***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During

Review***

EO12866_CPP Federal Plan 2060 AS47 NPRM_20150729

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 62

[EPA-HQ-OAR-2015-0199; FRL_XXXX-X]

RIN 2060-AS47 Federal Plan Requirements for Greenhouse Gas Emissi ons from Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations

AGENCY: Environmental Protection Agency.

ACTION: Proposed Rule.

SUMMARY: In this action, the Environmental Protection Agenc y (EPA) is proposing a federal plan to implement the greenhouse gas emission guidelines (EGs) for existing fossil f uel-fired electric generating units (EGUs) under the Clean Ai r Act (CAA). The EGs were proposed in June 2014 and finalized on [&&&] as the Carbon Pollution Emission Guidelines for Existing S tationary Sources: Electric Utility Generating Units (also kn own as the Clean Power Plan). This proposal presents two appro aches to a federal plan for states and other jurisdictions tha t do not submit an approvable plan to the EPA: a rate-based emission trading program and a mass-based emission trading p rogram. These***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 2 of 478

proposals also constitute proposed model trading ru les that states can adopt or tailor for implementation of th e EGs. The federal plan is an important measure to ensure that congressionally mandated emission standards under t he authority of the CAA are implemented. The proposed federal pl an is related to but separate from the final EGs. The final EGs e stablish the best system of emission reduction (BSER) for applic able fossil

fuel-fired EGUs in the form of a CO 2 emission performance rate

for steam-fired EGUs and a CO 2 emission performance rate for natural gas-fired combined cycle units, and provide guidance and criteria for the development of approvable state pl ans. The purpose of the proposed federal plan is to establis h requirements directly applicable to a state’s affec ted EGUs that meet these emission performance levels, or the equi valent statewide goal, in order to achieve reductions in c arbon dioxide (CO 2 ) emissions in the case where a state or other juri sdiction does not submit an approvable plan. The stringency of the emission performance levels established in the fina l EGs will be the same whether implemented through a state plan o r a federal plan. The EPA is also proposing enhancements to the CAA section 111(d) framework regulations related to the process and timing for state plan submissions and EPA actions. The EPA intends to

finalize both the rate-based and mass-based model t rading rules***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 3 of 478

in summer 2016.

DATES: Comments. Comments must be received on or before [insert date 90 days after date of publication in the Feder al Register]

. Public Hearing. The EPA will be holding XXX [insert number of hearings here] public hearings on the proposed fede ral plan. The hearings will be held to accept oral comments on th e proposed federal plan. The hearings will be held[insert numb er, days of and locations of hearings here] . The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p. m. (local time).

ADDRESSES : Submit your comments on the federal plan requirem ents proposed rule, identified by Docket ID No. EPA-HQ-O AR-2015-0199, by one of the following methods:

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

• Email: Send your comments via electronic mail to Aand-R-Docket@epa.gov , Attention Docket ID No. EPA-HQOAR-2015-0199.

• Facsimile: Fax your comments to (202) 566-9744, Attention Docket ID No. EPA-HQ-OAR-2015-0199.

• Mail: Send your comments to: Environmental Protecti on Agency, EPA Docket Center (EPA/DC), Mailcode: 28221 T, 1200 Pennsylvania Ave., NW, Washington, DC 20460, Attention Docket ID No. EPA-HQ-OAR-2015-0199. In addition, please mail a copy of your comments on th e information collection provisions to the Office of Information and Regulatory Affairs, Office of Management and Budget, Attn: Desk Officer for EPA, 725 17th Street NW., Washington, DC 20503.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 4 of 478

• Hand Delivery: Deliver your comments to: EPA Docket Center, Room 3334, EPA WJC West Building, 1301 Constitution Ave., NW, Washington, DC, 20004, Attention Docket ID No. EPA-HQ-OAR-2015-0199. Such deliveries are accepted only during the Docket’s normal hours of operation (8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays) an d special arrangements should be made for deliveries of boxed information. Instructions: Direct your comments on the federal p lan requirements proposed rule to Docket ID No. EPA-HQ- OAR-2015- 0199. The EPA’s policy is that all comments receive d will be included in the public docket and may be made avail able online

at http://www.regulations.gov , including any personal information provided, unless the comment includes i nformation claimed to be confidential business information (CB I) or other information whose disclosure is restricted by statu te. Do not submit information that you consider to be CBI or o therwise protected through http://www.regulations.gov or email. The http://www.regulations.gov Web site is an “anonymous access” system, which means the EPA will not know your iden tity or contact information unless you provide it in the bo dy of your comment. If you send an email comment directly to t he EPA without going through http://www.regulations.gov , your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electro nic comment,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 5 of 478

the EPA recommends that you include your name and o ther contact information in the body of your comment and with an y disk or CD-ROM you submit. If the EPA cannot read your comm ent due to technical difficulties and cannot contact you for c larification, the EPA may not be able to consider your comment. E lectronic files should avoid the use of special characters, a ny form of encryption and be free of any defects or viruses. Public Hearing: XXX [insert number of hearings here ] public hearings will be held to accept oral comments on th e proposed federal plan. The hearings will be held on [insert number of, dates and locations of hearings here] The hearings will begin at 9:00 a.m. (local time) and will conclude at 8:00 p. m. (local time). There will be a lunch break from 12:00 p.m. to 1:00 p.m. and a dinner break from 5:00 p.m. to 6:00 p.m. To r egister to speak at a hearing, please use the online registra tion form

available at: http://www.epa.gov/cleanpowerplan . For questions regarding registration, please contact XXXX at (919 ) 541–XXXX. The last day to pre-register to speak at the hearin gs will be XXX, 2015. Additionally, requests to speak will be taken the day of each hearing at the hearing registration desk, a lthough preferences on speaking times may not be able to be fulfilled. Please note that registration requests received bef ore each hearing will be confirmed by the EPA via email. We cannot***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 6 of 478

guarantee that we can accommodate all timing reques ts and will provide requestors with the next available speaking time, in the event that their requested time is taken. Please no te that the

time outlined in the confirmation email received wi ll be the time the one will be scheduled to speak. Again, dep ending on the flow of the day, times may fluctuate. If you requir e the service of a translator or special accommodations such as a udio description, we ask that you pre-register for the h earings by XXX, 2015, as we may not be able to arrange such ac commodations without advance notice. Please note that any update s made to any aspect of the hearings will be posted online at http://www.epa.gov/cleanpowerplan. While the EPA expects the hearings to go forward as set forth above, we ask t hat you monitor our Web site or contact XXXX at (919) 541–X XXX to determine if there are any updates to the informati on on the hearings. The EPA does not intend to publish a noti ce in the Federal Register

announcing any such updates. The hearings will provide interested parties the opportunity to prese nt data, views, or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who a rrive and register. The EPA may ask clarifying questions duri ng the oral presentations, but will not respond to the presenta tions at that time. Written statements and supporting information submitted***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 7 of 478

during the comment period will be considered with t he same weight as oral comments and supporting information presented at the public hearing. Verbatim transcripts of the hea ring and

written statements will be included in the docket f or the rulemaking. The EPA plans for the hearings to run o n schedule; however, due to on-site schedule fluctuations, actu al speaking times may shift slightly. Because these hearings are being held at U.S. gove rnment facilities, individuals planning to attend the hear ing should be prepared to show valid picture identification to th e security staff in order to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress in 2005, establishe d new requirements for entering federal facilities. If yo ur driver’s license is issued by Alaska, American Samoa, Arizon a, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Montana , New York, Oklahoma, or the state of Washington, you must pres ent an

additional form of identification to enter the fede ral building. Acceptable alternative forms of identification incl ude: Federal employee badges, passports, enhanced driver’s licen ses, and military identification cards. In addition, you wil l need to obtain a property pass for any personal belongings you bri ng with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs will be allowed***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 8 of 478

in the building, cameras may only be used outside o f the building, and demonstrations will not be allowed on federal p roperty for security reasons. Attendees will be asked to go through metal detect ors. To help facilitate this process, please be advised tha t you will be asked to remove all items from all pockets and plac e in provided bins for screening; remove laptops, phones, or othe r electronic devices from their carrying case and place in provi ded bins for screening; avoid shoes with metal shanks, toe guard s, or supports as a part of their construction; remove any metal b elts, metal belt buckles, large jewelry, watches; and follow th e instructions of the guard if identified for secondary screening. Additionally, no weapons ( e.g ., pocket knives) or drugs or drug paraphernalia ( e.g ., marijuana) will be allowed in the building. We r ecommend that you arrive 20 minutes in advance of your speak ing time to allow time to go through security and to check in w ith the registration desk.

Docket: The EPA has established a docket for this a ction under Docket ID No. EPA-HQ-OAR-2015-0199. The EPA has pre viously established a docket for the January 8, 2014, Clean Power Plan proposal under Docket ID No. EPA-HQ-OAR-2009-0559. All documents

in the docket are listed in the http://www.regulations.gov index. Although listed in the index, some informati on is not***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 9 of 478

publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly avai lable only in hard copy form. Publicly available docket materials are available either electronically at http://www.regulations.gov or in hard copy at the EPA Docket Center EPA/DC, EPA W JC West Building, Room 3334, 1301 Constitution Ave., NW, Wa shington, DC. The Public Reading Room is open from 8:30 a.m. to 4 :30 p.m., Monday through Friday, excluding holidays. The tele phone number for the Public Reading Room is (202) 566-1744, and the telephone number for the EPA Docket Center is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT : Ms. Toni Jones, Fuels and Incineration Group, Sector Policies and Programs Di vision (E143-05), Environmental Protection Agency, Researc h Triangle Park, North Carolina 27711; telephone number: (919) 541-0316; fax number: (919) 541-3470; email address: jones.toni@epa.gov

. SUPPLEMENTARY INFORMATION: Acronyms and Abbreviations. The following acronyms and

abbreviations are used in this document.

AG Attorney General ANSI American National Standards Institute ASME American Society of Mechanical Engineers ASTM American Society of Testing and Materials CAA Clean Air Act***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 10 of 478

CBI Confidential Business Information CDX Central Data Exchange CFR Code of Federal Regulations CAIR Clean Air Interstate Rule CO 2 Carbon dioxide CSAPR Cross-state Air Pollution Rule EE EG Emission Guidelines eGRID Emissions & Generation Resource Integrated Da tabase EGU Electric Generating Unit EIA Energy Information Administration EJ Environmental Justice EM&V Evaluation, Measurement, and Verification EPA Environmental Protection Agency FIP Federal Implementation Plan GHG Greenhouse Gas IGCC Integrated Gasification Combined Cycle Unit HAP Hazardous Air Pollutants MWh Megawatt Hours NAAQS National Ambient Air Quality Standards NAICS North American Industrial Classification Syst em NEEDS National Electric Energy Data System NTAA National Tribal Air Association NO X Nitrogen Oxides OAP Office of Atmospheric Programs OAQPS Office of Air Quality Planning and Standards PPA Power Purchase Agreement PRA Paperwork Reduction Act PV Photovoltaics RE RFA Regulatory Flexibility Act RGGI Regional Greenhouse Gas Initiative SBA Small Business Administration SCT Stationary Combustion Turbine***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 11 of 478

SGU Steam Generating Unit SIP State Implementation Plan The Court U.S. Court of Appeals for the District of Columbia

Circuit TTN Technology Transfer Network UMRA Unfunded Mandates Reform Act of 1995 UNFCCC United Nations Framework Convention on Clima te Change WWW Worldwide Web Organization of This Document. The following outlin e is provided to aid in locating information in this preamble.

I. General Information A. Executive Summary B. Organization and Approach for this Proposed Rule C. Who Does the Proposed Action Apply to? D. What Should I Consider as I Prepare my Comments? II. Background Information A. What is the Regulatory Development Background fo r this Proposed Rule? B. What is the Purpose of this Proposed Rule? C. Legal Authority D. Timing of EPA Actions on the Model Trading Rules , Federal Plan, and other Proposed Actions E. Use of the Model Trading Rule as a Backstop III. Federal Plan Structure to Achieve Reductions A. Overview B. Inventory of Emissions C. Affected EGUs D. Compliance Schedule E. Addressing Reliability Concerns F. Worker Certification G. Remaining Useful Lives and Potential for “Strand ed Assets” H. Implications for Other EPA Programs and Rules I. Administrative Appeals Process***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 12 of 478

J. Consistency of Program Structure with Clean Air Act Authority IV. Rate-based Implementation Approach A. Overview B. Rate Goals C. Crediting Mechanism D. ERC Tracking and Compliance Operations E. Federal Plan and State Plan Interactions V. Mass-based Implementation Approach A. Trading Program Overview B. Statewide Mass-based Emissions Goals C. Compliance Timing and Allowance Banking D. Initial Distribution of Allowances E. State-determined Allowance Distribution F. Treatment of States Entering or Exiting the Trad ing Program G. Allowance Tracking, Compliance Operations, and P enalties H. Emissions Monitoring and Reporting Requirements VI. Implementation of the Federal Plan and Delegati on A. Delegation of the Federal Plan and Retained Auth orities B. Mechanisms for Transferring Authority C. Implementing Authority D. Necessary or Appropriate Finding for Affected EG Us in Indian Country VII. Amendments to Process for Submittal and Approv al of State Plans and EPA Actions A. Partial Approvals/Disapprovals B. Conditional Approvals C. Calls for Plan Revisions D. Completeness Criteria E. Update to Deadlines for EPA Actions F. Proposed Interpretation regarding Existing Sourc es that Modify or Reconstruct G. Separate Finalization of these Changes VIII. Impacts of this Action A. Endangered Species Act B. What are the Air Impacts?***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 13 of 478

C. What are the Energy Impacts? D. What are the Compliance Costs? E. What are the Economic and Employment Impacts? F. What are the Benefits of the Proposed Action? IX. Community and Environmental Justice Considerati ons A. Proximity Analysis B. Community Engagement in This Rulemaking Process C. Providing Communities with Access to Additional Resources D. Federal Programs and Resources Available to Comm unities E. Co-Pollutants F. Assessing Impacts of Federal Plan Implementation G. The EPA’s Continued Engagement X. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and R eview and Executive Order 13563: Improving Regulation and Reg ulatory Review B. Paperwork Reduction Act (PRA) C. Regulatory Flexibility Act (RFA) D. Unfunded Mandates Reform Act (UMRA) E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordina tion with Indian Tribal Governments G. Executive Order 13045: Protection of Children fr om Environmental Health Risks and Safety Risks H. Executive Order 13211: Actions That Significantl y Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act (NTTAA) J. Executive Order 12898: Federal Actions to Addres s Environmental Justice in Minority Populations and L ow-Income Populations***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 14 of 478

I. General Information

A. Executive Summary In the CAA, Congress created a partnership between the EPA and the states. Under section 111(d) of the CAA, th e EPA establishes emission performance levels based on it s determination of the BSER for existing sources of a ir pollution and provides guidelines for state plans to apply st andards of performance to their sources that meet the BSER lev el of performance. The EPA has promulgated these EGs unde r CAA section 111(d), which sets source-level CO 2 emission performance rates for the EGUs at certain large fossil fuel-fired pow er plants (“affected EGUs”), which the states then apply to t heir sources through implementation of state plans. At this poin t, the responsibility shifts to the states who can submit plans to achieve these emission performance levels for EPA a pproval, or initial submittalinitial submittals, by September 6 , 2016. The

amount of reductions in CO 2 that the EPA has determined to be

achievable for these sources is based on its determ ination of

what constitutes the BSER. This determination is fi nalized in the EGs, which are designed to maximize the flexi bility of both states and affected EGUs in meeting CO 2 emissions performance rates. While states may impose the emis sion rates directly on their affected EGUs, states also have t he option of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 15 of 478

submitting more tailored plans that meet state-spec ific emissions goals. The EGs also provide flexibility b y allowing for emissions trading and multi-state compliance op tions. While it has been the EPA’s longstanding view that the statute identifies states as the preferred implemen ters of CAA programs, the agency makes clear in the EGs that st ates cannot and will not be penalized for failing to participat e in this program. However, if a state does not submit an app rovable plan under section 111(d) of the CAA, the EPA will devel op, implement, and enforce a federal plan to reduce CO 2 from the fossil fuel-fired power plants in that state. This is wholly consistent with the “cooperative federalism” struct ure of the CAA and many of our nation’s other environmental la ws. In addition, we have heard from states and other stake holders that it would be helpful for the agency to present model designs for state plans, and a federal plan would be an appropr iate means of doing that. Accordingly, the EPA proposes a federal plan under section 111(d) of the CAA for the control of CO 2 , a greenhouse gas pollutant, from certain emitting fossil-fuel fired power plants, in the event that some states do not adopt their ow n plans. Specifically, the EPA is proposing approaches in th e form of mass- and rate-based trading options that provide f lexibility in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 16 of 478

implementing emission standards for a state’s affec ted EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO 2 emission performance rates in the EGs. The federal plan will achieve the same levels of emissions performance as required of state plans under the EGs. The EPA will only promul gate a final federal plan for the affected EGUs in states that t he EPA determines did not submit an approvable plan. At the same time, these two proposed options offer states model trading rules that the states can follow in d eveloping their own plans in order to capitalize on the flexi bility built into the final EGs. Thus, this document proposes fo ur discrete actions: (1) A rate-based federal plan for each sta te with affected EGUs; (2) a mass-based federal plan for ea ch state with affected EGUs; (3) a rate-based model trading rule for potential use by any state; and (4) a mass-based model tradin g rule for potential use by any state. The regulatory text of each federal plan and the corresponding model trading rule is id entical, except as indicated otherwise within the text of th e model rule (for instance, the EPA is providing model rule text for states to use related to the crediting of a broader set of clean energy resources than is being proposed in the federal pla n).

The EPA intends to finalize both the rate-based and mass-***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 17 of 478

based model trading rules in summer 2016. The EPA w ill only finalize a federal plan for a given state in the ev ent that the state does not submit an approvable plan by the dea dlines specified in the final EGs and the EPA takes action finding that the state has failed to submit a plan, or disapprov ing a submitted plan because it does not meet the require ments of the

EGs. 1 Indeed, states may simply choose to accept a feder al plan for their sources rather than undertake the develop ment of a plan of their own by not submitting a state plan. U nder this proposed rule, a federal plan promulgated for a par ticular state

would take the form of either the mass-based model trading rule or the rate-based model trading rule. The EPA curre ntly intends to finalize a single approach ( i.e., either the mass-based or rate-based approach) for every state in which it pr omulgates a

1 For simplicity, at times this document may refer t o the coproposed federal plans as “the federal plan.” (It m ay refer to the model trading rules in the singular as well.) Even though the singular is used, this term is meant to encompass b oth the ratebased approach and the mass-based approach. The use of the singular when referring to this proposed federal plan also i s intended to encompass all state-specific federal plans. In othe r words, the EPA intends to finalize “the federal plan” as a ser ies of statespecific “federal plans.” This is consistent with t he agency’s prior practice in other multi-state trading program s such as the NOx Budget Trading Program, the CAIR, and the CSAPR , where a single rule promulgated multiple FIPs.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 18 of 478

federal plan, given the benefits of a broad trading program, as discussed in the following section of this preamble . We invite comment on which approach, i.e., either mass-based or rate-based trading, should be selected when we finalize a sing le approach. It is the EPA’s intention to give the states as muc h opportunity as possible to set their own course for carrying out the EGs. Even where a federal plan is put in place for a particular state, that state will still be able to submit a plan, which, upon approval, will allow the state an d its sources to exit the federal plan. In addition, as discussed in section VI.A of this preamble, states may take delegation o f administrative aspects of the federal plan in order to become the primary implementers. And as discussed in secti ons V.E and VII.A of this preamble, states may submit partial s tate plans in order to take over the implementation of a portion of a federal plan. For instance, in a mass-based trading program , the agency proposes to allow states to submit partial state pl ans to replace the federal plan allowance-distribution pro visions with their own allowance-distribution provisions, simila r to the approach we have taken in prior trading programs. F inally, even in states in which the affected EGUs are operating under a federal plan, the agency recognizes that states may adopt complementary measures outside of CAA programming t o facilitate***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 19 of 478

compliance and lower costs that could benefit power generators and consumers, directly or indirectly. A state program that adheres to the model trading r ule provisions specified in this rulemaking would be pr esumptively approvable. States may submit means of meeting the EGs requirements that differ from the model trading rul e provisions, so long as the state demonstrates to the EPA’s sati sfaction in the state plan submittal that such alternative mean s of addressing requirements are at least as stringent a s the presumptively approvable approach described here. 2 Additionally, there are stand-alone portions of the model trading rules, such as the evaluation, measurement, and verification (E M&V) procedures, that would be approvable even if a stat e adopted an approach that differs from the federal plan. The mo del trading rules serve as a mechanism to facilitate larger tra ding markets since consistency with the federal plan allows trad ing across both the state and federal programs. The EPA expect s a larger

