40 CFR part 75 monitoring and reporting requirements. The majority of affected EGUs are already familiar with the reporting requirements of part 75, and because of this, the EPA has chosen to streamline the applicable reporting require ments for affected EGUs under the state plans in the final rule. The EPA believes that the final monitoring and reporting requirements (via EPA's Emission Collection and Monitoring Plan System or ECMPS) address the issue of duplicative requirements and all eviate concern about lost flexibility raised by commenters.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. Evaluation, measurement, and verification (EM &V) requirements for RE are specifically addressed in section VIII.K.3. This section of EPA’s final emission guidelines require that all RE providers demonstrate that they will quantify and verify MWh using best

- practice EM&V approaches. One way to make th is demonstration is to use the presumptively approvable EM&V approaches specified in the proposed Model Rule in section IV.D.8. States may also submit other means of meeting the EM&V requirements so long as the state satisfactorily demonstrates in the stat e plan submittal504 that such alternative means of addressing requirements are as stringent as the presumptively approvable approach.

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

Commenters agreed that a state plan should sp ecify appropriate periodic reporting requirements for each affected entity in a state plan that will be electronically reported at least biennially and disclosed on a state database accessible by the public and EPA. Commenters stated that reports should be submitted directly by the affected entities to EPA and the state. Commenters contented that there is no basis for EPA's assertion that more stringent reporting and recordkeeping requirements might be required than in current state programs. Commenters add ed that EPA's assertions that supplemental reporting information may be necessary or that additional information may be valuable do not establish that such information is actually needed or valuable. Commenters recommended that EPA should defer to the stat es, as appropriate under section 111(d), and refrain from attempting to circumscribe state discretion. Commenters added that EPA’s Plan TSD does little more than summarize current efforts by states to address reporting and recordkeeping requirements used to implement existing state RE and EE programs. Commenters contended that it was unreasonable for EPA to rely on RE and EE programs at states for the purpose of developing state goals, and, at the same time, to find those programs insufficiently reliable d ue to the robustness of their reporting and recordkeeping requirements.

Comment 2: Comments regarding compliance during times of major interruptions in low and no CO 2 emitting energy generation.

Response 2: The EPA addresses considerations for short

- term events in section VIII.G.2 of the preamble to the final rule. See Section VIII.G.2.e on a short

- term reliability safety valve. As a result, states can draft plans that allow adequate compliance flexibility to accommodate short

term events. Additionally, co mpliance can be demonstrated over 2

- 3 years (see section VIII.F, State Plan Performance Demonstrations).

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

Commenters contended that EPA should create a mechanism or exception for compliance in the event of major interruptions in low

- and no

- CO 2 emitting energy generation. Commenters stated that generation produced by nuclear plants, wind farms, photovoltaics, hydropower plants and other low

- or zero

- emitting sources may be reduced during an exceptional event such as flooding, drought, tornado, earthquake, or wildfire. Commenters concluded that such events should be treated similarly to exceptional events that lead to National Ambient Air Quality Standards violations.

Comment 3: Comments regarding the use of Alternative Compliance Payment mechanisms to support compliance.505 Response 3: EPA did not address specific approaches or measures like RPS policies with alt ernative compliance payments. In section VIII.C on state plan approaches, EPA clarifies that the types of state plans which states may adopt and submit allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deploy in the electricity sector that reduce CO 2 emissions from affected EGUs.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plan s in section VIII.K of the preamble to the final rule. For more information about specific RE measures to adjust the CO 2 emission rate of an affected EGU to reflect RE, including eligibility dates and the types of RE MWhs that are eligible, see Section VIII.K.1. Requirements for rate

based emission trading programs and the issuance and tracking of ERCs, including qualifying RE measures, programs or projects and addressing the potential for interactions between ERCs and RECs, are addressed in section VIII .K.2.