2 For example, in the context of a mass- or rate-bas ed trading program, a state may submit a plan a with alternati ve components other than those described, so long as the program includes each of the requirements and the state satisfactorily de monstrates in the state plan submittal that such alternative mean s of addressing the requirements are as stringent as the presumptiv ely approvable approach as described, and therefore provide for th e implementation of the state plan’s emission standar ds.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 20 of 478

trading region is likely to result in lower overall costs. These and other aspects of the model trading rules and fe deral plan provide additional support for this rule as propose d. Thus, the proposed rule would ensure that congressionally man dated emission standards under authority of section 111 o f the CAA are implemented, either by the states in the first inst ance, or by

the EPA where needed. The agency is proposing a finding that it is necess ary or appropriate to implement a CAA section 111(d) feder al plan for the affected EGUs located in Indian country. CO 2 emission performance rates for these facilities were finaliz ed in the EGs. Tribes generally may seek “treatment as a stat e” (TAS) and submit a tribal plan to implement CAA programs, inc luding programs under CAA section 111(d), and this propose d finding does not preclude tribes from doing that. However, tribes are not subject to the deadlines applicable to state ac tion under the EGs and in the absence of a federal plan, CO 2 emissions from these EGUs could go unregulated. Therefore, as disc ussed in section VI.D of this preamble, we are proposing a n ecessary or appropriate finding. This document also proposes certain enhancements to the process and timing for state submittals and EPA act ion in the CAA section 111(d) framework regulations of 40 CFR part 60,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 21 of 478

subpart B (these proposals are not a part of the fe deral plan or model trading rules). These changes, if finalized, would be applicable under the Clean Power Plan and other CAA section 111(d) rules. These changes clarify the availabilit y of certain procedural mechanisms similar to those available un der CAA section 110 (such as calls for plan revisions and t he availability of “conditional approvals,” etc.). The y also extend the deadlines for EPA action, in part to conform wi th the timelines in the EGs. These changes do not alter th e timelines

for state action under the EGs and do not alter the submission requirements established in the EGs. Finally, the a gency proposes to clarify and request comment on an inter pretive issue raised in the Clean Power Plan proposal regarding w hether a reconstruction or modification that is subject to a CAA section 111(b) standard moves an existing source out of a C AA section 111(d) program. These proposed changes are discusse d in section VII of this preamble. The agency intends to finaliz e these changes earlier than the finalization of the model trading

rules. In proposing a federal plan, the EPA considered a v ariety of potential impacts that its action might have on the environment, on businesses, particularly in the ene rgy sector, and on the reliability of the electrical grid. The agency gave***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 22 of 478

extensive consideration to impacts on vulnerable co mmunities, particularly low-income communities, communities of color, and indigenous communities. These considerations are di scussed in Sections III, VIII, IX, and X of this preamble. The agency convened a Small Business Advocacy Revie w Panel under the Regulatory Flexibility Act and has comple ted an Initial Regulatory Flexibility Analysis (IRFA). Var ious

recommendations from the Panel are found reflected throughout this proposal. In section X of this preamble, the a gency explains how it has conducted or intends to conduct all other statutory or executive order reviews that apply to this proposed action. The EPA also explains in this document how it proposes to take into consideration the “remaining useful li ves” of affected EGUs in the design of the proposed federal plan, as discussed below in section III.G of this preamble. The agency considered the impacts this action could have on the electricity grid and developed options for comp liance that are cost-effective and that provide substantial fle xibility for the affected EGUs that will accommodate the parties charged with maintaining the reliability of electrical power. A key feature of the proposed federal plan and model trading rule is that the flexibility inherent in both of the two approaches ( i.e., ratebased or mass-based trading) enables the EPA and th e states to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 23 of 478

create a level of flexibility for affected EGUs tha t allows owners and operators to determine the best way to a chieve emissions reductions, at the EGU-, state-, multi-st ate-, regional-, or national level. As a result, complian ce strategies can mirror, or be integrated with, the ongoing oper ations of the current electricity grid as it continues to serve i ts primary critical function of ensuring an uninterrupted supp ly of affordable and reliable electricity. This flexibili ty is especially valuable whenever the need to address sp ecific reliability concerns arises. It allows owners and o perators of reliability-critical EGUs to continue to meet their compliance obligations while operating to maintain electric re liability. The EPA outlined and initiated the Clean Energy Inc entive Program (CEIP) in the final emission guidelines (se e section VIII of the final EGs). The program is designed to incentivize investment in certain types of renewable energy (RE ) projects, as well as demand-side energy efficiency (EE) proje cts that benefit low-income communities, that generate MWh o r reduce enduse energy demand during 2020 and 2021. The EPA pro poses to apply the CEIP in all states subject to either a ra te-based or mass-based federal plan. We also reviewed impacts that this action could hav e on the

environment and the need to ensu environmental inte grity of the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 24 of 478

program as well as avoid unintended environmental i mpacts. We

took measures to ensure that the reductions in carb on emissions this plan will achieve are real, and not just appar ent. As in the EGs, in both the rate- and mass-based approache s, the EPA has incorporated components to address the concern that the dynamics of either a rate- or mass-based trading pr ogram could incentivize shifting generation from existing units in ways that

would result in more CO 2 emissions than would otherwise be expected, or that undermine the purpose of the CAA section 111(d) program. We considered whether compliance choices under a fe deral plan could lead to an unintended concentration of o ther air pollutants in certain overburdened communities, par ticularly

low-income communities and communities of color. As discussed below, our analysis shows why we do not expect this to occur at any significant level. In general, as in the EGs, w e anticipate that the federal plan will result in overall reduct ions of copollutants, in addition to reductions in CO 2 , with corresponding co-benefits to public health. We also reviewed whet her this action could trigger an obligation to consult with other agencies responsible for implementing the Endangere d Species Act, and propose to conclude that it will not. In the final emission guidelines, the EPA emphasize d the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 25 of 478

importance of state actions to ensure that in devel oping their respective compliance plans the states addressed th e concerns and priorities of vulnerable communities. In the pr ocess of developing a final federal plan, the EPA will also take actions

to address those concerns as well. In addition to t he public hearings that the EPA will be holding for all membe rs of the American public on this proposed rulemaking, we wil l also be conducting a national webinar and outreach meeting( s) in all ten regions on this proposed rulemaking for communities . The goal of these outreach activities is to provide communities with the information they need to understand how the propose d rulemaking will potentially impact their respective communitie s. At the same time, this information will be useful in helpi ng communities engage the EPA during our comment perio d, as well as with their states during the state plan development process. We will also be providing other outreach and support a ctivities for vulnerable communities, which are outlined in the c ommunity and environmental justice considerations section IX.B o f this preamble.

B. Organization and Approach for this Proposed Rule In this action, the EPA is proposing a federal plan to implement the Clean Power Plan EGs for affected fos sil fuelfired EGUs operating in states that do not have app roved state***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 26 of 478

plans. Specifically, the EPA is co-proposing two di fferent approaches to a federal plan to implement the Clean Power Plan EGs — a rate-based trading approach and a mass-base d trading approach. While establishing emission standards for affected EGUs that would be directly enforceable against the owners and operators of the source, both approaches would gran t EGUs substantial flexibility in meeting their compliance obligations. For this reason, among others, these proposed appro aches also serve as two proposed model trading rules that stat es may adopt or tailor in designing their own plans. The EGs provide that states have until September 6, 2016 (or upon making an initial submittal, until Septemb er 6, 2018) to submit state plans, and the EPA does not intend to finalize and implement the federal plan for any states prior to the agency’s action of determining a failure to submit a state plan or disapproving a state plan. At the same time, in order to support states’ consideration of adoption of one of the model trading rules as an approvable state plan, the agen cy intends to finalize either or both model rule options presente d in this proposed rule by summer 2016, prior to the deadline for state

submittals. The EPA currently intends to finalize a single appr oach — i.e., either a rate-based or a mass-based approach — in all***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 27 of 478

promulgated federal plans for particular states in order to enhance the consistency of the federal trading prog ram, achieve economies of scale through a single, broad trading program, ensure efficient administration of the program, and simplify compliance options for affected EGUs. We invite com ment on which approach would be appropriate to finalize for all s tates. Some stakeholders have suggested there could be utility in the availability of both approaches based on the unique circumstances of particular states. The EPA recogni zes that it remains potentially possible to finalize a differen t approach to a federal plan in some circumstances, but believes that in general, and consistent with prior federal trading programs such as CSAPR, creating a single, broad program has the most advantages. The stringency of the proposed federal plan is the same as

the CO 2 emission performance rates established for affecte d EGUs in the EGs. As explained in the final EGs, the EPA determined

the CO 2 emission performance rates through the application of the best system of emission reduction (BSER). In the EG s, the EPA

has taken final action on the BSER for CO 2 emissions from existing fossil fuel-fired EGUs. Any comments on th is proposed rule relating to the BSER, its stringency, rational e, or legal basis, will not be considered as, by definition, th ey will be***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 28 of 478

beyond the scope of this action. 3

1. The Rate-based Approach In the first approach, the EPA would implement a ra te-based emissions trading program. In a rate-based program, affected EGUs must meet an emission standard, derived from t he EGs, expressed as a rate of pounds of CO 2 per megawatt hour (lbs/MWh). If sources emit above their assigned rate, they mus t acquire a sufficient number of emission rate credits (ERC), e ach representing a zero-emitting megawatt hour (MWh), t o bring their rate of emissions into compliance. ERCs may be gene rated by affected EGUs or by other entities that supply zero - or lowemitting electricity resources to the grid through an approval and recognition process that the EPA will administe r. ERCs may be bought and sold, or banked for use in later year s. The ratebased approach is explained in greater detail in se ction IV of this preamble.

2. The Mass-based Approach The second approach to a federal plan that the EPA is proposing in this action is a mass-based trading pr ogram. In a

3 The agency recognizes that the “remaining useful l ives” of facilities subject to a CAA section 111(d) federal plan is a factor that it must consider at the time it implements the federal plan. This factor, and how the agency proposes to conside r it, is discussed in section III.G of this preamble below.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 29 of 478

mass-based program, the EPA would create a state em issions budget equal to the total tons of CO 2 allowed to be emitted by the affected EGUs in each state, consistent with th e mass goals established in the EGs. The EPA would initially dis tribute the allowances within each state budget – less three pr oposed

allowance set-asides – to the affected EGUs based o n their historical generation. Allowances may then be trans ferred, bought, and sold on the open market, or banked for future use. The compliance obligation on each of the affected E GUs is to

surrender the number of allowances sufficient to co ver the EGU’s respective emissions at the end of a given complian ce period. The EPA is also proposing as a part of the mass-bas ed approach three set-asides of allowances: (1) For a Clean Ene rgy Incentive Program; (2) to support renewable energy projects; and (3) to allocate allowances based on an updating measuremen t of affected-EGU generation. The EPA is also proposing that a jurisdiction may choose to replace the federal-plan allocation provisions with its own allowance allocation provis ions. The mass-based approach is explained in greater detail in section V of this preamble.

3. Other Proposed Actions The EPA is proposing in this action a finding that it is necessary or appropriate to regulate affected EGUs in certain***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 30 of 478

parts of Indian country via a federal plan. This is discussed in section VI.D of this preamble. In this action, the EPA is also proposing a number of changes to the framework CAA section 111(d) regulat ions of 40 CFR part 60, subpart B. These generally are intende d to provide enhancements to the process for state plan submissi ons and the timing of EPA actions related to state plans and th e federal plan. Specifically, the EPA proposes six changes, t o include: (1) Partial approval/disapproval mechanisms similar to CAA section 110(k)(3); (2) a conditional approval mecha nism similar to CAA section 110(k)(4); (3) a mechanism for the E PA to make calls for plan revisions similar to the "SIP-call" provisions of CAA section 110(k)(5); (4) an error correction mech anism similar to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA section 110(k)(1) and (2) ; and (6) updates to the deadlines for EPA action. These prop osed changes are explained in greater detail in section &&&VII o f this preamble. They are not a component of the proposed federal plan, or changes in the EGs. If these changes are finaliz ed, they will be applicable to other CAA section 111(d) rules. Th e EPA intends to finalize these changes earlier than the finaliza tion of the model trading rules.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 31 of 478

C. Who Does the Proposed Action Apply to? Regulated Entities. Existing fossil fuel-fired elec tric generating units (or affected EGUs) covered by the final Clean

Power Plan that are located in a state that does no t have an EPA-approved state plan are potentially subject to this proposed action Affected EGUs are those that were in operati on, or had commenced construction, on or before January 8, 201 4 4 . The following NAICS codes apply as shown in Table 1 of this preamble: Table 1. Examples of Potentially Regulated Entities a

Category NAICS

Code Examples of potentially

regulated entities Industry 221112 a Fossil fuel electric power generating units State/Local Government 221112 b Fossil fuel electric power generating units owned by municipalities

a Includes NAICS categories for source categories th at own and operate electric power generating units (includes boilers a nd stationary combined cycle combustion turbines).

b State or local government-owned and operated establ ishments are classified according to the activity in which they are engaged.

4 An affected EGU is any fossil fuel-fired EGU that was in operation or had commenced construction as of January 8, 2014 , and is therefore an “existing source” for purposes of CAA section 111, but in all other respects would meet the applicabil ity criteria for coverage under the GHG standards for new fossi l fuel-fired EGUs.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 32 of 478

This table is not intended to be exhaustive, but ra ther provides a general guide for identifying entities l ikely to be affected by the proposed action. Whether an affecte d EGU is affected by this action is described in the applica bility criteria in 40 CFR 60.5845 and 60.5850 of subpart U UUU. Questions regarding the applicability of this actio n to a particular entity should be directed to the person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

1. What is an Affected Electric Utility Generating Uni t? For the federal plan, the definition of an affected EGU is

identical to the definition in the final Clean Powe r Plan. Additionally, the applicability of the federal plan is consistent with the EGs, where an affected EGU subj ect to the federal plan is any steam generating unit (SGU), integrated gasification combined cycle unit (IGCC), or stationary combustion turbine (SCT) that was in operation or h ad commenced construction as of January 8, 2014, 5 and that meets certain criteria, which differ depending on the type of uni t. The

criteria to be an affected EGU are as follows: A un it, if it is

5 January 8, 2014 is the date the proposed GHG stand ards of performance for new fossil fuel-fired EGUs were pub lished in the Federal Register (79 FR 1430).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 33 of 478

a steam generating unit (SGU) or IGCC, must serve a generator capable of selling greater than 25 MW to a utility power distribution system, have a base load rating greate r than 260 GJ/hr (250 MMBtu/hr) heat input of fossil fuel (eit her alone or in combination with any other fuel), and historical ly have supplied more than 1/3 of its potential electric ou tput and 219,000 MWh as net-electric sales on any 3 calendar year basis. If a unit is a SCC, the unit must meet the definiti on of a combined cycle or combined heat and power combustio n turbine, serve a generator capable of selling greater than 2 5 MW to a utility power distribution system, have a base load rating of greater than 260 GJ/h (250 MMBtu/hr), and historica lly have combusted more than 90 percent natural gas on a hea t input basis

on annual basis.

2. How to Determine if a Unit is Covered by an Approve d and

Effective State Plan

Section 111(d) of the CAA, as amended, 42 U.S.C. 74 11(d), authorizes the EPA to develop and implement a feder al plan for affected EGUs upon the EPA’s action finding a failu re to submit or disapproving a state plan. 6 The affected EGUs covered in EPA-

6 In this Preamble, the term “state” generally encom passes the 50 states and the District of Columbia, U.S. territori es, and any***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 34 of 478

approved state plans are not subject to the federal plan. If the federal plan has been put in place in a state, but is later replaced by an EPA-approved state plan, the affecte d EGUs would become subject to the state plan as of the effectiv e date specified in a Federal Register notice regarding the EPA’s approval of the state plan. The EPA is not expectin g state plans to be submitted by the states that submit negative declarations. However, in the event that there are later determin ed to be affected EGUs located in these states, the final fe deral plan would be applied to such EGUs through a future acti on. Part 62 of Title 40 of the CFR identifies the status of app roval and promulgation of CAA section 111(d) state plans for designated facilities in each state. Recognizing the urgent ne ed for actions to reduce GHG emissions, and in accordance with the

Presidential Memorandum 7 , as well as the benefit of providing

Indian Tribe that has been approved by the EPA purs uant to 40 CFR 49.9 as eligible to develop and implement a CAA sec tion 111(d) plan. However, the federal plan is not proposed for affected EGUs in certain states or territories where the EGs did not finalize emission performance rates.

7 Presidential Memorandum—Power Sector Carbon Pollut ion Standards, June 25, 2013. http://www.whitehouse.gov/the-pressoffice/2013/06/25/ presidential-memorandum-power-se ctorcarbonpollution-standards

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 35 of 478

states with model trading rule options to consider as they prepare their state plans, the EPA is proposing thi s rulemaking concurrently with the Administrator’s signing and p romulgation of the final Clean Power Plan EGs. 40 CFR part 62 i s updated only once per year. Thus, if 40 CFR part 62 does no t indicate that your state has an approved and effective plan after the compliance date has passed requiring state plan sub mittal, you should contact your state environmental agency’s Ai r Director or your EPA Regional Office (see Table 2 in section II .B of this preamble) to determine if approval occurred since p ublication of the most recent version of 40 CFR part 62.

D. What Should I Consider as I Prepare my Comments? Do not submit information that you consider to be C BI electronically through http://www.regulations.gov or email. Send or deliver information identified as CBI to only th e following

address: OAQPS Document Control Officer (Room C404-02), U.S. EPA, Research Triangle Park, NC 27711, Attention Docket ID No. EPAHQ-OAR-2015-0199. Clearly mark the part or all of t he information that you claim to be CBI. For CBI on a disk or CDROM that you mail to the EPA, mark the outside of t he disk or CD-ROM as CBI and then identify electronically with in the disk or CD-ROM the specific information that is claimed as CBI. In***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 36 of 478

addition to one complete version of the comment tha t includes information claimed as CBI, a copy of the comment t hat does not

contain the information claimed as CBI must be subm itted for inclusion in the public docket. Information marked as CBI will not be disclosed except in accordance with procedur es set forth in 40 CFR part 2. If you have any questions about CBI or the procedur es for claiming CBI, please consult the person identified in the FOR

FURTHER INFORMATION CONTACT section. 2. Docket. The docket number for the proposed actio n (40 CFR part 62, subpart MMM) is Docket ID No. EPA-HQ-OAR-2 015-0199. 3. World Wide Web (WWW). In addition to being avail able in the docket, an electronic copy of the proposed action i s available on the Internet through the EPA’s Technology Transf er Network (TTN) Web site, a forum for information and technol ogy exchange in various areas of air pollution control. Followin g signature by the EPA Administrator, the EPA will post a copy of the proposed action at http://www.epa.gov/airtoxics/XX . Following publication in the Federal Register, the EPA will p ost the Federal Register version of the proposed rule and k ey technical

documents on the same Web site.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 37 of 478

II. Background Information

A. What is the Regulatory Development Background for t his Proposed Rule? On &&&August 3, 2015, the EPA finalized the Clean P ower Plan EGs for existing fossil-fuel fired EGUs (40 CF R part 60, subpart UUUU) under authority of section 111 of the CAA (79 FR 34950). The Guidelines apply to existing fossil-fue l fired EGUs, i.e., those that were in operation or had commenced cons truction before January 8, 2014. States with existing EGUs s ubject to the guidelines are required to submit to the EPA by Sep tember 6, 2016, a state plan that implements the EGs. States may also make initial plan submittals in lieu of a complete state plan, in which case extensions will be granted until Septemb er 6, 2018 (40 CFR &&&). 8 As discussed in section VI.D of this preamble, Indian Tribes may, but are not required to, submit tribal plans.

Once the EPA finds that a state has failed to submi t a plan, or disapproves a state plan, 9 section 111 of the CAA and 40 CFR

8 See Section VII of this preamble for additional in formation on proposed changes to 40 CFR 60.27 to provide enhance ments and flexibilities to the agency’s process for review an d action on state plans and promulgation of federal plans.

9 If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to full y or partially approve or disapprove the state plan.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 38 of 478

60.27 require the EPA to develop, implement, and en force a federal plan for existing EGUs located in that stat e. In addition, CAA section 301(d)(2) authorizes the Admi nistrator to

treat an Indian Tribe in the same manner as a state for this EGU requirement. See 40 CFR 49.3; see also “Indian Tribes: Air Quality Planning and Management,” hereafter “Tribal Authority Rule,” (63 FR 7254, February 12, 1998). As discusse d in section VI.D of this preamble, the agency in this action is proposing a necessary or appropriate finding for the affected E GUs in several areas of Indian country and is proposing th e federal plan for these affected EGUs. The agency believes it is appropriate to propose th e federal plan at this time for any states that may u ltimately be found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this sit uation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards un der authority of section 111 of the CAA are implemented until the y can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their ow n plan. This proposal also serves as two proposed model trading rules which states can adopt or tailor for adoption as their st ate plan. The

role of the model rules is discussed in the followi ng section.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 39 of 478

In this proposal, the EPA is soliciting public comm ent only on the proposed approaches for a federal plan and m odel trading rule for the implementation of the Clean Power Plan EGs. Comments on the underlying Clean Power Plan rule wi ll be considered out of scope for this action.

B. What is the Purpose of this Proposed Rule? The purpose of this action is two-fold: (1) To co-p ropose two approaches to a federal plan to implement the C lean Power Plan EGs for affected EGUs operating in any state l acking an approved state plan by the relevant deadlines; and (2) to propose these same approaches as model trading rule s for states to consider in developing their own plans.

1. Federal plan Section 111 of the CAA and 40 CFR 60.27 require the EPA to develop, implement and enforce a federal plan to co ver existing EGUs located in states that do not have an approved plan. Section 111(d) of the CAA relies upon states as the preferred implementers of EG for existing EGUs. States with a ffected EGUs are to submit state plans or make initial submittal s to the EPA by September 6, 2016 pursuant to the EGs. 10 States without any existing EGUs are directed to submit to the Adminis trator a

10 States may request extensions of up to two years a s part of a complete initial CAA section 111(d) submission.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 40 of 478

letter of negative declaration certifying that ther e are no affected EGUs in the state. No plan is required for states that do not have any affected EGUs. Affected EGUs locate d in states that mistakenly submit a letter of negative declara tion will become subject to the federal plan until a state pl an covering those EGUs becomes approved. The EPA intends to fin alize the federal plan only for those states that the EPA fin ds failed to submit plans or whose plans the EPA disapproves. Fo r more information on the timing and mechanics of EPA acti on on state plans and finalization of this federal plan, see se ction II.D of this preamble below.

2. Model Trading Rule The EPA is also proposing the federal plan approach es as two forms of a model trading rule (mass-based and r ate-based), which states can adopt or tailor for implementation as a state plan under the EGs. The EPA intends to finalize the model trading rules earlier than it promulgates a federal plan for a state. When the EPA finalizes one or both of its pr oposed approaches as a final model trading rule, and a sta te adopts a final model trading rule in its entirety as its sta te plan, it would be presumptively approvable. The EPA has designed these rules so that they meet the requirements of the final EGs. If one of the model rules is***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 41 of 478

adopted by a state without any change, it would be presumptively approvable. We use the term “presumptively” in reco gnition that a state plan submission must be accompanied by othe r materials in addition to the regulatory provisions. These req uirements are

set forth in the final Clean Power Plan and framewo rk regulations of 40 CFR part 60, subpart B. For insta nce, they

include a formal letter of submittal from the Gover nor or his or her designee, evidence that the rule has been adopt ed into state law and that the state has necessary legal authorit y to implement and enforce the rule, and evidence that p rocedural requirements, including public participation under 40 CFR 60.23,

have been met. In further support of state use of the model rules, we are drafting the model trading rule so that it can be a dopted or incorporated by reference with a minimum of changes that would be necessary to make the rule appropriate for use b y states. This way, a state may incorporate by reference the model rule as the state plan, or as the backstop to a state measu res plan with few if any adjustments. States may make changes to the model trading rule, so long as they still meet the requir ements of the EGs. If the state chooses to tailor or modify the m odel trading rule such as by expanding the scope of eligibility of projects that may generate ERCs in a rate-based trading prog ram, the EPA***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 42 of 478

may still approve the plan, but the EPA would condu ct appropriate review of such provisions for consisten cy with the

EGs and the state would have to demonstrate to the EPA’s satisfaction that its alternative provisions are as stringent as the presumptively approvable approach described. We note here, and as a “note” in the regulatory text of the model trading rule, that the scope of eligibility of proposed “ER C resources” for the federal plan is different than the scope of eligibility provided for in the model rule. Thus, all of the la nguage and provisions in the regulatory text relevant to these other ERC resources is relevant only to the proposed model tr ading rule and not to the federal plan as such ( i.e. , those ERC resources discussed in section VI.C.3 of this preamble are ap plicable to the model rule and only metered RE and applicable n uclear are applicable to the federal plan). The EPA’s approval of a state plan, including a pla n that adopts the model trading rule, will be the result o f an independent notice-and-comment rulemaking process. Without prejudging the outcome of that process, the EPA rec ognizes that it may be able to approve or “conditionally approve ” state plans that are substantially similar, but not identical t o, the final model trading rules. Ultimately, state plans must m eet the requirements of the EGs for approvability. Thus, a conditional***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 43 of 478

approval would be based on a condition that the sta te take such actions as may be necessary by a date certain to me et the requirements of the EGs. (The EPA is proposing to e xplicitly provide for conditional approvals in the CAA sectio n 111(d) framework regulations. See section VII.B of this pr eamble.) In accordance with the EGs, the process for review and approval (or disapproval) of state plans, whether b ased on the model trading rules or otherwise, would occur once the states have made their submissions by September 6, 2016. A s provided in the EGs, states have the option of not submitting a full state plan, but rather making an initial submittal, in or der to obtain an extension of 2 years before submitting a full st ate plan for EPA approval. It could be beneficial for coordinati on purposes if a state that is interested in adopting one of th e model trading rules but intends to make an initial submit tal next year were to indicate which model trading rule they inte nd to adopt. This is not an additional requirement beyond what t he EGs require for initial submittals, however. The EPA strongly encourages states to consider adop ting one of the model trading rules, which are designed to b e referenced by states in their rulemakings. Use of the model tr ading rules by states would help to ensure consistency between and among the state programs, which is useful for the potential o peration of a***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 44 of 478

broad trading program that spans multi-state region s or operates on a national scale. As discussed at length in the EGs, EGUs operate less as individual, isolated entities and m ore as multiple components of a large interconnected syste m designed to integrate a range of functions that ensure an unint errupted supply of affordable and reliable electricity while also, for the past several decades, maintaining compliance wi th air pollution control programs. Since, as a practical m atter under both the EGs and any federal plan, emissions reduct ions must occur at the affected EGUs, a broad-scale emissions trading program would be particularly effective in allowing EGUs to operate in a way that achieves pollution control wi thout disturbing the overall system of which they are a p art and the critical functions that this system performs. In ad dition, consistency of requirements benefits the affected E GUs, as well

as the states and the EPA in their roles as adminis trators and implementers of a trading program. States of course remain free to develop a plan of their own choosing to submit t o the EPA for approval following the criteria set out in the fina l Clean Power

Plan EGs. The EPA believes there are compelling policy reason s that support the provision of a proposed model trading r ule at this time. The EPA has heard from multiple stakeholders and in public***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 45 of 478

comments submitted on the proposed EGs that there i s a strong interest in seeing a model state plan or trading ru le prior to

the deadline for state submittals under the EGs. Ac cording to these stakeholders, model rules can provide predict ability for planning purposes, both among states and affected E GUs. In addition, some states have indicated that they may prefer to rely on a federal plan, either temporarily or perma nently, rather than develop a plan of their own. This propo sal of a model trading rule addresses these policy interests

. The approach of proposing model trading rules that are identical in all key respects to proposed federal p lans that may be promulgated later, is consistent with prior CAA section 111(d) and CAA section 110 rulemakings. For example , the NO x SIP Call model rule at 40 CFR part 96 (63 FR 57356; Oct . 27, 1998) was identical in all meaningful respects with the F ederal NO x Budget Trading Program at 40 CFR part 97 (65 FR 267 4; Jan. 18, 2000). And the Clean Air Interstate Rule (CAIR) mod el rule in 40 CFR part 96 (70 FR 25339; May 12, 2005) was identic al in all meaningful respects with the federal CAIR in 40 CFR part 97 (71 FR 25396; April 28, 2006). 11 While these identical programs for

11 We also note that historically under the CAA secti on 111(d)/129 rules, the content of EGs and their corresponding f ederal plans have had significant overlap.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 46 of 478

model rules and FIPs were finalized in separate par ts of the CFR, the EPA does not see any reason that it could not just as easily propose the federal plan as the model tradin g rule in the

same section of the CFR. 12 If a federal plan were to be finalized for a given state at a later time, this would be re flected in 40 CFR part 62 by cross-reference, along with any modi fications or adjustments that may be appropriate at the time of actual promulgation of a federal plan. Table 2. Regional Office Contacts

Region Regional contact Phone States and protectorates Region I [&&&] [&&&] Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont Region II New York, New Jersey, Puerto Rico, Virgin Islands Region III Virginia, Delaware, District of Columbia, Maryland,

12 We propose to include a note in the regulatory tex t explaining where aspects of the proposed subpart relevant to s tates as part of the model trading rule are not applicable***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 47 of 478

Region Regional contact Phone States and protectorates Pennsylvania, West Virginia Region IV Florida, Georgia, North Carolina, Alabama, Kentucky, Mississippi, South Carolina, Tennessee Region V Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio Region VI &&& &&& Arkansas, Louisiana, New Mexico, Oklahoma, Texas Region VII &&& &&& Iowa, Kansas, Missouri, Nebraska Region VIII &&& &&& Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming Region IX &&& &&& Arizona, California, Hawaii, Nevada, American Samoa, Guam, Northern***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 48 of 478

Region Regional contact Phone States and protectorates Mariana Islands Region X &&& &&& Alaska, Idaho, Oregon, Washington

C. Legal Authority Section 111(d)(2) of the CAA, 42 U.S.C. 7411(d)(2) provides the EPA the same authority to prescribe a plan for a state in

cases where the state fails to submit a satisfactor y plan as the agency would have under CAA section 110(c) in the c ase of failure to submit an implementation plan. In additi on, the EPA has authority under CAA section 111(d)(1) to prescr ibe regulations that establish procedures similar to CA A section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to im plement the CAA under CAA section 301. A federal plan under CAA section 111(d) applies, implements and enforces standards o f performance for affected EGUs. Under the Clean Power Plan EGs, state plans will be due on September 6, 2016, but states are al so allowed to seek a two year extension for a final plan submitta l, upon a satisfactory initial plan submittal by the same dea dline. See 40 CFR 60.5755, 60.5760(b). If a state does not submit a final***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 49 of 478

state plan or initial plan submittal, 13 or if either a final state plan or an initial plan submittal does not me et the requirements of the EG, the agency will take the ap propriate steps to finalize and implement a federal plan for that state’s

EGUs. Further, states will remain free, and indeed are st rongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdic tions. Upon approval of the state plan by the EPA, the federal plan will no longer apply to the affected EGUs covered by the st ate plan. See

&&&40 CFR 60.5720.

13 Indeed, states may simply choose to accept a feder al plan in lieu of undertaking to develop a state plan at all. While the statute uses the phrase “fails to submit a satisfac tory plan,” the EPA does not believe this should carry any pejorati ve connotation. While Congress identified states and local governme nts as having “primary responsibility” for air pollution preventi on and control, CAA section 101(a)(3), states are in no way penaliz ed for not submitting a plan under CAA section 111(d). Rather, the EPA steps into the shoes of the state to carry out the CAA se ction 111(d) program in its stead. To the extent states may be i nterested in accepting a federal plan, the EPA would be interest ed in hearing that through the comment process on this proposal.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 50 of 478

D. Timing of EPA Actions on the Model Trading Rules, F ederal Plan, and other Proposed Actions This action co-proposes two approaches to the feder al plan, both of which also constitute proposed model tradin g rules that states could adopt as state plans for EPA approval. The EPA currently intends to finalize one or both of the mo del trading rules by next summer so that they may be available to states as soon as possible to help inform their state plan de velopment efforts prior to the initial submittal deadline of September 6, 2016, and two years before the states’ final plan d eadline of September 6, 2018. 14 If the EPA finalizes the model trading rules in that timeframe, the only direct consequence will be to provide the states certainty as to one or two parti cular approaches to the design of their state plan that t he EPA will approve if adopted in full. The finalization of a m odel trading rule will not constitute a final action with respec t to a federal plan for the affected EGUs in any state. Ra ther, the proposed federal plan will remain just that, a prop osal. The EPA will promulgate a final federal plan for any state only after it

14 We anticipate that the model rules’ text could be finalized either in a new subpart or subparts of 40 CFR part 62 of title 40 of the CFR as proposed, or in a final document that is not published in the CFR.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 51 of 478

has made a finding on a state’s failure to submit a plan, or fully or partially disapproved a submitted state pl an. The EPA will go through a public notice and comment process before disapproving a submitted and complete state plan, i n whole or part. The EPA invites comments on this staged appro ach to finalizing one or more model trading rules on the o ne hand (which we currently intend to do in summer 2016), a nd finalizing federal plans on the other (which we currently inte nd to do state-by-state upon our taking predicate action on states’ plans). In this action, the EPA is also proposing enhanceme nts to the process for agency action on state submittals a nd promulgation of a federal plan under CAA section 11 1(d). For more detailed discussion of these changes, see &&&s ection VII of this preamble. This aspect of this proposal is sepa rate from the federal plan and the model trading rules. The EPA i ntends to finalize these changes on a timeline earlier than b oth a model trading rule and the federal plan. Under the framework regulations and the final EGs, at 40 CFR part 60.27 and &&&60.5715 and &&&5760, respecti vely, the

initial timelines for EPA action on state submittal s and, potentially, the promulgation of a federal plan wil l be as

follows: the EPA will have 12 months from the date of a state's***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 52 of 478

submission to approve or disapprove that state’s pl an. The EPA

will have 12 months from the date of its action on a state submission to promulgate the federal plan for the E GUs in that

state. The EPA will have 6 months from the date of a state’s submission to notify a state that its submittal doe s not meet completeness criteria and constitutes a failure to submit a plan. In the case of initial submittals under 60.57 65, the EPA will have 60 days from September 6, 2016 to notify a state that its initial submittal does not meet the requirement s of 60.5760(a). As with state plans, the EPA will have 12 months to promulgate a federal plan from the date of its find ing that a state failed to submit a complete and approvable in itial submittal. (Formally, such a finding would be that the state failed to submit a state plan.) The timeframes stated in the previous paragraph ref lect the

maximum time allowed for EPA action. We note that u nder CAA section 111(d)(2) and CAA section 110(c), the EPA m ay promulgate a final federal plan for a state immediately upon m aking a finding of failure to submit a state plan or initia l submittal, or upon making a finding of final disapproval of a state plan. Congress gave the EPA authority in CAA section 111( d)(2), as it did in CAA section 110(c), to promulgate a federal plan at any time after it disapproves or finds a failure to sub mit a state***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 53 of 478

plan. The Supreme Court has recognized that under t his authority, the EPA may promulgate a FIP “at any tim e” within the 2-year limit of CAA section 110(c) “that begins the moment EPA determines a SIP to be inadequate.” EME Homer City v. EPA , 134 S. Ct. 1584, 1601 (2014). “EPA is not obliged to wa it two years or postpone its action even a single day . . . .” Id. It is essential to implement plans for the control of emi ssions of CO 2 expeditiously and avoid unnecessary delay. Among ot her reasons, this will provide affected EGUs regulatory certaint y and will assist the regulated entities as well as those auth orities with responsibility for ensuring grid reliability to hav e as much time as possible to plan for the 2022 compliance st art date set in the EGs. Thus, it is reasonable to propose this federal plan now so that federal plans will be ready to be promu lgated quickly in cases where states have failed to submit a plan or their plans are found unsatisfactory. It is the agency’s intention to promulgate federal plans promptly for states who do not submit plans or init ial submittals by September 6, 2016. However, the effec t of putting the federal plan in place at that time would ultima tely be limited in impact upon states. Because the EPA woul d implement the federal plan, its promulgation does not obligat e state officials to take any actions themselves. Further, states remain***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 54 of 478

free - and the EPA in fact encourages states - to s ubmit state plans that can replace the federal plan. States can do so in advance of the beginning of the performance period in 2022, or may transfer to a state plan after that date. Howev er, in doing so, the agency and states should be mindful of the goals of regulatory certainty discussed in the prior paragra ph. Because we are proposing a federal plan that would apply

emission standards to affected EGUs in all states t hat the agency determines not to have an approvable plan, t he EPA invites comment from all persons with concerns abou t or comments on the proposed federal plan as it may apply in any state, whether or not that state has submitted, or intends to submit, its own plan on which the EPA has yet to take actio n. In this document, the EPA is proposing regulatory t ext setting out the substantive provisions for both of the proposed federal plans/model trading rules. The EPA is not p roviding specific regulatory text that would, if finalized, actually promulgate a federal plan for each state for which this proposed federal plan might be applied. 15 We currently envision that this language would be in the form of a new section to t he statespecific subparts of part 62 and would be ministeri al in nature.

15 The minimum contents of a notice of proposed rulem aking under the CAA are set forth at CAA section 307(d)(3) and 5 U.S.C. 553(b).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 55 of 478

It would likely provide that the affected EGUs in e ach such state are subject to a federal plan and would then crossreference or incorporate by reference the substanti ve provisions of one of the two subparts proposed in this action (if finalized), along with any applicable modifications or adjustments as may be necessary, either based on ne w information or in response to comments regarding the applicatio n of the federal plan to that particular state. This text ma y appear similar to the FIP language found in the final CSAP R rule (76 FR 48208, 48361-78; August 8, 2011).

E. Use of the Model Trading Rule as a Backstop As discussed in the final EGs, &&&citation, the EP A

believes that either a mass-based or rate-based mod el trading rule could function well as the federally enforceab le “backstop” that the EGs require to be included in “state measu res” type state plans. 16 (The proposed federal plan does not itself require a “backstop” because it relies on an “emission stan dards” approach, rather than a “state measures” approach, as delineated

16 We are aware of at least one case in which a court has upheld the use of a trading program as a backstop to ensur e CAA requirements are met. See WildEarth Guardians v. U.S. EPA , No. 12- 9596 (10th Cir. filed Oct. 21, 2014) (upholding use of backstop cap-and-trade program under 40 CFR 41.309 of the Re gional Haze Rule).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 56 of 478

in the final EGs.) The conditions and requirements for the federally enforceable backstop in a state measures approach are

discussed in detail in the final EGs. See &&§ion VIII.C.4.b

and &&&VIII.C.4.c.2 of the final EGs. To summarize those provisions, without reopening them for comment, the federally enforceable backstop must fully achieve the CO 2 emission performance rates or the state’s interim and final CO 2 emission goal if the state plan fails to achieve the intende d level of CO 2 emission performance. The state plan submittal must identify the federally enforceable emission standards for affect ed EGUs that would be used in the backstop, demonstrate that tho se emission standards meet the requirements that apply in the c ontext of an emission standards approach, identify a schedule an d trigger for implementation of the backstop that is consistent w ith the requirements in the EGs, and identify all necessary state administrative and technical procedures for impleme nting the backstop ( e.g., how and when the state would notify affected EGUs that the backstop has been triggered). In addi tion, the backstop emission standards must make up for any sh ortfall in CO 2 emission performance during a prior plan performanc e period that led to triggering of the backstop. The EGs explicitly recognized that the backstop emi ssion

standards could be based on one of the model tradin g rules that***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 57 of 478

the EPA is proposing in this action. As discussed i n section II.B of this preamble above, we are drafting the mo del trading rule so that it can be adopted or incorporated by r eference with a minimum of changes necessary to make the rule app ropriate for use by states, and this includes its use as a backs top. Instances of this approach are throughout the propo sed rule text

and reflect our desire to ease the use of the model rule for states, as a full state plan, or as a backstop to a “state measures” plan. One way in which a backstop may need to differ from the model trading rules proposed in this action is the requirement to make up for a shortfall in emissions performance in a state’s prior plan performance period. The model trading ru les do not provide provisions that would automatically adjust the emission standards to account for any prior emission perform ance shortfall (which is an option states have if design ing their own backstop). Thus, a state relying on the model tradi ng rule as its backstop would likely need to submit an appropr iate revision to the backstop emission standards adjusting for th e shortfall through the state plan revision process. This would likely be done in conjunction with the process for putting th e backstop

into effect.

If a state chooses to use the model rule as its fed erally***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 58 of 478

enforceable backstop in a state measures plan, this does not mean that the backstop is itself the federal plan. Rather, the model rule becomes adopted as a part of the state p lan. Both approaches to the model trading rule are “emission standard” approaches under the EGs where an emission standard is imposed and federally enforceable on the affected EGUs: in the ratebased approach the emissions standard is an allowab le rate of emissions; in the mass-based approach the emission standard is the requirement to hold allowances equal to reporte d emissions. The EPA may also handle the administration of the t rading program for states utilizing the model trading rule . However, even though the backstop may take the form of an EP Aadministered, federally-enforceable trading rule, t his does not mean that a federal plan has been put into effect. The state retains all of its rights and responsibilities with respect to the implementation and enforcement of the backstop as a component of its state plan.

1. Applicability and Enforceability If promulgated for the affected EGUs in a particula r state, this federal plan will require affected EGUs to mee t specific

emission standards for CO 2 and related requirements. These enforceable compliance obligations will apply to th e owners and operators of those affected EGUs. See 40 CFR 62.13. No***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 59 of 478

obligation falls on states or state officials (exce pt to the extent they may be owners and operators of affected EGUs). 17 In the event of noncompliance, the provisions in the f ederal plan are federally enforceable against an affected EGU, in the same manner as the provisions of an approved state plan under CAA section 111(d), and similar to a FIP or an approved SIP under

CAA section 110. See CAA section 111(d)(2)(B), 42 U.S.C. 7411(d)(2)(B) (power to enforce state and federal p lans), section 113(a)–(h), 42 U.S.C. 7413(a)-(h), and sect ion 304, 42

U.S.C. 7604. This means that the Administrator has the ability to enforce against violations and secure appropriat e corrective actions pursuant to CAA sections 113(a)–(h), and st ates and other third parties maintain the ability to enforce against violations and secure appropriate corrective action s pursuant to

CAA section 304.

17 See Reno v. Condon , 528 U.S. 141, 151 (2000). State officials responsible for developing state plans, however, sh ould be aware of the procedural enhancements being proposed to th e framework regulations of 40 CFR part 60, subpart B, in this r ulemaking document. These changes are discussed in section && &VII of this preamble below. These changes are not a component o f the proposed federal plan or the EGs. Although these changes do not alter the deadlines or submission obligations provided in the Clean Power Plan Emission Guidelines, state officials and other interested parties are encouraged to review and comment on the se changes.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 60 of 478

III. Federal Plan Structure to Achieve Reductions

A. Overview

1. Interactions with State Plans and Scope of Trading The EPA intends to set up and administer a program to track trading programs – both rate-based and mass-based – that will be available for all states that choose it. The EPA pr oposes that affected EGUs in any state covered by a federal pla n could trade compliance instruments with affected EGUs in any ot her state covered by a federal plan that uses the same approa ch. In the proposed mass-based federal-plan trading program, t his would mean that affected EGUs in a state covered by the f ederal plan could use, as a compliance instrument, an allowance distributed in any other state covered by the federal plan. Sim ilarly, in the proposed rate-based federal-plan trading progra m approach,

this would mean that affected EGUs in a state cover ed by the federal plan could use, as a compliance instrument, an ERC issued in any other state covered by the federal pl an. We propose that an affected EGU in a state covered by the massbased trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state c overed by the rate-based trading federal plan must use ERCS for c ompliance (not allowances). The agency promulgated provisions for “ready-for-in terstate-***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 61 of 478

trading” plans in the EGs. The EPA is proposing the federal plans as ready-for-interstate-trading plans. The EP A proposes to allow interstate trading between affected EGUs in s tates covered by the proposed federal plans and affected EGUs in states covered by state plans (referred to below as “linki ng” states, or “linkages”) under the following conditions, whic h are

discussed further below the list:

• The state plan must be approved.

• The state plan must implement the same type of trad ing program as the federal plan trading program in orde r to be linked for interstate trading, i.e., mass-based trading programs can link to mass-based trading programs on ly, and rate-based trading programs can link to rate-based trading programs only.

• The state plan must use the identical compliance in strument as the federal plan (this requirement is detailed b elow).

• The state plan must be approved as a ready-for-inte rstatetrading plan.

• The state plan must use an EPA-administered trackin g system (we are also requesting comment on expanding this t o include a state plan that uses an EPA-designated tr acking system that is interoperable with an EPA-administer ed***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 62 of 478

system, as detailed below). The EPA proposes that interstate ERC trading could occur both 1) from affected EGUs in states covered by the rate-based trading federal plan to affected EGUs in states wit h approved rate-based trading state plans meeting the proposed conditions for linkages (including the conditions for being “r eady-forinterstate-trading” that were finalized in the EG), and 2) from affected EGUs in such state-plan-covered states to affected EGUs in federal-plan-covered states. The EPA also reques ts comment on expanding the scope of interstate trading to includ e linking states covered by the rate-based trading federal pl an with any state that has an approved rate-based trading state plan meeting the proposed conditions for linkages and that uses an EPAdesignated ERC tracking system that is interoperabl e with an EPA-administered ERC tracking system. The EPA also takes comment on allowing a state that has an approved rate-based trading state plan meeting the proposed conditions for link ages and that uses an EPA-designated ERC tracking system to regis ter with the EPA, and after registration, to link with states co vered by the rate-based trading federal plan. There are multiple benefits to a registration requirement, which include ensuring that the tracking systems are functionally interoperable. For the mass-based federal plan, the EPA proposes t hat***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 63 of 478

interstate allowance trading could occur in both di rections, i.e., from affected EGUs in states covered by the mass-b ased trading federal plan to affected EGUs in states wit h approved mass-based trading state plans meeting the proposed conditions for linkages, and from affected EGUs in such state- plan-covered states to sources in federal-plan-covered states. The EPA proposes that a condition of linkage betwee n a state plan and the federal plan is the use of an id entical compliance instrument. In the mass-based federal pl an the EPA proposes to issue allowances in short tons; as a re sult, the EPA is proposing in this rule that linkage for the mass -based federal plan is limited to state plans that issue a llowances in short tons. The agency also requests comment on whe ther to extend linkage to state plans that issue allowances in metric tons and on what provisions would be necessary to i mplement such linkages. The EPA believes that considerations for linkages to state plans that use metric tons may include tracki ng system design, and stipulation of which parties convert st ate plan

allowances denominated in metric tons to allowances denominated in short tons and at what stage of compliance opera tions the conversion occurs. The agency requests comment on t hese and any other considerations for linkages between the feder al plan and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 64 of 478

state plans that issue allowances in metric tons. 18 The EPA also requests comment on expanding the scop e of interstate trading to include linking states covere d by the mass-based trading federal plan with any state that has an approved mass-based trading state plan meeting the proposed conditions for linkages and that uses an EPA-design ated allowance tracking system that is interoperable wit h an EPAadministered allowance tracking system. The EPA als o takes comment on allowing a state that has an approved ma ss-based trading state plan meeting the proposed conditions for linkages and that uses an EPA-designated allowance tracking system to register with the EPA, and after registration, to l ink with states covered by the mass-based trading federal pl an. In the Clean Power Plan EGs, the EPA promulgated requirements that apply to an emissions budget trad ing state plan that includes non-affected EGU emission source s, to provide the opportunity for such a state plan to be potenti ally approvable for linking to other state plans (see Cl ean Power Plan EGs, section VIII). In this proposed rule, the proposed approach to link from the mass-based trading federa l plan to state plans could result in linking of the federal plan to state

18 In this preamble all references to “tons” are shor t tons, unless otherwise noted.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 65 of 478

plans that include non-affected emission sources. T he EPA requests comment on this proposed approach. The EPA believes that a broad trading region provid es greater opportunities for cost-effective implementa tion of reductions compared to trading limited to a smaller region. The proposed approach to interstate trading is intended to strike a reasonable balance between providing the opportunit y for a wide interstate trading system while maintaining the int egrity of the linked programs. The agency requests comment on the proposed approach to interstate trading linkages in the fede ral plans. Whether the EPA ultimately finalizes rate-based or massbased federal plans, the agency believes that the E RC market and the allowance market would be competitive. The oppo rtunities for interstate trading detailed above would reduce any potential for firms to exercise market power in the ERC market or allowance market. The EPA requests comment on this expectatio n of a competitive ERC market and a competitive allowance market, and comment on potential program design choices that co uld address any identified market power concern. The EPA intend s to provide information to the market and the public, consisten t with other trading programs that the agency administers, as de tailed in sections IV and V of this preamble, for the rate-ba sed and massbased approaches, respectively.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 66 of 478

2. Addressing Potential Leakage and Interstate Effects The final EGs specify the concern of leakage, which is defined in section VII.D of the final EGs as the po tential of an alternative form of implementation ( e.g ., the rate-based and mass-based state goals) to spur increased emissions from new sources, beyond the emissions expected from new sou rces if existing EGUs were given standards of performance i n the form of the subcategory-specific emission performance rates . The final EGs specified that mass-based plan approaches must address leakage, because the nature of the mass goals would create differing incentives to run for affected existing E GUs and for new sources, which could result in new sources runn ing more and producing more emissions. These circumstances are m uch less likely to be present under a rate-based plan approa ch, where

both affected EGUs and new sources face similar inc entives to run. By requiring plan components that address leak age, the final EGs ensure that mass goals are an equivalent alternative to the subcategory CO 2 performance rates and the rate-based state goals. section VII.D of the final EGs details the r equirement for addressing leakage and why it is needed, and se ction VIII.J of the final EGs specifies options for plan compone nts that address leakage. We are proposing, as part of the m ass-based approach under the federal plan and model rule, to implement***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 67 of 478

allowance allocation approaches to address leakage, specifically through establishing an output-based allocation set -aside and a set-aside that encourages the installation of RE. T hese proposed strategies are detailed in section V.D of this prea mble.