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

Commenters contended that a state policy should have strong compliance enforcement mechanisms to ensure targets are achieved. Commenters suggested that an Alternative Com pliance Payment (ACP) is often used to support compliance with current RPSs. Commenters explained that an ACP effectively establishes a market ceiling for the price paid for renewable energy. Commenters added that if set below the cost of renewable energy, market participants would likely pay the ACP amount rather than invest in actual renewable energy production. Commenters stated that this effect can be mitigated in the regulatory process by establishing different standards for rate recovery covering the utilities fixed and variable costs, i.e. providing greater certainty of cost recovery for energy procurement versus the ACP alternative. Commenters added that the ACP level will also influence the kind of renewable energy developed. Commenters explained th at renewable energy technologies are at different stages of development, serve varying market needs, and often are at different price points. Commenters added that many states have established carve

- outs or other mechanisms to develop a broader array of re sources with ACPs set at points to move a particular market class (e.g. wind or solar) or segment (e.g. residential or commercial). Commenters continued that in certain states, ACP payments are paid into a renewable energy fund that will facilitate capital deployment to renewable energy initiatives. Commenters then added that to the extent a state policy has carve

- outs for specific technologies, ACP policies should also direct capital to those specified technologies when ACP payments are triggered. Commente rs concluded that the effect of a wide variation in treatment by technologies is to funnel financing into proven technologies that are treated the same across state borders.

Comment 4: Compliance and energy efficiency improvements that become legally enfo rceable.

Response 4: The EPA addresses considerations for state plan components and approvability criteria in section VIII.D of the preamble to the final rule. In VIII.D.1, the EPA clarified that by not finalizing the portfolio approach, which would have allowed states to include enforceable measures in a state plan that apply to entities that are not affected EGUs, the agency is not506 providing additional guidance on federal enforceability of measures that might apply to such entities. As proposed, the EPA is requiring that state plans include a demonstration that plan measures are enforceable, which for emission standard plans is discussed in section VIII.D.2.b.4 and for state measures plans is discussed in section VIII.D.2.c.6.
The following are summaries of the specific public comments under this comment:

Commenters stated that the rule appears likely to result in compliance obligations imposed on renewable energy providers and electrical power system end

- users that states will draw on to help utilities me et their emission limits and the states targets. Commenters expressed concern that their mills that are able to improve their energy efficiency and could thereby help states meet their emission reduction goals could become subject to legally enforceable re quirements attached to those improvements. Commenters urged EPA to assure that those facilities will not be subject to additional requirements in any future CO 2 performance standard for their specific sector.

5.6.3 Typical Reporting for Renewable Energy Deployment Programs

The comments in this section address the use of reverse auction mechanisms as a compliance mechanism.

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

Comment 1: Comments regarding the use of Reverse Auction Mechanisms.

Response 1: EPA did not prescribed specific approaches or measures like reverse auction mechanisms. In section VIII.C on state plan approaches, EPA clarifie s that the types of state plans which states may adopt and submit allow states to meet the statutory requirements of CAA section 111(d) while accommodating the wide range of regulatory requirements and other programs that states have deployed or will deplo y in the electricity sector that reduce CO 2 emissions from affected EGUs.

The EPA addresses considerations for incorporating CO 2 emission reduction measures in state plans in section VIII.K of the preamble to the final rule. The commenters will find the EP A has clarified which actions count and when such actions count generally in section VIII.K.1. and more specifically in section VIII.K.3 on EM&V requirements for RE resources used to adjust a CO 2 rate.
The following are summaries of the specific public comments under this comment:

Commenters indicated that states may procure renewable energy contracts via reverse auction mechanisms (RAMs). Commenters stated that RAMs are intended to encourage developers to build projects in the highest

- capacity regions, and, generally, utilities solicit developers to bid in projects at the lowest $/MWh price. Commenters indicated that international experience suggests507 that (1) RAMs are successful at encouraging developers to build in the highest

- capacity locations; and (2 ) RAMs, if implemented without adequate pre

- screening criteria, may succeed in elicit low

- cost bids, only to see many of these bids fail to be built as the contract prices leave developers without sufficient incentive to build the project to completion.

5 .6.4 Reporting for utility administered renewable energy incentive programs

[No comments were received on this topic.]

5.6.5 Reporting for renewable energy incentive programs administered by non

- profit or state entities

[ No comments were received on this topic.]

5.6.6 Considerations for reporting requirements for renewable energy measures in state plans

[No comments were received on this topic.]

5.6.7 Other

[No comments were received on this topic.]508