In the final EGs, the EPA also discussed the concer n that

CO 2 emissions reductions would be eroded in situations where an

affected EGU in a rate-based state counts the MWh f rom measures located in a mass-based state, but the generation f rom that measure acts solely to serve load in the mass-based state. In that scenario, expected CO 2 emission reduction actions in the rate-based state are foregone as a result of counti ng MWh that

resulted in CO 2 emission reductions in a mass-based state. The proposed rate-based approach, in accordance with th e final guidelines, restricts ERC issuance for any emission reduction measures located in a mass-based state, except for RE. RE

measures located in a state with a mass-based state plan can only be approved for ERC issuance for use by a stat e under a rate-based federal plan if it can be demonstrated t hat that load-serving entities in the rate-based state have contracted for the delivery of the RE generation that occurs i n a massbased state to meet load in a rate-based state. As part of this federal plan, we are proposing that this can be dem onstrated***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 68 of 478

through the provision of a power delivery contract or power purchase agreement in which an entity in the rate-b ased state contracts for the supply of the MWhs in question an d providing documentation that the electricity was treated as c omparable to a generation resource used to serve regional load t hat included

the rate-based state. This demonstration must be in cluded as part of the project application for ERC issuance to the EPA or its agent from the RE provider in the mass-based st ate. Once the project is approved, subsequent applications for is suance of

credit to the EPA will need to reference that the m egawatt-hours

submitted are associated with that contractual arra ngement with the mass-based RE provider. The EPA requests commen t on this approach. It should also be noted that we are propo sing that under the proposed mass-based approach, if RE locat ed in a massbased state receives mass-based set-aside allowance s for any generation, that generation is not eligible to be i ssued ERCs in

a rate-based state.

The EPA requests comment on the treatment of leakag e and of interstate effects under both the proposed rate-bas ed federal plan approach and the proposed mass-based federal p lan approach, and as part of the corresponding proposed model rul es.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 69 of 478

3. Provisions to Encourage Early Action The EPA outlined and initiated the Clean Energy Inc entive Program (CEIP) in the final emission guidelines (se e section VIII.B.2 of the final EGs). The program is designed to incentivize investment in certain types of RE projects, as well as demand-side EE projects that benefit low-income communities. Th ese projects

must commence construction after the date of submis sion of a complete state plan, or the effective date of a fed eral plan, and will receive incentives for the MWh they generate o r the end-use energy demand reductions they achieve during 2020 a nd 2021. The CEIP also provides an additional incentive to drive investment in demand-side EE projects that benefit low-income com munities. The EPA proposes to apply the CEIP in all states subjec t to either a rate-based or mass-based federal plan. The EPA’s pr oposed approaches to implementing the program in the rate- based and massbased federal plans are detailed in sections IV and V of this preamble, respectively.

B. Inventory of Emissions Fossil fuel-fired electric utility generating units (EGUs) are by far the largest emitters of GHGs among stati onary sources in the U.S., primarily in the form of CO 2 , and among fossil fuelfired EGUs, coal-fired units are by far the largest emitters.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 70 of 478

This section describes the amounts of these emissio ns and places these amounts in the context of the U.S. Inventory of Greenhouse

Gas Emissions and Sinks 19 (the U.S. GHG Inventory). The EPA implements a separate program under 40 CFR part 98 called the Greenhouse Gas Reporting Program 20 (GHGRP) that requires emitting facilities over threshold amounts of GHGs to report their emissions to the EPA annually. Using data from the GHGRP, this section also places emissions from fossil fuel-fire d EGUs in the context of the total emissions reported to the GHGR P from facilities in the other largest-emitting industries

. The EPA prepares the official U.S. GHG Inventory to comply

with commitments under the United Nations Framework Convention on Climate Change (UNFCCC). This inventory, which incl udes recent trends, is organized by industrial sectors. It prov ides the information in Table 3 of this preamble, which pre sents total U.S. anthropogenic emissions and sinks 21 of GHGs, including CO 2

19 “Inventory of U.S. Greenhouse Gas Emissions and Si nks: 1990 – 2013”, Report EPA 430-R-15-004, United States Envir onmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinv entoryreport. html

20 U.S. EPA Greenhouse Gas Reporting Program Dataset, see http:// www.epa.gov/ghgreporting/ghgdata/reportingdatasets. html

21 Sinks are a physical unit or process that stores G HGs, such as***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 71 of 478

emissions, for the years 1990, 2005, and 2013. Table 3. U.S. GHG Emissions and Sinks by Sector (Mi llion Metric Tons Carbon Dioxide Equivalent (MMT CO 2 Eq.)) 22

SECTOR 1990 2005 2013

Energy 23 5,290.5 6,273.6 5,636.6

Industrial Processes and Product Use 342.1 367.4 359.1

Agriculture 448.7 494.5 515.7

Land Use, Land- Use Change and Forestry 13.8 25.5 23.3

Waste 206.0 189.2 138.3

Total Emissions 6,301.1 7,350.2 6,673.0

Land Use, Land- Use Change and Forestry (Sinks) (775.8) (911.9) (881.7)

forests or underground or deep sea reservoirs of ca rbon dioxide.

22 From Table ES-4 of “Inventory of U.S. Greenhouse G as Emissions and Sinks: 1990 – 2013”, Report EPA 430-R-15-004, U nited States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinv entoryreport. html

23 The energy sector includes all greenhouse gases re sulting from stationary and mobile energy activities, including fuel combustion and fugitive fuel emissions.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 72 of 478

Net Emissions (Sources and Sinks) 5,525.2 6,438.3 5,791.2 Total fossil energy-related CO 2 emissions (including both stationary and mobile sources) are the largest cont ributor to total U.S. GHG emissions, representing 77.3 percent of to tal 2013 GHG

emissions. 24 In 2013, fossil fuel combustion by the utility pow er sector –- entities that burn fossil fuel and whose primary business is the generation of electricity –- accounted for 3 8.3 percent of all energy-related CO 2 emissions. 25 Table 4 of this preamble presents total CO 2 emissions from fossil fuel-fired EGUs, for years 1990, 2005, and 2013.

Table 4. U.S. GHG Emissions from Generation of Elec tricity from Combustion of Fossil Fuels (MMT CO 2 ) 26

24 From Table ES-2 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2013”, Report EPA 430-R-15-004, Unite d States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinv entoryreport. html.

25 From Table 3-1 “Inventory of U.S. Greenhouse Gas E missions and Sinks: 1990 – 2013”, Report EPA 430-R-15-004, Unite d States Environmental Protection Agency, April 15, 2015. http://www.epa.gov/climatechange/ghgemissions/usinv entoryreport. html.

26 From Table 3-5 “Inventory of U.S. Greenhouse Gas E missions and Sinks: 1990 – 2013”, Report EPA 430-R-15-004, Unite d States Environmental Protection Agency, April 15 2015.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 73 of 478

In addition to preparing the official U.S. GHG Inve ntory, which represents comprehensive total U.S. greenhou se gas emissions and complies with commitments under the U NFCCC, the EPA collects detailed GHG emissions data from the large st emitting facilities in the U.S. through its GHGRP. Data coll ected by the GHGRP from large stationary sources in the industri al sector show that the utility power sector emits far greater CO 2 emissions than any other industrial sector. Table 5 of this pream ble presents total GHG emissions in 2013 for the largest emittin g industrial sectors as reported to the GHGRP. As shown in Table 4 and Table 5 of this preamble, respectively, CO 2 emissions from fossil fuelfired EGUs are nearly three times as large as the t otal reported

http://www.epa.gov/climatechange/ghgemissions/usinv entoryreport. html. GHG EMISSIONS 1990 2005 2013

Total CO 2 from fossil fuelfired EGUs 1,820.8 2,400.9 2,039.8

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

- from natural gas 175.3 318.8 441.9

- from petroleum 97.5 97.9 22.4***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 74 of 478

GHG emissions from the next ten largest emitting in dustrial sectors

in the GHGRP database combined. Table 5. Direct GHG Emissions Reported to GHGRP by Largest Emitting Industrial Sectors (MMT CO 2 e) 27

C. Affected EGUs For the Clean Power Plan and this federal plan, an affected EGU is any steam generating unit, IGCC, or stationary combustion turbine that was in operation or had com menced construction as of January 8, 2014, 28 and that meets the

27 U.S. EPA Greenhouse Gas Reporting Program Dataset as of August 18, 2014. http://www.ghgdata.epa.gov/ghgp/main.do.

28 Under section 111(a) of the CAA, determination of affected sources is based on the date that the EPA proposes action on such sources. January 8, 2014 is the date the proposed G HG standards of performance for new fossil fuel-fired EGUs were pub lished in the Federal Register (79 FR 1430). Industrial sector 2013 Petroleum Refineries 176.7 Onshore Oil & Gas Production 94.8 Municipal Solid Waste Landfills 93.0 Iron & Steel Production 84.2 Cement Production 62.8 Natural Gas Processing Plants 59.0 Petrochemical Production 52.7 Hydrogen Production 41.9 Underground Coal Mines 39.8 Food Processing Facilities 30.8***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 75 of 478

following criteria, which differ depending on the t ype of unit. To be an affected EGU, such a unit, if it is SGU or IGCC, must serve a generator capable of selling greater than 2 5 MW to a utility power distribution system and have a base l oad rating greater than 260 GJ/h (250 MMBtu/h) heat input of f ossil fuel (either alone or in combination with any other fuel ). If such a unit is a SCT, the unit must meet the definition of a combined cycle or combined heat and power combustion turbine , serve a generator capable of selling greater than 25 MW to a utility power distribution system, and have a base load rat ing of greater than 260 GJ/h (250 MMBtu/h). When considering and understanding applicability, t he following definitions may be helpful. Simple cycle combustion turbine means any stationary combustion turbine whi ch does not recover heat from the combustion turbine engine exh aust gases for purposes other than enhancing the performance o f the stationary combustion turbine itself. Combined cycl e combustion turbine means any SCT which recovers heat from the combustion turbine engine exhaust gases to generate steam that is used to create additional electric power output in a steam turbine. Combined heat and power (CHP) combustion turbine me ans any SCT which recovers heat from the combustion turbine eng ine exhaust gases to heat water or another medium, generate ste am for useful***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 76 of 478

purposes other than exclusively for additional elec tric generation, or directly uses the heat in the exhaus t gases for a useful purpose. We note that certain affected EGUs are exempt from inclusion in a state plan and this federal plan. Af fected EGUs that may be excluded under the EGs are those that ( 1) Are subject to subpart TTTT as a result of commencing m odification or reconstruction; (2) are steam generating units o r IGCC units that are currently and always have been subject to a federally enforceable permit limiting net-electric sales to o ne-third or less of its potential electric output or 219,000 MW h or less on an annual basis; (3) are non-fossil units ( i.e., units that are capable of combusting 50 percent or more non-fossil fuel) that have historically limited the use of fossil fuels t o 10 percent or less of the annual capacity factor or are subjec t to a federally enforceable permit limiting fossil fuel u se to 10 percent or less of the annual capacity factor; (4) are stationary combustion turbines that are not capable of combusting natural gas ( i.e., not connected to a natural gas pipeline); (5) are a combined heat and power unit t hat are subject to a federally enforceable permit limiting, or have historically limited, annual net electric sales to a utility power distribution system to the product of the des ign***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 77 of 478

efficiency and the potential electric output or 219 ,000 MWh (whichever is greater) or less; (6) serve a generat or along with other steam generating unit(s), IGCC(s), or station ary combustion turbine(s) where the effective generatio n capacity (determined based on a prorated output of the base load rating of each steam generating unit, IGCC, or stationary combustion turbine) is 25 MW or less; (7) are a municipal wast e combustor unit subject to subpart Eb of 40 CFR part 60; or (8 ) are a

commercial or industrial solid waste incineration u nit that is subject to subpart CCCC of 40 CFR part 60. 29 The EPA is requesting comment on whether it may be appropriate to include a conditional exemption for certain small- and medium-sized steam EGUs that are willing to commit to

29 We had proposed in the CPP EGs that affected EGUs were those existing source fossil fuel-fired EGUs that met the applicability criteria for coverage under the final GHG standards for new fossil fuel-fired EGUs being promulgated under CAA section 111(b). However, we are finalizing in the Emission Guidelin es that states need not include certain units that would otherwise meet the CAA section 111(b) applicability in this CAA section 11 1(d) emission guidelines. These include simple cycle turbines, ce rtain nonfossil units, and certain combined heat and power u nits. The final CAA section 111(b) standards include applicability criteria for simple cycle combustion turbines, for reasons relat ing to implementation and minimizing emissions from all fu ture combustion turbines.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 78 of 478

decommissioning within a fixed time period prior to 2030. The agency is interested in what the size threshold for such an exemption might be (e.g., 100 MW nameplate capacity or less), its effect on emissions performance under a federal plan, and whether a particular date corresponding with the ti ming of the compliance periods (e.g., the end of the first comp liance period on December 31, 2025) would be appropriate in order to ensure overall benefits in performance are obtained from t he use of the conditional exemption. The applicability of this proposed federal plan fol lows the same applicability criteria as the final EGs. The r ationale for these criteria is provided at &&&citation to EGs. W e are not reopening the criteria or rationale here. In the federal plan Affected EGU TSD, the EPA lists all applicable affected EGUs according to our records f rom the National Electric Energy Data System (NEEDS), Energ y Information Administration (EIA), and comments from the Clean P ower Plan. In this TSD, each affected EGU is assigned its propose d applicable standards if a federal plan were to be promulgated for that affected EGU at any time. The EPA requests comments and updates

to this list of affected units. Section VI.C of the final EGs describes the data used in setting the standards an d how an inventory of affected units has been compiled. Commented [A1]: Please clarify whether this would require emission neutrality***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 79 of 478

D. Compliance Schedule In accordance with the schedule set out in the EGs, the federal plan is proposed to be implemented in a pha sed approach. The first period, corresponding to the interim peri od in the EG, is proposed to run from beginning of calendar year 2022 until end of calendar year 2029 (January 1, 2022 to Decem ber 31, 2029). The final period would run from beginning of calendar year 2030 (January 1, 2030) indefinitely into the f uture. The first period is proposed to be comprised of three “ compliance periods,” set by calendar year. The first complianc e period will be from January 1, 2022 to midnight, December 31, 2 024 (3 calendar years). The second compliance period will be from January 1, 2025 to midnight, December 31, 2027 (3 c alendar years). The third compliance period will be from Ja nuary 1, 2028 to midnight, December 31, 2029 (2 calendar years). Under the EGs, midnight, December 31, 2029 marks th e end of the interim period, and the beginning of the final period. The EPA proposes that the compliance periods in the fin al period will each be 2 calendar years. Thus, the first comp liance period after 2030 would be from January 1, 2030 to midnigh t, December 31, 2031. The second compliance period would be fro m January 1, 2032 to midnight, December 31, 2033. This would rep eat accordingly unless changed by the EPA through a rev ision to the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 80 of 478

federal plan or other action. 30 The EPA recognizes that the compliance periods prov ided for in this rulemaking are longer than those historical ly and typically specified in CAA rulemakings. As reflecte d in longstanding CAA precedent, “[t]he time over which [the compliance standards] extend should be as short term as possib le and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Sourc e Permitting and January 25, 1995 Guidance on Enforceability Req uirements for Limiting Potential to Emit through SIP and §112 Rul es and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are accepta ble in the context of this specific rulemaking because of the unique characteristics of this rulemaking, including that CO 2 is longlived in the atmosphere, and this rulemaking is foc used on performance standards related to those long-term im pacts.

• Prior to the beginning of the first compliance peri od in 2022, the agency intends to establish the infrastru cture for operating a federal trading program and to work clo sely with affected EGUs in the states where the federal plan is

30 This schedule would be the same under either a rat e- or massbased approach.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 81 of 478

promulgated prior to the start of the first complia nce period in 2022. We request comment on whether it would be possible to grant, on a case-by-case basis, certain affected EGUs, particularly small entities, additional time to com e into compliance, and to request additional input from th e public as to the design of such flexibility that would be compatible with the emission guidelines and a federal plan tha t implements a trading system. The EPA recognizes that it is important to ensure a degree of liquidity in compliance instruments in either of the proposed trading approaches, while also maintaining the stringency required by the final EGs. A number of a spects of the rate-based and mass-based programs would assist with this, including through allocation methods or rules , mechanisms to place allowances or credits into the market relatively early, requirements for public transpare ncy of

information related to allowance or credit issuance , tracking, transfers, and holdings. The EPA solicits comment on other approaches to ensure market liquidity whil e continuing to meet the stringency of the final EGs.

E. Addressing Reliability Concerns The proposed federal plan has been designed to ensu re that,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 82 of 478

to the greatest extent possible, implementation wou ld not interfere with the power sector’s ability to mainta in electric reliability. 31 Like the EGs, the federal plan provides a long planning horizon and implementation period. In addi tion the federal plan allows affected EGUs to obtain tradabl e allowances and credits to meet obligations which assures that reliability can be maintained without disruption to the electri city system. There are many features of the electricity system t hat ensure that electric system reliability will be mai ntained. For example, in the Energy Policy Act of 2005, Congress added a

section to the Federal Power Act to make reliabilit y standards mandatory and enforceable by FERC and the North Ame rican Electric Reliability Corporation (NERC), the Electr ic Reliability Organization which FERC designated and oversees. Along with its standards development work, NERC con ducts annual reliability assessments via a 10-year forecast and winter and summer forecasts; audits owners, operators and user s for preparedness; and educates and trains industry pers onnel. Numerous other entities such as FERC, DOE, state PU Cs,

31 The EPA evaluated certain aspects of electric reli ability in the context of modeling projections for the final Clean Power Plan , and that evaluation is described in the “ Resource Adequacy and Reliability Analysis TSD” for that rulemaking, a copy of which is also included in the docket for this rulemaking.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 83 of 478

ISOs/RTOs, and other planning authorities also cons ider the reliability of the electric system. There are also numerous remedies that are routinely employed when there is a specific local or regional reliability issue. These include transmission system upgrades, installation of new generating cap acity, calling on demand response, and other demand-side a ctions. Additionally, planning authorities and system opera tors constantly consider, plan for, and monitor the reli ability of the electricity system with both a long-term and sh ort-term perspective. Over the last century, the electric in dustry’s efforts regarding electric system reliability have become multidimensional, comprehensive, and sophisticated. Under this approach, planning authorities plan the system to a ssure the availability of sufficient generation, transmission , and distribution capacity to meet system needs in a way that minimizes the likelihood of equipment failure. 32 Long-term system planning happens at both the local and regional lev els with all segments of the electric system needing to operate together in

an efficient and reliable manner. In the short-term , electric

32 Casazza, J. and Delea, F., Understanding Electric Power Systems: An Overview of the Technology, the Marketplace, and Government Regulations , IEEE Press, at 160 (2010).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 84 of 478

system operators operate the system within safe ope rating margins and work to restore the system quickly if a disruption

occurs. 33 Mandatory reliability standards apply to how the b ulk electric system is planned and operated. For exampl e, transmission operators and balancing authorities ha ve to develop, maintain, and implement a set of plans to mitigate operating emergencies. 34 The EPA’s approach in this proposed federal plan bu ilds on the foundation provided in the EG’s determination o f BSER to ensure that the final federal plan, like the final EG, does not interfere with the industry’s ability to maintain r eliability of the nation’s electricity supply. First the federal plan, like the EG, provides more than 6 years before reduction s are required and an 8-year period from 2022 to 2029 to meet interim goals. This allows time for planning and steady, me asured implementation. Second, the federal plan is a market-based trading program which will allow affected EGUs the opportunity to b uy and sell

emissions credits or allowances as well as bank the m. The EPA’s

33 Id.

34 NERC Reliability Standard EOP-001-2.1b — Emergency Operations Planning, available at http://www.nerc.net/standardsreports/standardssumma ry.aspx .***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 85 of 478

proposed federal plan includes two alternative appr oaches; a mass-based trading program and a rate-based trading program. Trading programs of both types have many positive a ttributes. Among them is that they help to ensure that imposit ion of the federal plan will not interfere with the industry’s ability to maintain the reliability of the nation’s electricit y supply. Such a program does not restrict unit-level operati onal decision-making beyond requiring units to hold a su fficient number of tradable permits ( e.g., allowances or ERCs) to cover emissions. It therefore inherently allows for unit level operational flexibility to facilitate the maintenan ce of reliability and makes the program enormously resili ent. If a unit finds it needs to run more than anticipated, t he marketbased compliance system provides a way for the EGU to meet its generation needs while it maintains compliance with the federal plan. Third, just as we have required the states to do in developing state plans, the EPA is considering reli ability as a part of developing this federal plan. For example, the EPA will consult with planning authorities. The EPA will wor k with the ISO/RTO Council to convene a face-to-face meeting f or planning authorities with the EPA during the comment period to discuss any concerns or other feedback on the federal plan from those***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 86 of 478

entities. This meeting will help to ensure that the EPA is taking into consideration any concerns about the re lationship of this rulemaking to the ability of the industry to m aintain electric reliability across the country as we final ize the federal plan. It will give the planning authorities an opportunity to hear directly from the EPA how the f ederal plan is designed and gives the planning authorities an o pportunity to voice concerns and ask questions. This will help in form comments that planning authorities may submit to the docket. In the final Clean Power Plan EGs, the EPA laid out the availability of a reliability safety valve that cou ld be used if an unanticipated catastrophic emergency caused a co nflict between maintenance of electric reliability and inf lexible requirements that a state plan might impose on an a ffected EGU or EGUs. Under the federal plan, inflexible require ments are not imposed on specific plants. Rather as explained ear lier, the very nature of the federal plan, in which affected EGUs can obtain allowances or credits if needed, supports re liability. Therefore, a reliability safety valve for the feder al plan is not needed. The EPA invites comments on this aspect of the proposed federal plan. The EPA, DOE and FERC have agreed to coordinate eff orts to help ensure continued reliable electricity generati on and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 87 of 478

transmission during the implementation of the final EG and the final federal plan in any state that does not have an approved state plan. The three agencies have developed a coo rdination strategy that reflects their joint understanding of how they will work together to monitor implementation. The t hree agencies will work together to monitor implementation, share information and resolve any difficulties that may be encountere d. The EPA is not proposing to include an allowance se t-aside, or similar mechanism in a rate-based approach, to a ddress reliability issues in the federal plan; however, we request comment on including such a set-aside in the context of a m ass-based approach. The EPA requests comment specifically on creation of an allowance set-aside for the purpose of making allow ances available in emergency circumstances in which an affected EGU was compelled to provide reliability critical generation and demo nstrated that a supply of allowance needed to offset its emission s was not

available. The set-aside would be in addition to the proposed set-asides that are detailed in section V.D in this preamble. The EPA would

set aside allowances in each state under the mass-b ased federal plan, and if a reliability issue is perceived by th e EPA, DOE, and FERC coordinated monitoring process discussed above , the EPA would distribute allowances from the set-aside to support affected EGUs***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 88 of 478

during or after an unforeseen, emergency reliabilit y event. If there were unused allowances remaining in the set-a side then the EPA would distribute them to affected EGUs pro rata based on the allocation approach that is detailed in section V.D of this preamble. The EPA requests comment on all elements of such an approach, including what events would trigger the n eed for allowances from the reliability set-aside; eligibil ity criteria to receive the set-aside allowances; the size of the s et-aside; and the timing of distribution of allowances from the r eliability setaside. Additionally, the EPA requests comment on ho w a reliability “set-aside” approach could be implemented in the ra te-based federal plan. As detailed later in this preamble, the EPA propose s in the federal plan to implement a Clean Energy Incentive Program, which

was established in the EGs to reward investment in certain clean energy projects that achieve MWh results during 202 0 and 2021 (see sections IV and V of this preamble for the proposed approach to implement this incentive program in the rate-based and mass-based federal plans, respectively). Implementation of the Clean Energy Incentive Program in the federal plans would create ERCs and allowances before 2022, allowing for creation of ba nks that could be used in the event of an unforeseen, emergency re liability issue. The EPA requests comment on the potential for these banks of ERCs***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 89 of 478

and allowances to support reliable electricity gene ration and

transmission to be utilized in the event of this ki nd of reliability emergency.

F. Worker Certification In the EGs, the EPA suggested that to ensure that e mission reductions are realized, it is important that const ruction, operations and other skilled work undertaken pursua nt to state plans is performed to specifications, and is effect ive, safe, and timely. The EPA asks for comments as to whether the federal plan should encourage EGUs to ask for a demonstrati on that the work undertaken under a federal plan is performed b y a proficient workforce. A good way to ensure such a w orkforce is to require that workers have been certified by: (1) An apprenticeship program that is registered with the U.S. DOL, Office of Apprenticeship or a state apprenticeship program approved by the DOL; (2) a skill certification alig ned with the U.S. DOE Better Building Workforce Guidelines and v alidated by a third party accrediting body recognized by DOE; or (3) other skill certification validated by a third party accr editing body.

G. Remaining Useful Lives and Potential for “Stranded Assets” Section 111(d)(2) of the CAA provides, “In promulga ting a standard of performance under a plan prescribed und er this***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 90 of 478

paragraph, the Administrator shall take into consid eration, among other factors, remaining useful lives of the sources in the category of sources to which such standard appl ies.” 42 U.S.C. 7411(d)(2). This language tracks similar lan guage in CAA section 111(d)(1) with respect to state plans. In t he final EGs, we explained how the Guidelines permit states in ap plying a standard of performance in their state plans to con sider the remaining useful life of a facility. We determined that it was appropriate to specify that the general variance pr ovisions in 40 CFR 60.24(f) should not apply to the class of af fected facilities covered by these Guidelines. &&&citation . We concluded that facility-specific factors and in par ticular, remaining useful life, do not justify a state makin g further adjustments to the performance rates or aggregate e mission goal

that the Guidelines define for affected EGUs in a s tate and that must be achieved by the state plan.

Because the Guidelines do not allow for states to d eviate from state goals based on remaining useful life, th e EPA does not believe such goal adjustments are necessary or appropriate in the federal plan either. Nonetheless, this does not obviate the requirement that the EPA itself, in the design of its federal plan, consider, among other factors, the re maining useful lives of the affected facilities. The agency therefore***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 91 of 478

proposes the following analysis of this factor. 35 Congress added the “remaining useful lives” factor to CAA section 111(d)(2) in the 1977 CAA Amendments. Congr ess did not provide in the statute any direction on how or to w hat degree “remaining useful lives” of facilities subject to a section 111(d) federal plan is to be considered. As discuss ed in the preamble to the final EGs, Congress’ intent in enac ting the provision was to allow for older facilties with sho rt remaining useful lives to not be required to install capital- intensive pollution control devices to meet emission standard s that would only be used for a short period of time before a pl ant ceased operation. A House of Representatives report on a p redecessor bill to the enacted statute stated, “Older plants with relatively short remaining useful lives might have chosen to

35 We note that the preamble and supporting materials for the EGs discuss a related concern raised by some stakeholde rs, which is whether the EGs could result in widespread “strande d assets” as a direct result of the rule. As explained there, we b elieve this concern is distinct from the “remaining useful live s” factor in CAA section 111(d)(1), and for the same reasons, be lieve it is distinct from the factor Congress directed the agen cy to consider in CAA section 111(d)(2). Nonetheless, we undertook analysis in the final EGs of whether and to what extent there m ay be a “stranded asset” concern. &&&citation. We believe that analys is demonstrates that this is not likely to be a widespread issue un der the federal plan either.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 92 of 478

cease operation if the only means of emission limitation available to meet emission limits were pollution co ntrol technology.” H. Report 94-1175, at 159 (1976) (emph asis added). This language is probative of the fact that Congres s viewed “remaining useful lives” as a consideration for fac ilities with relatively little remaining useful life. We are con fident the proposed federal plan will not force costly polluti on control investments at older plants with short remaining us eful lives. Further, the statute provides that this factor is o ne “among other factors” that the agency is to conside r in promulgating a standard of performance. Congress pr ovided no guidance in the statute as to what those other fact ors could be. The inclusion of unspecified factors that the agenc y may determine for itself to consider, along with the us e of the term “consider,” highlights that Congress intended to gi ve the agency a substantial degree of discretion in determining h ow the “remaining useful lives” factor is considered. The statute does not require, and Congress did not intend, that this consideration mandate the agency to prevent all pre mature retirements of affected EGUs, to impose no emission requirements on older affected EGUs, or to ensure that profitabi lity is maintained at all times for all affected EGUs. Cong ress knew how to explicitly exempt older plants from CAA requirem ents at the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 93 of 478

time of the 1977 Amendments. For example, Congress excluded plants in existence before August 7, 1977 from the preconstruction requirements of the PSD/non-attainm ent new source review program, see CAA section 165(a). And in CAA section 169A related to visibility impairment in fe deral class I areas, Congress excluded from applicability units t hat began operation before August 7, 1962. 42 U.S.C. 7491(b)( 2)(A). In CAA section 111(d) Congress did not set any such specif ic criteria. Rather it directed the agency to “consider” the rem aining useful lives of facilities, among other factors. This view also accords with past agency practice in implementing a similar provision. In the 1977 Amend ments, Congress listed “remaining useful life” as a factor for consideration in the visibility program under secti on 169A. 42 USC 7491. The “remaining useful life of the source” is one of

several enumerated factors that the state or the EP A is to consider in determining the best available retrofit technology (BART) for a particular source. Consistent with con gressional purpose, the EPA has implemented this factor in the regional haze program for many years through the BART guidel ines, in appendix Y to 40 CFR part 51. The BART Guidelines p rovide:

The “remaining useful life” of a source, if it represents a relatively short time period, may affe ct the annualized costs of retrofit controls. ... If the rem aining***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 94 of 478

useful life will clearly exceed th[e] time period [ for amortization based on the type of control], the rem aining useful life has essentially no effect on control co sts and on the BART determination process. Where the remain ing useful life is less than the time period for amorti zing costs, you should use this shorter time period in y our cost calculation. 40 CFR part 51, appendix Y, section IV.D.4.k. In th e agency’s view, this approach to “remaining useful life” alig ns with congressional intent and informs our view of how th e “remaining

useful lives” factor should be considered under thi s CAA section 111(d) federal plan. The key consideration is wheth er the time period associated with amortizable costs of complia nce will exceed the remaining useful lives of the sources in question. Consistent with legislative intent and past agency practice, we propose that the federal Plan adequate ly considers ”remaining useful lives” of affected EGUs by provid ing for trading and other flexibilities authorized in the E Gs. To summarize, these include: relatively long periods f or affected EGUs to come into compliance, the ability to credit early action, the use of emissions trading, the use of mu lti-year compliance periods, and the ability to link to othe r federal or state plans to create larger emissions markets. The federal Plan is proposed to include a Clean Energy Incentive Pro gram as provided for in the EGs, which will credit early ac tion and ease compliance in the first years of the program. These tools will***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 95 of 478

create economic incentives that reward over-perform ance of some affected EGUs, and allow others to simply acquire c redits or allowances to comply with their emission standard, thereby avoiding the need for installation of costly pollut ion controls at sources with a short remaining life. Thus, the proposed federal plan is designed in such a way that it adequately, and inherently, takes into acco unt the remaining useful lives of affected EGUs. It provide s substantial compliance flexibility, including means of avoiding the need to make extensive capital investments in control techn ologies that could not be recouped during the remaining useful l ives of a facility. 36 The design of the federal plan as a form of emissi on

36 Because we believe that this is the case for all f acilities through the basic design of the federal plan, we al so can confirm, in line with the Emission Guidelines, that the avai lability of variances from the emission standards is unnecessar y in the federal plan. Under the general framework regulations, faci lity-specific variances from an otherwise applicable standard of performance have been potentially available under the applicati on process in 40 CFR 60.27(e)(2), which incorporates the factors provided in 40 CFR 60.24(f) for states. Consistent with our view t hat the federal plan adequately considers remaining useful lives, a nd for the same reasons, the need for facility-specific variances u nder the circumstances of 60.24(f) (unreasonable costs of co ntrols, physical impossibility of installation of necessary control equipment, or other factors that make longer compli ance times or***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 96 of 478

trading provides individual affected EGUs the flexi bility to make cost-conscious compliance choices. This flexib ility avoids or substantially diminishes any likelihood that com pliance will be a physical impossibility or result in unreasonab le costs. By relying on either rate- or mass-based emission t rading, the proposed federal plan capitalizes on the inhere nt flexibility available through market-based techniqu es. In effect, under a trading program with repeating comp liance periods, a facility with a short remaining useful l ife has a total outlay that is proportionately smaller than a facility with a long remaining useful life, simply because t he first facility would need to comply for fewer compliance periods and would need proportionately fewer ERCs or allowances than the second facility. Buying ERCs or allowances as a com pliance method could avoid excessive up-front capital expen ditures that might be unreasonable for facilities with short rem aining useful lives, and therefore addresses the consideration of “remaining useful lives.” Buying ERCs or allowances as a compl iance method also would reduce the potential for stranded assets

. In addition, the timing of the federal plan limits the

less stringent standards significantly more reasona ble) are not expected to arise, and thus, the agency proposes to make 40 CFR 60.27(e) inapplicable in this federal plan.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 97 of 478

immediate costs of compliance, particularly for fac ilities that have useful lives ending before 2022, but also for facilities that have useful lives ending before 2030. There ar e no compliance obligations for affected EGUs under this federal plan until 2022, when the first compliance period begins . At that point, the agency is following the glide path provi ded for in the EGs, which begins with relatively higher emissi on targets that will slowly strenghten over the interim perfor mance period from 2022-2029 through three multi-year compliance periods. The final, most stringent, compliance obligation does n ot begin

until 2030. Further, unlike state plans that can be more string ent under CAA section 116, the federal plan is no more stringent than the EGs, and, as explained in the EGs, the Gui delines reflect a reasonable, rather than a maximum possibl e, implementation level for each building block in ord er to establish overall goals that are achievable. As dis cussed in the EG, &&&cite, the BSER determined an average level o f emissions achievable by groups of EGUs, rather than for an in dividual EGU. In considering the remaining useful lives of facili ties under a federal plan, the EPA believes this approach to set ting the emission standards, coupled with the ability to tra de, adequately accounts for remaining useful lives of f acilities. In***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 98 of 478

essence, it allows the facilities to comply with th e federal plan through the purchase or acquisition of ERCs or allowances, and to avoid the need to make costly investments in control technology for plants that have short remaining use ful lives. 37 For these reasons, we believe the federal plan adeq uately considers “remaining useful lives.” We invite comme nt on our consideration of facilities’ “remaining useful live s” in the federal plan.

H. Implications for Other EPA Programs and Rules

1. Title V Permitting

a. Permitting Requirements Under the proposed federal plan, title V permits fo r sources with affected EGUs will need to include any new applicable requirements that the plan places on the affected EGUs. The EPA, however, is not proposing any permit ting requirements independent of those that would be req uired under title V of the CAA and the regulations implementing title V, 40

37 In addition, the ability to generate ERCs for sale or to sell unneeded emission allowances (depending on whether in a rate- or mass-based system) may give some affected EGUs an e conomic incentive to take measures to reduce emissions that otherwise would have been uneconomical.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 99 of 478

CFR parts 70 and 71. 38 All major stationary sources of air pollution and certain other sources are required to apply for title V operating permits that include emission lim itations and other conditions as necessary to assure compliance with applicable requirements of the CAA, including the r equirements of an applicable CAA section 111(d) state plan or f ederal plan. CAA sections 502(a) and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The “applicable requirements” that must be addresse d in title V permits are defined in the title V regulations, and include requirements under CAA section 111(d) (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)). The EPA anticipates that, given the nature of the u nits covered by the proposed federal plan, most of the s ources at which they are located are already or will be subje ct to title V permitting requirements. For sources subject to tit le V, the requirements applicable to them under the proposed federal plan will be “applicable requirements” under title V and , therefore, will need to be addressed in the title V permits. F or example, requirements under the proposed federal plan concer ning

38 Part 70 addresses requirements for title V program s implemented by state, local, and tribal governments, and part 7 1 governs the title V program implemented by the EPA or delegate agencies in areas under federal jurisdiction, such as Indian co untry.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 100 of 478

designated representatives, monitoring, reporting, and recordkeeping, the requirement to either meet an em ission rate (including through holding ERCs (rate-based approac h)), or to hold allowances covering emissions (mass-based appr oach) will be “applicable requirements” to be addressed in the pe rmits. The EPA does not believe this approach is affected by the Supreme Court’s decision in Utility Air Regulatory Group v U.S.

EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Cour t held that the EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is a major source r equired to obtain a title V operating permit. In accordance wi th that decision, the D.C. Circuit’s amended judgment on Ap ril 10, 2015 vacated the title V regulations under review in tha t case (40 CFR 70.12 and 71.13) to the extent that they requir e a stationary source to obtain a title V permit solely because the source emits or has the potential to emit GHGs abov e the applicable major source thresholds. The D.C. Circui t also directed the EPA to consider whether any further re visions to its regulations are appropriate in light of UARG v. EPA , and, if so, to undertake to make such revisions. As the age ncy made clear in a memorandum to Regional Administrators la st year, “While the EPA will no longer apply or enforce the requirement that a source obtain a title V permit solely becaus e it emits or***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 101 of 478

has the potential to emit greenhouse gases above ma jor source thresholds, the agency does not read the Supreme Co urt decision to affect other grounds on which a title V permit m ay be required or the applicable requirements that must b e addressed in title V permits.” 39 Accordingly, while the emission of GHGs alone cannot trigger the need for a title V permit under UARG , the EPA believes a final federal plan under CAA sec tion 111(d) will create new “applicable requirements” in the fo rm of an emission standard (either an emission rate or an al lowance system) and related requirements for GHGs (here, CO 2 ) on affected

EGUs. See 40 CFR 70.2, 71.2 (definition of “applicable requirement” includes “any standard or other requir ement under section 111 of the Act, including section 111(d) ”) (emphasis added). Thus, an affected EGU may be required to mo dify its existing title V permit, or obtain a new permit if it does not already have one, if it becomes subject to an emiss ion standard

for CO 2 under a CAA section 111(d) federal plan. The title V permits program is structured to provid e flexibility for market-based approaches, such as al lowance

39 Memorandum from Janet McCabe, Acting Assistant Adm inistrator, Office of Air and Radiation, and Cynthia Giles, Ass istant Administrator, to Regional Administrators, Regions 1-10, at 5 (July 24, 2014).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 102 of 478

trading programs under the federal plan, including flexibility to make changes under such programs without necessa rily requiring a formal permit revision. For example, th e title V regulations provide that a permit issued under titl e V shall include, for any “approved * * * emissions trading or other similar programs or processes” applicable to the so urce, a provision stating that no permit revision is requir ed “for changes that are provided for in the permit.” 40 CF R 70.6(a)(8) and 71.6(a)(8). Consistent with this provision in t he title V regulations, the proposed federal plan regulations include a provision stating that no permit revision shall be required for the allocation, holding, deduction, or transfer of allowances once the requirements applicable to such allocation s, holdings, deductions, or transfers of CO 2 allowances are already incorporated in such permit. Consistent with title V regulations, this provision should be included in e ach title V permit for a covered source. As a result, allowance s will be able to be traded (or allocated, held, or deducted) under the federal plan without a revision of the title V perm it of any of

the sources involved. As a further example of flexibility under title V, the title V regulations allow the use of the minor perm it modification procedures for permit modifications “i nvolving the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 103 of 478

use of economic incentives, marketable permits, emi ssions trading, and other similar approaches, to the exten t that such minor permit modification procedures are explicitly provided for in an applicable implementation plan or in applicab le requirements promulgated by EPA.” 40 CFR 70.7(e)(2) (i)(B) and 40 CFR 71.7(e)(1)(i)(B). Therefore, the EPA is proposi ng that any changes that may be required to an operating permit with respect to a trading program under the federal plan may be made using the minor permit modification procedures of the tit le V rules. The EPA proposes that such changes may include the initial changes needed to the title V permit to establish t he applicability of the trading program to the source, specify the covered units, and to include other permit terms th at may be needed for implementation, including the general ap proach for monitoring and reporting. The minor permit modifica tion procedures could also be used for any subsequent ch anges to permit terms that may be needed with respect to the trading program, although we expect such changes to be infr equent. As noted above, once a trading program has been establ ished in the permit, there may be transactions, such as individu al trades, that will require no formal permit modification pro cedures because such trading would be already addressed and allowed by the permit (“provided for in the permit”) and provi ded the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 104 of 478

changes do not conflict with any existing terms of the permit. If a sources wishes to make a change that would go against any express term of the permit, the permit must be revi sed to allow such a change before the source begins operation of the change. Under the implementation strategy described above, the EPA believes it would be unlikely that any change in tr ading allowances would violate a term of a permit, but th is principle is important to keep in mind when deciding if a min or permit modification is appropriate with respect to operati ng a trading program in the context of a title V permit. The EPA believes that the approach to permitting requirements we are proposing here, which imposes n o additional permitting requirements independent of title V and provides for the use of minor permit modification procedures, wi ll streamline the process for sources already required to be perm itted under title V and for permitting authorities. If there ar e any sources that would become newly subject to title V as a res ult of the requirements of this proposed federal plan, the ini tial title V permit that would be issued pursuant to 40 CFR 70.7 (a) or 71.7(a) would address the federal plan requirements , when

finalized. The EPA notes that the approach to title V permitti ng that is being proposed is somewhat similar to the approa ch adopted in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 105 of 478

the final Cross-State Air Pollution Rule (CSAPR). See 76 FR 48299-30 (Aug. 8, 2011). The agency recently issued guidance to assist permitting authorities and sources subject t o CSAPR in incorporating CSAPR requirements into title V permi ts. 40 The EPA invites comment on its proposed approach to permitt ing requirements for the federal plan, including whethe r it would be of use to develop guidance similar to the guidance developed for permitting under CSAPR. The EPA invites comment on its proposed approach to incorporating applicable requirements o f the federal plan into title V permits and revising those requir ements, including specifically seeking comment on whether a ll requirements should be eligible for incorporation i nto title V permits via minor modification procedures or if onl y a specified subset of such requirements should be eligible for such procedures. The EPA also notes that the applicable requirements of this proposed federal plan would apply to a source and a re independently enforceable regardless of whether the y have yet been included in the source’s Title V permit.

40 Memorandum from Anna Marie Wood, Director, Air Qua lity Policy Division, OAQPS, and Reid P. Harvey, Director, Clea n Air Markets Division, OAP, to Regional Air Division Directors, 1-7, regarding Title V Permit Guidance and Template for the Cross- State Air Pollution Rule (May 13, 2015).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 106 of 478

2. Implications for New Source Review Program The new source review (NSR) program is a preconstr uction permitting program that requires major stationary s ources of air pollution to obtain permits prior to beginning cons truction. The requirements of the NSR program apply both to new c onstruction and to modifications of existing major sources. Gen erally, a source triggers these permitting requirements as a result of a modification when it undertakes a physical or opera tional change that results in a significant emission increase and a net emissions increase. NSR regulations define what con stitutes a significant net emissions increase, and the concept is pollutant-specific. In the final EGs, &&&[citation], the EPA recognized that, as part of its CAA section 111(d) plan, a state may impose requirements that require an affected EGU to undert ake a physical or operational change to improve the unit’ s efficiency that results in an increase in the unit’s dispatch and an

increase in the unit’s annual emissions. If the emi ssions increase associated with the unit’s changes exceeds the thresholds in the NSR regulations for one or more r egulated NSR pollutants, including the netting analysis, the cha nges would trigger NSR. We noted that while there may be insta nces in which an NSR permit would be required, we expect those si tuations to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 107 of 478

be few. The EPA believes the analysis of NSR applicability is basically the same for sources under a CAA section 111(d) federal plan. That is, it is conceivable that a sou rce under a federal plan may choose, as a means of compliance w ith either a rate-based or mass-based approach, to undertake a p hysical or operational change to improve an affected EGU’s eff iciency that results in a significant net emissions increase of a regulated NSR pollutant. This would trigger NSR. However, as with state plans, the EPA believes that these situations will be few. After the proposal for the Clean Power Plan was pub lished in June of 2014, the United States Supreme Court is sued its opinion in UARG v EPA , 134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that an increase in greenhouse g as emissions alone cannot by law trigger the NSR requirements of the PSD program under section 165 of the CAA. On remand fro m the Court, the D.C. Circuit issued an amended judgment in Coalition for Responsible Regulation, Inc. v. Environmental Prote ction Agency , Nos. 09-1322, 10-073, 10-1092 and 10-1167 (D.C. Cir ., April 10, 2015), vacating the relevant regulations. Therefore , increases in emissions of greenhouse gases alone, including t hose that may occur through actions taken at sources to comply wi th the proposed federal plan (such as may occur when an NG CC unit***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 108 of 478

increases its operations due to generation shift fr om a steam generating unit), cannot trigger NSR. The EPA will invite comment on potential scenarios in which affected EGUs, particularly small entities, could b e subject to the requirements of the NSR program as a result of taking compliance measures under the federal plan, and any ideas for harmonizing or streamlining the permitting process for such sources that are consistent with judicial precedent . However, the EPA is not proposing any changes to the NSR pro gram in this action, and the agency is not reopening or reconsid ering any prior actions or determinations related to NSR in t his action. Any comments related solely to the NSR program will be considered out of scope of this proposed rule. 3. Interactions with Other EPA Rules Existing fossil fuel-fired EGUs, such as those cov ered in this proposal, are or will be potentially impacted by several other rules recently finalized or proposed by the E PA 41 . These rules include the Mercury and Air Toxics Standards (MATS) (77 FR 9304; Feb. 16, 2012) 42 ; the CSAPR; Requirements for Cooling Water Intake Structures at Power Plants (79 FR 48300; Aug . 15, 2014); Disposal of Coal Combustion Residuals from Electric Utilities (CCR Rule), issued on December 19, 2014; and the pr oposed Steam

41 We discuss other rulemakings solely for background purposes. The effort to coordinate rulemakings is not a defense t o a violation of the CAA. Sources cannot defer compliance with ex isting requirements because of other upcoming regulations.

42 The Supreme Court recently reversed and remanded a D.C. Circuit Court of Appeals decision that had upheld the MATS rule. Mich. v. EPA , No. 14-46 (S. Ct. filed June 29, 2015). The Court did not vacate the rule, however, and it remains in effect.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 109 of 478

Electric Effluent Limitation Guidelines and Standar ds (SE ELG Rule) (78 FR 34432; June 7, 2013). These rules are discussed in more detail in the final EGs along with steps the E PA is taking to enable compliance with obligations under other p ower sector rules as efficiently as possible. &&&citation. We s olicit comment on whether there are specific things the EP A can do in the design and implementation of the federal plan t hat further this objective.

I. Administrative Appeals Process Under either a rate-based or mass-based trading pro gram, the EPA anticipates that there may be situations in which individual parties are affected by decisions of the agency. For example, under a rate-based plan, a determination m ay be made that an eligibility application by an ERC provider is denied. And, for set-asides in the mass-based program, an a ffected EGU may believe that its allowance allocation amount wa s miscalculated. Similar to prior trading programs, t he agency believes it would be efficient and potentially avoi d the need for recourse to litigation, to provide an administr ative appeals process. Therefore we are proposing, and requesting comment on, the use of the regulations for appeals procedures s et forth in 40 CFR part 78, to provide for the adjudication of certain disputes that may arise during the course of implem entation of a***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 110 of 478

federal plan under CAA section 111(d). We also prop ose to revise part 78 to accommodate such appeals. The part 78 pr ocedures cover prior CAA emission trading programs and were specifically designed with these types of disputes in mind. The persons eligible to file such appeals would be similar to the existing definition of an “interested person ” in part 78. The filing of an appeal and the exhaustion of admin istrative remedies under part 78 would be a prerequisite to s eeking judicial review. For purposes of judicial review, f inal agency action would occur only when an agency decision und er the federal plan listed as appealable under part 78 has been issued, and the procedures of part 78 for appealing the dec ision are

exhausted. The actions we propose to list as appealable under the part 78 procedures are as follows. In the case of the rate-based federal plan: decisio ns on an eligibility application for ERCs; decisions regardi ng the number of ERCs generated; decisions on the transfer of ERC s; decisions on the disallowance of ERCs for compliance; decisio ns that there has been an excess of emissions requiring a 2-for-1 ERC administrative compliance penalty; decisions regard ing deduction or surrender of ERCs for compliance from affecte EG Us’ compliance accounts; decisions on the accreditation of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 111 of 478

independent verifiers; the use of error corrections regarding information submitted by ERC providers, affected EG Us, or other ERC account holders; and the finalization of contro l period emissions data, including retroactive adjustment ba sed on audit or other investigation. In the case of a mass-based federal plan: decisions on an eligibilty application for set-aside allowances; de cisions regarding the allocation of allowances to affected EGUs; decisions regarding the allocation of allowances fr om setasides; decisions on the transfer of allowances; de cisions regarding the finalization of emissions data by aff ected EGUs during compliance periods; decisions making error c orrections to information submitted by affected EGUs and other ac count holders; decisions that there has been excess emiss ions requiring a 2-for-1 allowance administrative compli ance penalty; and decisions regarding the deduction or surrender of allowances for compliance from affected EGUs’ compliance accou nts. We request comment on this list of actions for both types of approaches to the federal plan, and whether ther e are other decisions that may be made in the course of impleme ntation of the federal plan that are party-specific that would be appropriate to list as appealable under part 78. We also take comment on whether it would be appropriate for the EPA to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 112 of 478

finalize an administrative appeals process that dif fers in any way from that offered under part 78, or in addition to that offered under part 78. If so, we request comment br oadly on all aspects of the alternative or additional adminsitra tive appeals process, including with respect to any structural, procedural, subtantive, and timing requirements it should inclu de, who should have access to it and in what manner, and ho w it would differ from part 78. Finally, we request comment on whether, similar to other programs identified in 40 CFR 78.1 (a)(1), the agency should make the procedures of part 78 availa ble to any actions of the Administrator under the comparable s tate regulations approved as a part of a state plan unde r the EGs.

J. Consistency of Program Structure with Clean Air Act Authority The EPA is co-proposing two distinct forms of emiss ions trading as the mechanism for federal implementation of standards of performance that achieve the emission performanc e levels by determined by application of the Best System of Emi ssion Reduction (BSER) in the Clean Power Plan EGs. Both proposals are “emission standard” approaches as defined in the EG s, and the EPA is not proposing an approach like the “state me asures” approach that is also available to states in the fi nal EGs. The EPA has legal authority to establish either of the proposed trading systems as a federal plan under CAA section 111(d)(2).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 113 of 478

We discuss this topic briefly here and invite publi c comment. The EGs discussed the role of emissions trading in the BSER,

see, e.g., section V.A of the preamble to the final EGs. The E PA regards this to be a separate issue and is not revi siting or reopening the discussion of the BSER or the role of trading in the BSER here. The EGs recognize and provide ample opportunity for states to establish standards of performance th at allow the use of emissions trading or other multi-unit compli ance approaches. Here we discuss why an emissions tradin g program is a lawful and appropriate form of federal “implement ation” of a “standard of performance” under CAA section 111(d)( 2). We invite comment on this legal discussion and the agency’s i nterpretation of its authority.

1. General Section 111(d)(2) Authority Section 111(d)(2) provides as follows: The Administrator shall have the same authority— (A) to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he wou ld have under section 7410(c) of this title [CAA section 11 0(c)] in the case of failure to submit an implementation pla n, and (B) to enforce the provisions of such plan in cases

where the State fails to enforce them as he would h ave under sections 7413 and 7414 of this title [CAA sec tions***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 114 of 478

113 and 114] with respect to an implementation plan

. In promulgating a standard of performance under a p lan prescribed under this paragraph, the Administrator shall take into consideration, among other factors, the r emaining useful lives of the sources in the category of sour ces to which such standard applies. 42 U.S.C. 7411(d)(2). 43 The phrase “same authority to prescribe” indicates that Congress viewed the EPA’s authority to issue a fede ral plan for designated pollutants under CAA section 111(d) as, in some sense, co-extensive with its authority to issue a F IP for NAAQS pollutants under CAA section 110. This authority un der CAA section 111, of course, must be understood in refer ence to the purpose of that section ( i.e., to achieve emission reductions for designated pollutants from designated facilitie s), rather than in reference to the purpose of section 110 ( i.e., to attain and maintain the NAAQS). However, it has been the a gency’s longstanding view that, in both procedural and subs tantive respects, Congress intended that the CAA section 11 0 authority be looked to under CAA section 111(d)(2). See 40 FR 53340, at 53342 (Nov. 17, 1975) (“It is obvious that [the Adm inistrator]

43 The agency’s interpretation of the “remaining usef ul lives” provision is discussed above in section III.G of this preamble.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 115 of 478

could only prescribe standards on some substantive basis. The references to section 110 of the CAA suggest that ( as in CAA section 110) [she] was intended to do generally wha t the states in such cases should have done, which in turn sugge sts that (as in CAA section 110) Congress intended the states to prescribe standards on some substantive basis. Thus, it seems clear that some substantive criterion was intended to govern n ot only the Administrator’s promulgation of standards but also [her] review of state plans.”). Over the several decades of implementation of the C AA, the courts, and the EPA, have addressed the nature and scope of CAA section 110 authority. See, e.g., 71 FR 25328, 25338 (May 12, 2005) (CAIR final rule). In general, the EPA has br oad power under CAA section 110(c) to cure a defective state implementation plan. Thus, in promulgating a FIP un der CAA section 110, the EPA may exercise its own, independ ent regulatory authority in accordance with CAA section 110(c) and the CAA more broadly. When the EPA has promulgated a FIP, courts have not required explicit authority for specific m easures: “We are inclined to construe Congress’ broad grant of p ower to the EPA as including all enforcement devices reasonably necessary to the achievement and maintenance of the goals establ ished by the legislation.” South Terminal Corp. v. EPA , 504 F.2d 646, 669 (1 st***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 116 of 478

Cir. 1974). Further, the same authority that is exe rcised by the states under the CAA in connection with the adoptio n, implementation, and enforcement of a SIP may be ass umed to be available to the EPA when the agency issues a FIP, after determining that a state has not adopted a satisfac tory SIP. As the Ninth Circuit has held, when the EPA acts in pl ace of the state pursuant to a FIP under CAA section 110(c), t he EPA “stands in the shoes of the defaulting state, and a ll of the rights and duties that would otherwise fall to the state accrue

instead to EPA.” Central Ariz. Water Conservation Dist. V. EPA , 990 F.2d 1531, 1541 (9 th Cir. 1993). Accord, South Terminal , 504 F.2d at 668 (“[T]he Administrator must promulgate p romptly regulations setting forth an implementation plan fo r a state should the state itself fail to propose a satisfact ory one. The statutory scheme would be unworkable were it read a s giving to the EPA when promulgating an implementation plan fo r a state, less than those necessary measures allowed by Congr ess to a state to accomplish federal clean air goals. We do not adopt any such crippling interpretation.”). By the same token, if there are clear limits to the EPA’s CAA section 110(c) authority, those too, would argu ably carry over to CAA section 111(d)(2). For instance, CAA se ction 110(c)(1) ties the EPA’s authority to promulgate a final FIP for***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 117 of 478

a state to the EPA’s predicate action on a state im plementation plan (or lack thereof): generally, either an action disapproving a plan, or a finding that a state has failed to sub mit a plan. However, even here, as the Supreme Court has recogn ized, “the plain text of the CAA grants EPA plenary authority to issue a

FIP ‘at any time’ within the 2-year period that begins the moment EPA determines a SIP to be inadequate.” EPA v. EME Homer City Generation , 134 S. Ct. 1584, 1602 n.14 (2014). Congress gave the EPA the same authority to prescri be a plan under CAA section 111(d)(2) as it possesses un der CAA section 110(c). The EPA believes this authority is the “same” in

the sense described above and the case law. 44 The scope of the

EPA’s action to undertake a FIP under CAA section 1 10 is informed by the scope of the state’s action to unde rtake a SIP; likewise, the scope of the EPA’s action to undertak e a federal

44 We interpret the cross-reference to be to the curr ently enacted version of CAA section 110(c), rather than to a pri or version. As discussed in section VII of this preamble, below, the current version of CAA section 110, including subsection (c ), reflects changes made in the 1990 Amendments based on experi ence gained in the first two decades of the CAA’s implementation. The statute and legislative history do not expressly address the qu estion, but there is no indication Congress would have intended to prevent these improvements from being available under CAA s ection 111 as well.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 118 of 478

plan under CAA section 111(d) is informed by the sc ope of the state’s action to undertake a state plan. The agency received comments on the proposed EGs fr om commenters who stated that the EPA cannot require s tates to implement the building blocks that make up the BSER , for example, ordering re-dispatch to natural gas-fired units, or ordering the construction of renewable energy projects. These co mmenters went on to say that the EPA itself would have no authori ty to order these types of actions under a federal plan. As we explained in the Legal Memorandum for the final EGs, and reitera te here, the premise of these comments is incorrect. The EPA is not requiring the implementation of the BSER or the building bloc ks in the EGs. Even where the EPA is directly implementing standar ds of performance in a federal plan, the agency will not, and need not, attempt to order sources to implement the measures that comprise the BSER. Rather, as set forth in the co-proposed f ederal plans discussed in sections IV and V of this preamble, th e EPA would set

emission standards for each of the affected EGUs in the federalplan state, provide mechanisms for their implementa tion and enforcement, and otherwise leave to the owners and operators of

the affected EGUs the decisions about what measures they want to take to comply with the emission standard. Though t he emission standards will be federally enforceable, as under a state plan,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 119 of 478

sources may achieve them through implementation of measures in the BSER, or any other method. Thus, the question whether the EPA would have the a uthority to directly order the implementation of the measure s in the building blocks in this proposed federal plan is no t only not relevant but represents a categorical misunderstand ing of the nature of the BSER in relation to the imposition of standards of performance under a CAA section 111(d) plan. To ill ustrate this, by the same token the EPA could not enforce many lo gistical aspects of a control requirement such as a scrubber – for i nstance, the EPA does not need to assert the authority to order into existence companies that manufacture scrubbers, or order thei r construction or delivery on a certain schedule. The EPA need not in setting

emission standards have before it all of the inform ation regarding manufacturing, transportation of parts, or other lo gistical requirements to ensure that each scrubber gets cons tructed and delivered to a source. Similarly, the EPA here does not, and needs not, propose an implementation approach of directly intervening to re-dispatch certain units, construct new renewable energy projects, or take other measures, either included i n the BSER or not. The agency determined the BSER and emission pe rformance levels in the EGs on a reasonable assumption that all of t hose things can actually happen. In providing for the implementatio n of federally***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 120 of 478

enforceable standards of performance in the federal plan proposed in this action, the agency is ensuring that these t hings will happen.

2. Use of Market Techniques to Implement Standards of Performance

under the Clean Air Act The use of market techniques such as emission tra ding is well-supported in the CAA and has many regulatory p recedents. The EPA discussed this history, and the reason why trading is a supportable method of implementation of standards o f performance under CAA section 111(d) in the Emissions Guideline s. See section V.A of the final EGs. Here we supplement th at discussion with respect to the agency’s own authority under CA A section 111(d)(2) to use trading as a method of implementat ion of a “standard of performance” in the federal plan.

The 1990 CAA Amendments added broad authorizations for the use of market techniques in several sections of the statute, including in Title I. States were provided express authority to use such approaches in their NAAQS implementation p lans under CAA section 110(a)(2)(A): “Each [state] plan shall— include

enforceable emission limitations and other control measures, means, or techniques (including economic incentives such as fees, marketable permits, and auctions of emissions rights)....” 42 USC 7410(a)(2)(A). The EPA was given similar aut hority in the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 121 of 478

definition of a “Federal Implementation Plan” in CA A section 302: “The term ‘Federal implementation plan’ means a plan (or portion thereof) promulgated by the Administrator ... which

includes enforceable emissions limitations or other control techniques (including economic incentives, such as marketable permits or auctions of emissions allowances), and p rovides for attainment of the relevant national ambient air qua lity standard.” 42 U.S.C. 7603(y). Section 111(d)(2) of the CAA provides the EPA “the same power to prescribe” a fe deral plan under CAA section 111 as it would have to promulgat e a FIP under CAA section 110(c). Thus, the EPA believes the plai n language of the statute authorizes the use of market techniques in CAA section 111(d) federal plans. However, even if one were to view this language as not wholly unambiguous with respect to the scope of fed eral authority under CAA section 111, the EPA believes t hat CAA section 111, in conjunction with authorizations and endorsements of market techniques throughout the CAA, and other indicia of congressional intent, strongly support the view tha t market techniques are within the EPA’s authority to promul gate a federal plan under CAA section 111(d). Case law throughout the history of the CAA has gene rally confirmed the legal viability of emissions trading as an***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 122 of 478

implementation measure so long as the trading ultim ately achieves the emission reduction goals of the statut e. See, e.g.,

Sierra Club v. EPA , No. 12-3169 (6 th Cir. Filed March 18, 2015), Slip Op. at 11-14 (upholding EPA approval of redesi gnation of

area to attainment on basis that reductions in emis sions from cap-and-trade programs (NO x SIP Call, CAIR, and CSAPR) are permanent and enforceable). Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc. , 467 U.S. 837 (1984) (“ Chevron ”), the seminal case establishing the Supreme Court’s stand ard of review of agency interpretations of the statutes they admi nister, upheld one of the EPA’s early emissions trading pro grams, the Netting Rules of 1980 (45 FR 52676; Aug. 7, 1980), which the EPA in its discretion chose to allow states to apply in both attainment and nonattainment areas (46 FR 50766; Oc t. 14, 1981). The Netting Rules allowed existing major sources to modify without triggering certain requirements of PSD or n onattainment NSR, so long as any increase in emissions associate d with the modification is compensated for by a corresponding decrease in emissions elsewhere within the same facility, such that there is no significant net increase in emissions from the f acility as a whole. In upholding this approach in Chevron , the Supreme Court gave deference to the EPA’s definition of the term “source,” finding in that term sufficient ambiguity to suppor t the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 123 of 478

agency’s reasoned application of an emissions avera ging approach for total pollution emitted from the source. See EPA v. EME Homer City , 134 S. Ct. 1584, 1603 (2014) (“Because ‘a full understanding of the force of the statutory policy

. . . depend[s] upon more than ordinary knowledge’ of the situation, the administering agency’s construction is to be ac corded ‘controlling weight unless . . . arbitrary, caprici ous, or manifestly contrary to the statute.’”) (quoting Chevron , 467 U.S. at 844). 45 With the increasing recognition of the utility of t rading, crediting, and averaging to meet emission reduction goals efficiently, the EPA set forth a comprehensive poli cy on trading in 1986. Emissions Trading Policy Statement; Genera l Principles for Creation, Banking and Use of Emission Reduction Credits, 51 FR 43814 (Dec. 4, 1986) (hereinafter “ERC Policy”). In the ERC

45 The EPA is not aware of any case since at least th e Chevron decision in which a trading program under the CAA w as invalidated simply by virtue of being a trading program. The CA IR trading program was set aside by the D.C. Circuit because t he court held it did not accomplish the objective of the Good Nei ghbor provision of the CAA, not because it used a trading approach per se. North Carolina v. U.S. EPA , 531 F.3d 896, 921 (D.C. Cir. 2008). More recently the Supreme Court upheld key portions of t he CSAPR trading program that replaced CAIR in EPA v. EME Homer City , 134 S. Ct. 1584 (2014).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 124 of 478

Policy, the EPA stated that it “endorses emissions trading and encourages its sound use by states and industry to help meet the goals of the CAAt more quickly and inexpensively.” At the same time, based on lessons learned from its earlier 198 2 trading policy, the EPA took steps to tighten its policies on the use of “bubbles” to ensure environmental integrity of trad ing, particularly in non-attainment areas. The agency em phasized the requirements of enforceability, tracking (and preve nting doublecounting), determining the appropriate baseline fro m which to measure emissions, and demonstration of actual air quality

benefits. The use of an emissions trading system for CO 2 reductions for affected EGUs under CAA section 111(d) is also analogous to the trading system for chlorofluorocarbons (CFCs) u nder the pre1990 CAA provision for control of stratospheric ozo ne depleting substances. This program was reviewed by the Office of Legal Counsel (OLC) within the Department of Justice in 1 989. See Memorandum for Alan Raul, General Counsel, Office o f Management and Budget, from the Office of the Assistant Attorn ey General (April 14, 1989) (hereinafter “OLC Memo”). 46 The OLC was asked by OMB to opine whether a general grant of regulatory authority to

46 A copy of this memorandum has been placed in the d ocket for this rulemaking.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 125 of 478

the EPA to “control” CFCs was sufficient to authori ze an emissions fee or a cap-and-trade system, including auction, of

tradable allowances. The statute authorized the EPA to issue regulations “for the control of any substance, prac tice, process, or activity (or any combination thereof) w hich in his judgment may reasonably be anticipated to affect th e stratosphere, especially ozone in the stratosphere, if such effect in the stratosphere may reasonably be antici pated to endanger public health.” Former CAA 157(b) (as enac ted in the 1977 CAA amendments). The Office of Legal Counsel c oncluded that this language – which it characterized as “plain,” “unambiguous,” and “sweeping” – was sufficient to a uthorize the EPA to establish a cap-and-trade program with aucti on for CFCs.

See id. At 7 (“It cannot seriously be argued that the use o f economic incentives to regulate pollution is a nove l or strange idea that could not have been anticipated by the au thors of the Clean Air Act Amendments [of 1977].”) (citing multi ple examples from the policy literature as early as E. Mishan, The Costs of

Economic Growth (1967). The OLC noted that as of 1977, “Congress was cognizant of economic forms of regulation, did not prohibit them, but instead used general language permitting a wide scope of regulatory measures for the control of CFCs.” To interpret the general authority of this section of the CAA as***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 126 of 478

affirmatively prohibiting market incentives would b e, in the OLC’s words, to read into the statute the italicize d clause “regulations for the control [of CFCs] by traditional command and control or specification standard methods ,” id. At 9 – a rewriting “unwarranted in any case, but especially so where Congress was aware of economic methods of control a nd where such methods so ably serve the underlying purposes of th e statute.”

Id. By the time of the 1990 CAA Amendments, as discusse d above, Congress was comfortable enough with the efficacy o f market techniques that they were broadly authorized for us e in state and FIPs for NAAQS. See 42 U.S.C. 7410(a)(2)(A), 7602(y). In the wake of the 1990 Amendments, the EPA issued an “Imp lementation Strategy for the Clean Air Act Amendments of 1990.” 47 This Strategy included as one of nine overarching implem entation principles, “Market-based: Use of market-based appr oaches and other innovative strategies to creatively solve env ironmental problems.” Further, it announced that the EPA would make “full use of innovative market-based approaches,” and tha t the agency will supplement traditional approaches with broader use of

47 U.S. EPA, Office of Air and Radiation, Implementat ion Strategy for the Clean Air Act Amendments of 1990 (Update, 1 992) (July 1992), 400-K-92-004.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 127 of 478

market incentives and other innovative approaches “ whenever possible.” Id. At 3, 9. Since the 1990 Amendments, the EPA has established three of its most robust trading programs – the Federal NO x Budget Trading Program (65 FR 2674; Jan. 18, 2000), the CAIR (71 F R 25328; April 28, 2006), and the CSAPR (76 FR 48208; Aug. 8 , 2011), under CAA section 110(a)(2)(D)(i)(I), relating to a ir pollution

that causes nonattainment or interference with main tenance of air quality standards in downwind states. 48 As noted in the rulemaking notice for the final EGs , &&&cite&&&, the EPA has instituted or authorized th e use of emissions trading programs twice in the past under CAA section 111(d). The EPA authorized NO x emissions averaging or trading within or between facilities under the Municipal Wa ste

Combustors Emission Guidelines in 1995. 60 FR 65387 , 65402 (Dec. 19, 1995) (codified at 40 CFR 60.33b(d)(1) and (2)) . The EPA also developed a cap-and-trade system for mercury u nder CAA

48 The EPA notes that complications that arise with r espect to assigning a “significant contribution” among upwind states for NAAQS pollutant levels in downwind states, and desi gning a trading regime that accomplishes Good Neighbor objectives, are not present with respect to CO 2 , which is a global pollutant; emission reductions anywhere contribute to the environmental objective of addressing climate change.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 128 of 478

section 111(d) in the Clean Air Mercury Rule (CAMR) . 70 FR 28606 (May 18, 2005). The EPA proposed a federal plan for trading that was identical in all relevant respects to the CAMR rule. 71 FR 77100 (Dec. 22, 2006). However, CAMR was vacated by the D.C. Circuit on grounds unrelated to the establishment o f a trading system for implementation, before the CAMR federal plan could be

finalized. New Jersey v. EPA , 517 F.3d 574 (D.C. Cir. 2008). 49 The agency believes these legal and administrative precedents for federal trading programs under the C AA going back decades amply support its decision to propose two f orms of emission trading as the method of implementation of the Clean Power Plan EGs in the federal plan. Notably, emissi ons trading is particularly appropriate with respect to a globa l pollutant

such as CO 2 that is well-mixed in the atmosphere and does not h ave direct, acute health impacts due to inhalation at a mbient

levels. 50

49 The CAMR program was vacated because the EPA had n ot made requisite findings under CAA section 112(c)(9) in d elisting EGUs with respect to emissions of a hazardous air pollut ant (HAP). No such procedural concern is present here with respec t to CO 2 , which is not a HAP under CAA section 112.

50 We recognize that some commenters on the EGs raise d concerns about the localized impacts that may occur from the potential for concentrations of co-pollutants associated with CO 2 emitted from***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 129 of 478

Finally, the Supreme Court has affirmed the breadth of the agency’s discretion under CAA section 111(d) to sel ect the method by which it would control CO 2 emissions from existing power plants. See AEP v. Connecticut , 131 S. Ct. 2527, 2538 (2011) (“Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants .”) (emphasis added); see also id. At 2539 (“The appropriate amount of regulation in any particular greenhouse gas-produci ng sector cannot be prescribed in a vacuum: as with other que stions of national or international policy, informed assessme nt of competing interests is required. Along with the env ironmental benefit potentially achievable, our Nation’s energy needs and the possibility of economic disruption must weigh i n the balance. The CAA entrusts such complex balancing to the EPA in the first instance, in combination with state regul ators.”). This proposal is guided by the relevant cases and t he experiences of the agency in implementing the CAA t rading programs discussed above. The EPA invites comment o n this discussion and the agency’s interpretation that CAA section 111(d)(2) authorizes the two approaches to a federa l plan

affected EGUs. We address those concerns in the com munities sections of the final EGs, at &&§ion, and in th is preamble in &&§ion IX below.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 130 of 478

proposed here.

IV. Rate-based Implementation Approach

A. Overview The EPA’s federal plan requirements for CO 2 from affected EGUs implement the EGs as previously discussed. In this federal plan and model rule proposal the EPA is proposing, as one option, rate-based emission standards (i.e., the em ission standard approach) for affected EGUs not covered by an approved state plan as specified in the Clean Power Plan. Th e EPA is proposing to apply the subcategorized emission rate s in this federal plan proposal. These rate-based emission st andards are consistent with, and would satisfy, the degree of e mission limitation achieved by the BSER determination made in the final Clean Power Plan EGs, which included sub-categoriz ed CO 2 emission performance rates for affected EGUs to mee t during the plan performance periods. An affected EGU subject t o this federal plan will demonstrate compliance by achievi ng a stack emission rate less than or equal to the rate-based emission standard or by applying ERCs, acquired by the EGU, to its measured stack emissions rate. The application of E RCs by an affected EGU to comply with an emission standard ha s been

determined in the final Clean Power Plan as a mecha nism***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 131 of 478

available to affected EGUs with a CO 2 emission rate greater than its respective performance rate to meet compliance obligations,

see section VIII.K of the final EGs. Under a rate- based federal plan, the EPA would act as the state described in s ection VIII.C.3.a of the final EGs with the EPA acting as the issuer of ERCs, and otherwise implementing and enforcing t he standards of performance for affected EGUs subject to the fed eral plan. This section describes the proposed rate-based fede ral plan and model trading rule and how each would be design ed and operated, consistent with the emission guidelines. For the federal plan, the EPA is proposing to limit the iss uance of ERCs to designated categories of affected EGUs and to re newable energy resources and nuclear generation (from new c apacity and incremental capacity uprates) that are measured by a revenue quality meter, rather than the full suite of option s discussed in the emission guidelines. The EPA requests commen t on whether to limit the scope of the federal plan in this mann er, and if not, what other sources of low- or zero-emitting el ectricity in federal plan states should also be eligible to gene rate ERCs for compliance purposes. For both the proposed federal plan and model rule, the EPA requests comment on which EM&V plan, M&V report, and verification report requirements should apply for each eligible resource. Further discussion of non-B SER measures***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 132 of 478

that may be eligible to generate ERCs can be found in the Clean Power Plan and section IV.C.3 of this preamble. (Th e EPA is not reopening its determination of the BSER.)

B. Rate Goals

In the Clean Power Plan the EPA identified a rate-b ased “emission standards” approach as an approvable meth od for state plans to implement the final EGs. In this approach the requirements for compliance rest solely on affected EGUs in the form of federally enforceable emission standards ex pressed as a

rate of emissions of CO 2 per unit of energy output. In the Clean Power Plan, the EPA established, through applicatio n of the BSER, separate CO 2 emission performance rates for affected EGUs in two subcategories. The two subcategories are nat ural gasfired stationary combustion turbines ( i.e., natural gas combined cycle units, or NGCC units) and fossil fuel fired s team generating units ( i.e., utility boilers and IGCC units) 51 . The

CO 2 emission performance rates set in the Clean Power Plan are reflected below in Table 6 of this preamble. The EP A is proposing to apply these rates in the rate-based fe deral plan as the emission standards for NGCC units, and steam ge nerating units, respectively. For a thorough discussion of a ffected EGU

51 For simplicity, affected utility boilers and IGCC units will collectively be called “steam generating units.”***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 133 of 478

category-specific CO 2 emission performance rates and rationale,

see section VI of the final EGs. These calculated s tandards and the premises that these standards are based on are not within the scope of comment in this rulemaking as they wer e finalized

in the Clean Power Plan. As discussed in section III.D of this preamble abov e, the EPA proposes to implement a compliance schedule for the ratebased federal plan with multi-year compliance perio ds as follows: A 3-year period (2022 through 2024), follo wed by a 3- year period (2025 through 2027), followed by a 2-ye ar period (2028 and 2029), for the interim period; and, comme ncing in 2030, successive 2-year compliance periods for the final period. In the Clean Power Plan, the EPA established CO 2 emission performance rates for the subcategories of affected EGUs for the performance periods. The EPA proposes to use those emission performance rates promulgated in the Clean Power Pl an as the emission rate standard for the respective EGUs that would become subject to this proposed federal plan if finalized. The EPA is not opening for comment the determinations made in the Clean Power Plan of each subcategorized CO 2 emission performance rates. The emission rate standards for respective EGU type s are provided for convenience in Table 6 of this preambl e. The EPA is proposing to use a glide path during the interim***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 134 of 478

period for EGUs to provide a smooth transition to t he final compliance periods after 2030. This approach is est ablished in the final EGs. In Table 6of this preamble, the appl icable standards for each interim compliance period is lis ted. Table 6. Glide Path Interim Performance Rates (Adju sted OutputWeighted-Average Pounds of CO 2 Per Net MWh From All Affected Fossil Fuel-Fired EGUs)

Technology 2022-2024 Compliance

Rate 2025-2027

Compliance

Rate 2028-2029

Compliance

Rate Final

Rate

Steam generating unit or integrated gasification combined cycle (IGCC) 1,671 1,500 1,380 1,305

Stationary combustion turbine 877 817 784 771

The EPA is using the subcategorized rates in the ra te-based trading approach because it allows ERCs to be fungi ble across jurisdictional borders and provides an incentive st ructure, as compared to other rate-based approaches, that facil itates implementation of measures identified as part of th e BSER. Using subcategorized rates allows for: (1) A relatively e quitable

distribution of burden for emission reductions aros s the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 135 of 478

sector 52 ; and (2) free trading of fungible ERCs among all affected EGUs subject to the federal plan and withi n the federal trading program. The EPA solicits comments on wheth er the subcategorized rate approach is the preferred rate- based approach for the federal plan and model trading rul e. 53 If a subcategorized approach for a rate-based model rule and federal plan is not preferred by commenters, the EPA reques ts comment on the perceived benefits of an alternative rate or se t of rates ( e.g., applying a uniform rate, i.e., the state goal, to all

affected units within the state as the EGUs’ emissi on standard).

C. Crediting Mechanism Under a rate-based emission standard approach in th e federal plan, we are proposing that EGUs subject to the emission performance requirements for GHGs will either need to emit at or below their emission rate standard, or they will ne ed to acquire ERCs to achieve compliance. An ERC is a tradable co mpliance unit representing one MWh of electric generation (or red uced electricity use) with zero associated CO 2 emissions. These ERCs

52 This is compared to a single rate that applies to all facilities and is, in most cases, anticipated to impart more b urden on steam generating units because they will be subject to a comparatively lower standard.

53 Note that the values of limits and determinations made as the BSER are not open for comment.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 136 of 478

may then be used to adjust the measured and reporte d CO 2 emission rate of an affected EGU when demonstrating complian ce with a rate-based emission standard. For each ERC, one MWh is added to the denominator of the reported CO 2 emission rate, resulting in a lower adjusted CO 2 emission rate. Under this proposed federal plan, ERCs will be issu ed by the EPA to three categories of entities: (1) Affect ed EGUs that perform at a rate below the applicable emission rat e standard; (2) affected NGCC units for all generation (represe nts shifting generation from steam generating units to NGCC unit s, as anticipated under Building Block 2); (3) new nuclea r units and capacity uprates at existing nuclear units, and (4) RE providers that develop metered projects and programs whose re sults, in MWh, are quantified and verified according to EM&V criteria as described below in section IV.D.8 of this preamble. We are also discussing in this preamble, taking comment on for the federal plan, and proposing for the model trading rule a po tential fourth category: other low- and zero-emitting non-B SER measures that are described in section IV.C.3 of this preamb le. The concept of using an ERC as crediting mechanism to m eet compliance obligations is consistent with the CPP E Gs and is***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 137 of 478

being adopted in this federal plan 54

. Because the goal of this rulemaking is the actual r eduction

of CO 2 emissions, it is fundamental that ERCs represent t he MWh of energy generation or savings they purport to rep resent. To this end, only valid ERCs that actually meet the st andards articulated in this rule may be used to satisfy any aspect of compliance by an affected EGU with emission standar ds. The responsibility for the validity of the ERC rests wi th the affected EGU. Despite safeguards included in the st ructure of ERC issuance and tracking systems, such as the revi ew of eligibility applications and M&V reports, and EPA i ssuance of ERCs, ERCs may be issued that do not, in fact, repr esent eligible zero-emission MWh as required in the emiss ion guidelines. A variety of situations may result in s uch improper ERC issuance, ranging from simple paperwork errors to outright fraud. The EPA requests comment on ways that the EP A could safeguard the validity of an ERC.

1. ERCs Generated and Owed Against a Standard The number of ERCs generated or needed for surrende r by an

affected fossil fuel-fired EGU is based on the CO 2 emission rate

54 The use of ERCs and definition as a compliance mec hanism to meet the BSER emission performance rates is established in section IV.A.5.a of the final EGs. [&&&]***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 138 of 478

of the EGU in comparison to an emission rate standa rd. The calculation of ERCs generated by an EGU or needed f or compliance

is the CO 2 stack emission rate of the EGU subtracted from the standard the EGU is subject to, and this value is s ubsequently divided by the standard the EGU is subject to. This value is a normalized quantity of how much better or worse the EGU is performing compared to its standard. The normalized value is weighted by multiplying the MWh electricity output from the EGU at that emission rate. This can be generically expr essed as:

ERCs	 =  EGU	standard − EGU	operating	rate 

EGU	standard ∗ 	EGU	generation

If the value calculated is positive, this indicates the number of ERCs that are being generated; conversely, a neg ative value indicates how many ERCs will need to be acquired to meet the unit’s emission rate for that compliance period. ER Cs will be issued on an annual basis to ERC providers ( i.e ., entities generating ERCs via the ERC approval and issuance p rocess detailed below). Surrender of ERCs for compliance b y affected EGUs will not occur until the end of the compliance period as further described in section IV.D.10 of this preamb le. As an example, assume a steam EGU operating in the second interim compliance period is subject to a rate stan dard of 1,500

lbs CO 2 /MWh. Assume it operates at 2,000 lbs CO 2 /MWh, and also***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 139 of 478

assume it generates 1 million MWh over a compliance period. Its

total emission rate would be 2 billion lbs CO 2 / 1 million MWh. In order to achieve the emission standard, it would need to purchase 333,334 ERCs (rounded to the nearest highe r integer). In essence, this quantity of ERCs represents the qu antity of MWh

that need to be added to the steam EGU’s denominato r ( i.e., generation, here, 1 million MWh), such that 2 billi on pounds of

CO 2 (total emissions), divided by total generation ( i.e., in this case, 1,333,334 MWh) equals the emission rate for c ompliance (1,500 lbs/MWh). The discussion in this subsection builds on and app lies the definition, benefits, use, and determination of usi ng ERCs from the final EGs (section VIII of the final EGs). We i nvite comment on use of the approach just described as a method o f implementation of a federal plan and a model tradin g rule, and we take comment on any alternatives to this approac h that still

fall within the established criteria described in t he CPP EGs. Comments that solely relate to determinations final ized in the EGs will be considered out of scope.

2. Incremental NGCC ERCs Building Block 2 (BB2) of the BSER determination in the CPP EGs describes shifting generation from steam genera ting units to NGCC units because NGCC units generate electricity at a less***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 140 of 478

carbon intensive rate. BB2 describes NGCC units gen erating at 75 percent of the unit’s annual operating capacity. Th is level of generation, for most NGCC units, would represent an increase in annual generation from a 2012 baseline.For every ho ur of electricity generated by an NGCC beyond its 2012 ba seline ( i.e., incremental generation), there is a corresponding e mission reduction in the power system. 55 The EPA is proposing to reflect the emission reductions of BB2 by crediting all NGC C generation on a pro-rata basis that reflects expected incremen tal NGCC generation to 75 percent capacity. This means that for every hour that an NGCC generates electricity, it will al so generate a partial credit associated with the generation shift from fossil steam to NGCC units. The NGCC will generate a parti al credit

because the emission reductions associated with BB2 have been distributed on an hourly basis. A discussion on the concepts

behind the distribution of emission reductions of i ncremental NGCC generation on an hourly basis can be found at the end of

this subsection. All affected NGCC generation will be credited, with ERCs, by a factor that represents the described emission reductions

55 It is assumed that any increase in NGCC generation above 2012 levels is displacing fossil fuel-fired steam EGU ge neration.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 141 of 478

from incremental generation; ERCs credited in this way will be designated as Gas Shift ERCs (GS-ERCs) for clarity 56 . The collective sum of the GS-ERCs generated realizes th e amount of emission reductions described in BB2 when 75 percen t capacity is achieved. This incentive is not a requirement, howe ver. If NGCC units do not collectively increase to 75 percent ca pacity or above, the lost opportunity for ERC generation simp ly will need to be achieved through other means ( e.g., emissions performance improvements at affected EGUs or additional RE gene ration). The amount of GS-ERCs the EPA proposes to be generated for every MWh of NGCC operation is set at a factor relating the a mount of electricity generation that NGCC units collectively would generate at the level described in BB2 ( i.e., reaching 75 percent capacity) and the associated emission reduc tions. This means that fractional GS-ERCs are generated for eve ry NGCC MWh and when the interconnect region collectively reach es the level that would be generated if all NGGCs in the region operated at a 75 percent capacity factor there will be an amount of GS-ERCs that correlates to the emission reductionsanticipat ed under BB2

56 A GS-ERC is treated and represents the same value as an ERC, but has a compliance restriction that it can only be us ed by steam generating units and not by stationary combustion t urbines for compliance obligations.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 142 of 478

of the BSER. NGCC units are expected to be incentiv ized to reach this level of generation in part due to market dema nd for GSERCs. Thus, GS-ERCs have the potential to play an i mportant role in the sector meeting compliance obligations. The number of GS-ERCs that an NGCC generates is a

combination of three factors. The first is the GS-E RC Emission Factor. This emission factor represents how much be tter an individual NGCC’s emission rate is compared against the fossil

steam standard. This measures the emission reductio ns because of the BB2 shift in generation. The steam generating u nit standard

used as reference here is as described above in sec tion IV.B of this preamble and established in the BSER determina tion from the EGs of the least stringent region 57 ( i.e., the region with the highest calculated emission rate standard for steam generating units). The GS-ERC Emission Factor is expressed by taking the complement of the ratio of the NGCC standard to the fossil-steam standard. It can be summarized by the following exp ression:

GS-ERC	Emission	Factor	 = 1 − NGCC	emission	rate Steam	Standard The second factor is the Incremental Generation Fac tor.

57 The regions that are used in the CPP EGs and for t his proposal are the Eastern Interconnect, Western Interconnect, and Electric Reliability Council of Texas (ERCOT).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 143 of 478

This factor represents the distribution of the incr eased NGCC generation across the all NGCC generation. In essen ce, it is prorating the incremental NGCC generation over all NGCC generation. The Incremental Generation Factor is ca lculated by taking the number of MWh beyond the 2012 baseline n eeded for the corresponding region to reach 75 percent NGCC gener ation capacity and dividing it by the the MWh that is 75 percent NGCC generation capacity, giving a factor. This factor c an be summarized by the following expression:

Incremental	Generation	Factor = 	1 − Regional	2012	NGCC	Baseline 75	%	NGCC	Regional	Capacity

The Incremental Generation Factor is a factor that the EPA will calculate and will be calculated for every complian ce period based on the least stingent region’s Incremental Ge neration

Factor based on increased utilization of RE and its replacement of fossil fuel fired generation (based on Building Block 3 of the CPP EGs). 58 For the calculation of this factor the EPA is using the least stringent region for each complianc e period and

58 Note that per the discussion in section VI of the final EGs, if the EPA had measured incremental NGCC generation for reassignment to fossil steam rate as the difference from the post building block three levels and full utilizati on, the post building block three levels would be used in the nu merator here, resulting in a higher “incremental generation facto r” and more ERCs for the same amount of NGCC generation.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 144 of 478

applying it for all GS-ERC calculations subject to the federal plan. The calculations for determinating the least stringent regional Incremental Generation Factor can be found in the GSERC TSD. Table 7 of this preamble presents the prop osed values that would apply for all NGCC units to calculate th e amount of

issued GS-ERCs.

Table 7. Incremental Generation Factors for Interim and Final Compliance Periods Corresponding Incremental Generation Factor Compliance Period 1 2022-2024 Compliance

Period 2 2025-2027 Compliance

Period 3 2028-2029 2030-2031

and thereafter 0.22 0.32 0.28 0.26

The third factor in calculating an NGCC’s generaton of GSERC is the NGCC Generation. The NGCC Generation is the total net energy output generation of the affected NGCC durin g the year that ERCs are being calculated. The three factors c ombine to make the following equation: GS-ERCs	=	NGCC	Generation	*	Incremental	Generation	Fa ctor	*	GS-ERC	Emission	Factor The GS-ERC equation above gives the number of GS-ER Cs that an NGCC will generate. The Incremental Generation Fact or and GS-ERC Emission Factor combine to make the GS-ERC generati ng rate for the NGCC. This functions by the Incremental Generat ion Factor prorating all incremental NGCC generation and the G S-ERC Emission Factor designating the proportion of the i ncremental***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 145 of 478

NGCC generation that will generate ERCs. The GS-ERC generating rate multiplied by the total NGCC Generation gives the total GSERCs generated by the NGCC for the year. The EPA is proposing this approach, which provides GS-ERCs for all affected EGU NGCC generation but at a fract ional, pro rated level, using the three factors above, for sev eral reasons. This approach has the benefit of allowing NGCC unit s to bid into the electricity market without having to adjust bid s based on a projection of whether or not the NGCC will have gen eration incremental to its baseline in a given year. The pr oposed method also promotes the best performers within the NGCC s ubcategory by crediting them with a higher rate of generating GS- ERCs, as shown by the calculations above. The better the emi ssion performance of an NGCC unit, the more GS-ERCs it is capable of earning per MWh. The proposed method also promotes and incentivizes all NGCC units, regardless of historic al generation, to continue to operate at a greater cap acity to replace steam generation. The EPA believes that thi s will allow for more fluidity in the market and flexibility for greater NGCC generation.

In the Clean Power Planthe BSER determination for subcategory rates is calculated by using the least stringent region and applying the standards from that region on a national***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 146 of 478

level. The determination of the BSER in the final E Gs was a onetime determination and is not being altered, update d, or changed here. Rather, in this preamble the EPA is proposing to use the same regions and to apply the least stringent compo nents to an NGCC’s GS-ERC calculation at a national level ( i.e., applying the GS-ERC calculation components that generate the most GS-ERCs for every MWh). The EPA solicits comment on applyin g the least stringent regional factor to calculate GS-ERCs for all affected NGCC units subject to the federal plan and model ru le on a national level. Conversely, the EPA also requests c omment on applying, for each region, its own regional GS-ERC generation rate. As proposed, the least stringent region could change from compliance period to compliance period. The EPA req uests comment on whether a single “least stringent” region should be chosen and used for calculations or whether being “least s tringent” should be evaluated on a compliance period by compl iance period basis. The EPA also requests comment on whether “le ast stringent” should be evaluated on a year to year ba sis. The EPA also requests comment on whether the GS-ERC Emission Factor should be calculated on a unit by u nit basis (as currently proposed) or be calculated based on the l east stringent region’s baseline 2012 average emission r ate. This will simplify the practice of calculating and distr ibuting GS-***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 147 of 478

ERC generation, but would not reward the better per forming NGCC units within the subcategory. In the GS-ERC TSD, th e EPA used the regions’ average emission rate to calculate a f actor that would credit GS-ERCs to all NGCC units subject to t he federal plan. For 2030 and beyond, this value is based on t he Eastern Interconnect and is 0.08 GS-ERCs/MWh. So for every MWh that an NGCC generates it would be issued 0.08 GS-ERCs and, if this were the approach the EPA proposed, this would apply to every NGCC that would be subject to the federal plan. In the GS-ERC TSD, the spreadsheet can be manipulat ed to

show what an individual NGCC’s GS-ERC Emission Fact or would be in the proposed method. This is done by adjusting t he cell for a year’s Average GS-ERC Emission Factor to account fo r the

individual NGCC’s emission rate instead of the aver age NGCC

emission rate. The calculation of GS-ERCs for an NGCC is independe nt of the calculation of ERCs generated or owed against t he NGCC standard. It is possible that an NGCC will owe ERCs against its assigned emission standard for every MWh generated, but still be generating GS-ERCs. GS-ERCs may only be used to mee t steam generation units’ compliance obligations. As an example, an NGCC is connected to the grid and generates 1 million MWh of electric output for the first year of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 148 of 478

the final performance period. During this year it e mits 850

million lbs of CO 2 giving it an emission rate of 850 lbs CO 2 /MWh. The NGCC is subject to a final period emission rate limit of 771

lbs CO 2 /MWh. Since the NGCC is always subject to its NGCC emission rate standard of 771 lbs/MWh and it is ope rating at a

rate above that standard it will owe non GS-ERCs fo r its own compliance. The ERCs owed are calculated by solving for the number of ERC MWh the NGCC will need to adjust its rate down to

its emission rate limit. This is shown in the follo wing equation: 850,000,000	lbs	CO , / . 1,000,000	MWh + ERC	MWh 3 = 	771	lbs		CO , /MWh When that equation is solved for the number of ERC MWh needed, the NGCC would need to acquire 102,464 ERCs to adju st its

emission rate to its emission rate standard. Additionally, the GS-ERC Emission Factor for this N GCC is calculated by using 771 lbs CO 2 /MWh for the NGCC emission rate and 1,404 lbs CO 2 /MWh for the steam generating unit emission standard in the equation described above.

GS-ERC	Emission	Factor	 = 1 − 771	lbs/MWh 1,404	lbs/MWh

This calculation results in a GS-ERC Emission Facto r of 0.45. This is only an example. Because the Incremental Ge neration Factor is calculated by the EPA, it can be found in the GS-ERC***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 149 of 478

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

Factor and Incremental Generation Factor calculated above with the NGCC’s generation for the year, the number of G S-ERCs for

this NGCC can be calculated. 0.45 ∗ 0.26 ∗ 1,000,000 = GS-ERC

The calculation results in 117 thousand GS-ERCs bei ng generated. Because an NGCC cannot use the GS-ERCs it generates to meet its compliance obligations, this NGCC will both generat e ERCs (117,000 GS-ERCs) and owe ERCs (102,464 non-GS-ERCs against NGCC standard). This NGCC may sell (or otherwise transfe r) or bank its GS-ERCs. If a GS-ERC is sold those proceeds may , in turn, be used to acquire non-GS-ERCs to satisfy the NGCC’s c ompliance obligations. A GS-ERC may not be used to meet an NGCC’s complian ce obligation because they are generated to reflect in cremental NGCC generation replacing a steam generating unit’s generation. The calculation to derive a GS-ERC represents this generation shift. If a GS-ERC were to be used for compliance f or an NGCC it would represent a shift from one NGCC to another, w hich serves little purpose in achieving emission reductions. The EPA requests comment on the proposed approach a nd requests comment and suggestions on other approache s for existing NGCC units to generate GS-ERCs at all time s. The EPA is***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 150 of 478

considering this methodology that GS-ERCs are gener ated for all NGCC generation because it ensures that all existin g NGCC units are encouraged to run at a greater capacity. The EP A is requesting comment on alternative methods to accoun t for NGCC units generating GS-ERCs. Specifically, the EPA sol icits comment on NGCC units generating GS-ERCs once a threshold o f electric generation for the year is exceeded. This threshold is based on 2012 as a baseline and any NGCC generation beyond t his threshold would be considered incremental generation. There a re two different options to evaluate against a baseline. T he first is on a unit level, if a NGCC generates more than it d id in 2012, all generation above the 2012 level ( i.e, incremental generation) is eligible to be credited with GS-ERCs . The other threshold option is to use a percentage threshold. Evaluated on a regional level, the 2012 baseline capacity percen tage for NGCC units in the least stringent region is applied to a ll units. Each unit is considered to be incrementally generat ing after it exceeds the capacity percent and will be credited w ith GS-ERCs accordingly. The GS-ERCs in these instances are cal culated by the following equation:

GS-ERC	 =  Steam	standard − NGCC	emission	rate 

Steam	standard ∗ 	Incremental	NGCC	generation

This equation quantifies the reductions of the gene ration***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 151 of 478

shift from fossil steam to NGCC units by the NGCC o perating rate being evaluated against the fossil steam standard. For all incremental NGCC generation the NGCC operating rate is compared against two different standards: (1) The NGCC stand ard against which ERC generation is evaluated; and (2) the stea m standard against which GS-ERC generation is evaluated. An ev aluation against each standard is independent of one another and GS-ERCs, in this situation, are only available for fossil st eam compliance purposes. While having a baseline threshold for EGU generatio n to credit GS-ERCs against closely resembles the EPA’s BSER determination, it enables a system in which GS-ERCs can be generated by replacing NGCC generation from one uni t with NGCC generation from another. In this situation there is not necessarily any additional NGCC generation as a sub category, but a shift in which NGCC units are generating electric ity and to what degree. This allows for a situation in which G S-ERCs can be generated without achieving the anticipated reducti ons in CO 2 emissions. The EPA also requests comment on whether a distinc t type of ERC that comes with the proposed restrictions (i .e., GS-ERCs) is necessary to maintain the integrity of the rate- based trading proposal. Comments regarding this section that sole ly relate to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 152 of 478

determinations finalized in the EGs will be conside red out of

scope. 3. Eligible Emission Reduction Measures for ERC Genera tion Under the rate-based federal plan, the EPA is propo sing to specify emission reductions measures used to adjust an emission rate that are eligible for ERC issuance under the f ederal plan. Specifically, the EPA is proposing that RE generati on that meets the requirements for eligible resources in the emis sion guidelines, all other requirements related to ERC i ssuance in the emission guidelines and this proposal, and fall s into one of the following specific categories of RE resources ( as specified in section V.E of the final EGs) are eligible to be issued ERCs: on-shore wind, solar photovoltaics (PV), concentrat ed solar power, geothermal power, and hydropower. 59 Further, the EPA is proposing that new nuclear units and capacity uprat es at

59 This treatment for RE as an eligible measure type is also proposed for the set-aside for RE that is part of t he proposed mass-based implementation approach co-proposed in s ection V of this preamble as the federal plan, and all proposed aspects of the eligible measure types described in this section an d the requests for comment included below also apply in the mass-b ased set-aside context. Incremental nuclear is not eligible for th e RE set-aside. The set-aside method and the use of this eligibilit y treatment within it are specified in section &&& of this preamble.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 153 of 478

existing nuclear units that meet the requirements f or eligible resources in the emission guidelines (as specified in section VIII.K of the final EGs) and all other requirements related to ERC issuance in the emission guidelines and this pr oposal are eligible to generate ERCs. Further, these RE and nu clear measures must have the ability to provide data from a revenue quality meter, a requirement that is further discus sed in section IV.D.8 and section IV.G.4 of this preamble. The EPA is proposing the inclusion of these measure types for the following reasons. These technologies, with the exception of nuclear, are part of the quantificatio n of renewable energy generation potential for the BSER. Thus, they are included in the quantification of CO 2 emission performance

rates and should be available to affected EGUs to m eet their CO 2 emission performance rate under the federal plan, s ee the final guidelines for details on the treatment of these me asures in BSER (see section V.E of this preamble). These tech nologies are also expected to be able to deploy on an economic b asis during the compliance period, as discussed in the final EG s (see section V.E.6 of the final EGs). These technologies also provide the simplest and most timely path for EM&V implemen tation under a federal plan, as they can use their existing mete ring infrastructure to quantify generation and submit it for ERC***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 154 of 478

issuance. A unique concern to federal plan implemen tation is the need for an ERC issuance process that can be implem ented in a streamlined manner across many jurisdictions in the time frame allowed by the federal plan while still assuring a rigorous EM&V process. By limiting eligibility to measures that c an be directly metered, a feasible federal plan process f or ERC issuance across a potentially large number of juris dictions is ensured. This approach would allow for easier deter minations of compliance with the requirements for EM&V proposed in section IV.D.8 of this preamble below (see also section VII I.K.3 of the final EGs). The agency requests comment on the inclusion of oth er emission reduction measures as eligible for ERC iss uance under the rate-based federal plan. This may include other RE technologies not included above, such as distribute d RE generation and various types of biomass. In this pr oposal, the EPA is also offering for comment treatment options for biomass fuels, if it is included as an eligible measure (se e below). The EPA requests comment on the inclusion of variou s types of demand-side EE as eligible measures, such as sta te and utility EE programs, project-based demand-side EE, state building codes, state appliance standards, and cons ervation voltage reduction. The agency also requests comment on the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 155 of 478

inclusion of combined heat and power (CHP) as an el igible

measure. The EPA requests comment on the inclusion of any ot her emission reduction measures beyond those mentioned here, as long as they meet the eligibility requirements outlined in the final EGs for rate-based crediting. For all of the above measures on which the EPA requests comment, the agency is parti cularly

interested in comments on how EM&V methods can be i mplemented for these measures across applicable jurisdictions in the timeframe provided by this proposal in a way that i s rigorous, straightforward, widely demonstrated, and in accord ance with the EM&V requirements in this proposal, outlined in sec tion IV.D.8 of this preamble, and within the requirements outli ned in the final guidelines (see section VIII.K.3 of the final EGs). It should also be noted that any eligible measure will be subject to the eligibility requirements outlined in this pr oposal and the final EGs, such as the requirement that the mea sure be

incremental to 2012. The EPA acknowledges that as new technologies matur e, there should be an avenue to add new technologies to this specified set of eligible measures. The agency is requesting comment on appropriate processes through which the EPA and/or stakeholders could make a demonstration of the appropriateness o f new measure***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 156 of 478

types and the EPA could evaluate and approve the de monstration so that a new measure type can be considered eligib le for ERC issuance under the federal plan. As mentioned above, the EPA is requesting comment on the inclusion of biomass as an eligible measure for rat e-based crediting. The EPA is also requesting comment on th e following treatment options for biomass if biomass is include d as an eligible measure. In the final EGs, the EPA recogni zes that the use of some biomass-derived fuels can play an impor tant role in controlling increases of CO 2 levels in the atmosphere (see section I.2.c of the final EGs). The use of some ki nds of biomass has the potential to offer a wide range of environmental benefits, including carbon benefits. However these benefits can typically only be realized if biomass feedstocks ar e sourced responsibly and attributes of the carbon cycle rela ted to the biomass feedstock are taken into account. Many stat es have already recognized the importance of waste-derived feedstocks via mandatory and voluntary programs supporting suc h efforts. 60

60 Types of waste-derived biogenic feedstocks may inc lude: landfill gas generated through the decomposition of MSW in a landfill; biogas generated from the decomposition of livestoc k waste, biogenic MSW, and/or other food waste in an anaerob ic digester; biogas generated through the treatment of waste wat er, due to the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 157 of 478

Some states have also acknowledged the potential ro le of certain forestry and agricultural industrial byproducts (su ch as black liquor) in energy production. Many states have also recognized the importance of forests and other lands for clima te resilience and mitigation, and have developed a variety of sus tainable forestry policies, biomass-related renewable energy incentives and standards, and GHG accounting procedures. 61 In addition to acknowledging such state programs, t he EPA has undertaken a technical assessment of biogenic C O 2 emissions from stationary sources associated with the product ion, processing and use of biomass fuels. In November 20 14, the agency released a second draft of the technical rep ort, Framework for Assessing Biogenic Carbon Dioxide for Stationary

anaerobic decomposition of biological materials; li vestock waste; and the biogenic fraction of MSW at waste-to-energy facilities (as discussed in section VIII.I.2.C of the final EGs).

61 Some states, for example Oregon and California, ha ve programs that recognize the multiple benefits that forests p rovide, including biodiversity and ecosystem services prote ction as well as climate change mitigation through carbon storage . Others, like California’s Forest Practice Regulations, support s ustained production of high-quality timber while considering ecological, economic and social values. Several states focus on sustainable bioenergy, as seen with the sustainability requirem ents for eligible biomass in the Massachusetts RPS, which, a mong other requirements, limits old growth forest harvests.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 158 of 478

Sources . The revised Framework, and the EPA’s Science Advisory Board (SAB) peer review of the 2011 Draft Framework , finds that it is not scientifically valid to assume that all b iogenic

feedstocks are “carbon neutral” and that the net bi ogenic CO 2 atmospheric contribution of different biogenic feed stocks generally depends on various factors related to fee dstock characteristics, production, processing and combust ion practices, and, in some cases, what would happen to that feedstock and the related biogenic emissions if not used for energy production. 62 The EPA is engaging in a second round of targeted peer review on the revised Framework with the SAB in

2015. 63 Information in the revised Framework and the second SAB peer review process, including stakeholder comments , will assist the EPA in assessing potential qualified biomass fe edstocks in federal plan applications. If biomass is included as an eligible measure, we a re taking comment on an option for biomass treatment u nder the rate-based federal plan, which would also apply to eligible generation under the mass-based plan allowance set- aside and to

the calculation of covered emissions for affected E GUs that are

62 http://www.epa.gov/climatechange/ghgemissions/bioge nicemissions.html

. 63 http://www.epa.gov/sab

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 159 of 478

co-firing biomass. This option offered for comment is to specify a lis t of pre-approved qualified biomass fuels. For example, the EPA could recognize the CO 2 and climate policy benefits of waste-derived ( e.g., landfill gas) and certain industrial byproduct fee dstocks (such as black liquor or other forestry and agricul tural industrial byproducts with no alternative markets). As another example, the EPA could also recognize biomass feeds tocks from sustainably managed forests lands, provided that th ese feedstocks reduce net CO 2 emissions compared to affected EGUsmeet certain requirements such as demonstration that the feedstock is sourced from sustainably managed lands (for example , feedstocks from forest lands with sustainable practices like i mproved management to increase carbon sequestration benefit s) and therefore help control increases of CO 2 in the atmosphere . The pre-approved qualified biomass feedstocks list coul d be amended in the future as the science related to biogenic CO 2 emissions

assessments evolves. The EPA asks for comment on wh ether to include a provision that allows sources to seek app roval for other types of biomass to be added to the pre-appro ved list and what that process would entail. For example, this p rocess could include consideration of the production, processing and use of forest- and agriculture-derived biomass fuels and r elated CO 2 Formatted: Subscript

Commented [A2]: edit***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 160 of 478

benefits. The EPA also requests comment on options for how EG Us would demonstrate that feedstocks meet the requirements t o be accepted as a pre-approved qualified biomass feedstocks. The se requirements could include demonstration of certifi cation or verification of practices that are additional to ot her monitoring, reporting and EM&V requirements discuss ed in this proposal, such as provision of sufficient credible analysis of carbon benefits, third party verification and/or ce rtification, or a determination of the net biogenic CO 2 effects related to the production, processing and use of the feedstock. We take broad comment on the types of qualified bio mass feedstocks that should be specified in the final mo del rule, if any. We take comment on the methods that we should specify in

the final model rule for the measurement of the ass ociated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final model r ule related to biomass. Specifically, we seek comment on the le vel of detail provided and whether more or less detail (and what detail)

should be included in the final model rule. We take comment on any other requirements that should be included in t he final model rule regarding EM&V for qualified biomass. Di scussion of the biomass EM&V requirements in the rate-based mod el rule can***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 161 of 478

be found in section IV.D.8 of this preamble below. The eligibility requirements for ERC resources disc ussed in this section meet the requirements outlined in the final EGs (see section VIII.G.1.b of the final EGs). The agen cy in this proposal is including in the regulatory text for th e model rule language related to the crediting of these other po tential ERC resources, even though they are not being proposed as a part of the federal plan. This is in order to provide state s further direction through the model rule on how states may include this broader set of ERC-generating resources in a rate-b ased plan. To reduce confusion over the applicability of these pr ovisions, the agency has added a note in the regulatory text to c larify that these resources, and provisions throughout the prop osed subpart that are related to those resources, are not applic able in the case of a federal plan. Rather they are proposed as part of the model trading rule only. However, again, the agency is requesting comment on the inclusion of these resour ces in the federal plan.

D. ERC Tracking and Compliance Operations The EPA proposes that the rate-based federal tradi ng program use the agency’s already-existing allowance tracking and compliance system (ATCS). Under the proposed rate-b ased trading program, the federal trading program would be maint ained in the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 162 of 478

EPA’s existing data system. The ATCS would be used to track the trading of ERCs held by affected EGUs, as well as E RCs held by other entities. Specifically, the ATCS would track the generation of ERCs, holdings of ERCs in compliance accounts ( i.e., accounts for affected EGUs) and general accounts ( i.e., accounts for other entities and for affected EGUs, including affected EGUs that are under a ready-for-interstate -trading state plan), deduction of ERCs for compliance purpo ses, and transfers of ERCs between accounts. The primary rol e of the ATCS is to provide an efficient, automated means for cov ered sources to comply, and for the EPA to determine whether cov ered sources are complying, with the emissions rate standards. T he ATCS would also provide data to the ERCs market and the public , including a record of ownership of ERCs, dates of ERC issuance, ERC transfers, buyer and seller information, serial num bers of ERCs transferred, emissions, and compliance information. This information would be publicly available on the EPA’ s Web site and in annual progress reports. The ATCS and the EP A provide all required elements of a qualified ERC tracking syste m as described in section VIII of the final EGs. In the subsections that follow, the mechanisms by w hich a rate-based trading program would be implemented and administered are detailed. The EPA requests comment on each comp onent of the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 163 of 478

trading system that is proposed in this preamble an d the associated model rule, the trading program as a who le, and specifically requests comment on means to expedite the process of issuing ERCs, any minimum and maximum periods fo r which ERCs should be issued ( e.g ., monthly, quarterly, annually), and any means to insure that the ERCs issued meet the requi rements of the emission guidelines and these proposed rules. T he rate-based federal plan and model rule borrow many concepts fr om other successful trading programs, and the agency is inte rested in receiving additional information through comments o n successful implementation of similar programs.

1. Designated Representatives and Alternate Designated Representatives This section establishes the procedures for certif ying and authorizing the designated representative, and alte rnate designated representative, of the owners and operat ors of the affected EGU and for changing the designated repres entative and alternate designated representative. These sections also describe the designated representative’s and altern ate designated representative’s responsibilities and th e process through which he or she could delegate to an agent the authority

to make electronic submissions to the Administrator . These provisions would be patterned after the provisions concerning***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 164 of 478

designated representatives and alternates in prior EPAadministered trading programs. The designated representative would be the individu al authorized to represent the owners and operators of each affected EGU in matters pertaining to the rate-base d trading program. One alternate designated representative co uld be selected to act on behalf of, and legally bind, the designated representative and, thus, the owners and operators. Because the actions of the designated representative and altern ate would legally bind the owners and operators, the designat ed representative and alternate would have to submit a certificate of representation certifying that each was selected by an agreement binding on all such owners and operators and was

authorized to act on their behalf. The designated representative and alternate would b e authorized upon receipt by the Administrator of the certificate of representation. This document, in a format presc ribed by the Administrator, would include: specified identifying information

for the covered source and covered EGUs at the sour ce and for the designated representative and alternate; the na me of every owner and operator of the affected EGU; and certifi cation language and signatures of the designated represent ative and alternate. All submissions ( e.g., monitoring plans, monitoring***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 165 of 478

system certifications, and allowance transfers) for an affected EGU would have to be submitted, signed, and certifi ed by the designated representative or alternate. Further, up on receipt of a complete certificate of representation, the Admin istrator would establish a compliance account in the ATCS fo r the

affected EGU involved. In order to change the designated representative or alternate, a new certificate of representation woul d have to be received by the Administrator. A new certificate of representation would also have to be submitted to r eflect changes in the owners and operators of the affected EGU involved. However, new owners and operators would b e bound by the existing certificate of representation even in the absence

of such a submission. In addition to the flexibility provided by allowing an alternate to act for the designated representative ( e.g., in circumstances where the designated representative m ight be unavailable), additional flexibility would be provi ded by allowing the designated representative and alternat e to delegate authority to make electronic submissions on his or her behalf. The designated representative and alternate could d esignate agents to submit electronically certain specified d ocuments. The previously-described requirements for designated re presentatives***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 166 of 478

and alternates would provide regulated entities wit h flexibility in assigning responsibilities under the rate-based trading program, while ensuring accountability by owners an d operators and simplifying the administration of the proposed rate-based trading program.

2. ERC Tracking and Compliance System The rate-based trading program rules establish the procedures and requirements for using and operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administra tor would handle ERC issuance, holding, transfer, and deducti on), and for determining compliance with the ERC-holding require ments in an efficient and transparent manner. The ATCS provides a record of ownership, dates of ERC transfers, buyer and seller information, origin of ERCs, the serial numbers of ERCs transfer red, and ERC type ( i.e., if it is a GS-ERC or not). ERC price information would not be included in the ATCS. The EPA’s experi ence is that private parties ( e.g., brokers) are in a better position to obtain and disseminate timely, accurate price infor mation than is the EPA. For example, because not all ERC transf ers are immediately reported to the Administrator for recor dation, the Administrator would not be able to ensure that any reported price information associated with the transfers wou ld reflect***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 167 of 478

current market prices.

3. Tracking System Requirements This federal plan and model rule’s proposed trackin g system and tracking systems that will be presumptively app rovable for state plans fufill the criteria set forth in the fi nal EGs. The EPA’s tracking system includes provisions to ensure that ERCs issued to any eligible entity are properly tracked from issuance to submission by affected EGUs for compliance (wher e ERCs are “surrendered” by the owner or operator of an affect ed EGU and “retired” or “cancelled” by the Administrator or ad ministering state regulatory body), to ensure they are only use d once to meet a regulatory obligation. This is addressed thr ough specified requirements for tracking system account holders, ERC issuance, ERC transfers among accounts, compliance true-up for affected EGUs, 64 and an accompanying tracking system infrastructure design. Each issued ERC will have a unique identifier ( i.e., serial number) and the tracking system will provide traceability of issued ERCs back to the pro gram or project for which they were issued.

64 “Compliance true-up” refers to ERC submission by a n owner or operator of an affected EGU to adjust a reported CO 2 emission rate, and determination of whether the adjusted rate is e qual to or lower than the applicable rate-based emission limit.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 168 of 478

The EPA received a number of comments from states a nd

stakeholders in the Clean Power Planabout the value of the EPA’s support in developing and/or administering tracking systems to support state administration of rate-based emission trading systems. As described above in section III.A of thi s preamble, the EPA is proposing, as part of both types of mode l trading rules, a federal trading platform that would allow state plans that are ready-for-interstate-trading to operate th rough a program in which the EPA provides the tracking and compliance system. This system will meet the requirements of t he Clean

Power Plan.

4. Compliance and General Accounts This section describes two types of ATCS accounts: compliance accounts, one of which the Administrator would establish for each affected EGU upon receipt of the certificate of representation for the source; and general accou nts, which could be established by any entity upon receipt by the Administrator of an application for a general accou nt. A compliance account would be the account in which an y ERCs used by the affected EGU for compliance with the emissio ns limitations would have to be held until retired for compliance. General accounts could be used by any person or gr oup for holding or trading ERCs. However, ERCs could not be used for***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 169 of 478

compliance with emissions limitations so long as th e ERCs were held in, and not properly and timely transferred ou t of, a general account. To open a general account, a perso n or group would have to submit an application for a general a ccount, which would be similar in many ways to a certificate of representation. The application would include, in a format to be prescribed by the Administrator: The name and ident ifying

information of the individual who would be the auth orized account representative and of any individual who wo uld be the alternate authorized account representative; an ide ntifying name for the account; the names of all persons with an o wnership interest with the respect to allowances held in the account; and certification language and signatures of the author ized account representative and alternate. The authorized accoun t representative and alternate would be authorized up on receipt of the application by the Administrator. The provision s for changing the authorized account representative and alternate, for changing the application to take account of cha nges in the persons having an ownership interest with respect t o ERCs, and for delegating authority to make electronic submiss ions would be analogous to those applicable to comparable matters for designated representatives and alternates. The EPA requests comment on these compliance mechanisms.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 170 of 478

5. Compliance Demonstration The EPA proposes that affected EGUs subject to this federal plan are required to meet compliance obligations by November 1 of the year following the end of the compliance per iod. For an affected EGU to meet its compliance obligations its average stack emission rate over the compliance period must be at or below its applicable rate standard, or the affected EGU must use ERCs to adjust its average stack emission rate to b e at or below its applicable rate standard. An EGU’s average emis sion rate over the compliance period will be calculated based on submitted data to ATCS. The compliance period average would b e calculated by taking the Measured CO 2 mass in units of pounds (lbs) summed over the compliance period for an affected EGU and dividing it by the total net energy output over the compliance period for

that affected EGU in units of MWh. 65 This averaged emission rate will be compared to the emissions standards that th e EGU is subject to during the corresponding compliance peri od. Accordingly, and if necessary, the appropriate numb er of ERCs will be retired from the EGU’s compliance account t o adjust the emission rate of the EGU to be equal to the emissio n standard.

65 Note that these values will be the submitted value s from the affected EGUs to the EPA that have gone through a t ransparent review process.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 171 of 478

The discussion of using ERCs for compliance is foun d in section IV.D.8 of this preamble.

6. Recordation of ERC Generation and ERC Issuance The EPA proposes to issue ERCs for ERC generating e ntities once per year. Thus, in a 3-year compliance period, for instance, there would be three points at which the agency issues ERCs. After each calendar year, the EPA will calcul ate the ERCs generated for EGU and non-EGU ERC generators based on data submitted to the EPA through the Emissions Collection and Monitoring Plan System (ECMPS). These calculated ERC quantities will be proposed as part of a Notice of Data Availa bility (NODA) with a 30-day comment period. Subsequently, the EPA will finalize this NODA and issue ERCs accordingly with tracking and serial numbers. For affected EGUs with compliance a ccounts, the

ERCs will be issued to these. For entities without compliance accounts, the EPA will issue ERCs to an entity’s ge neral account. The timing for issuing ERCs is consistent with existing programs, and the EPA believes there is value in co nsistency. However, we solicit comment on the annual issuance of ERCs and

whether issuance should occur at different interval s ( e.g., quarterly, biannually, or other time frames). The E PA requests justification along with corresponding comments reg arding ERCissuance intervals. We request comment on how reporting and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 172 of 478

recordkeeping requirements could be minimized, part icularly for small entities, to the extent possible under the st atute and existing regulations.

a. Issuance of ERCs to Affected EGUs Following the determination of the number of ERCs a n affected EGU is eligible to receive, based on an af fected EGU’s reported CO 2 emission rate compared to a specified reference

rate 66 , the EPA will issue those ERCs into the affected E GU’s compliance account in ATCS. The issuance will occur annually through the NODA process. ERCs will have a unique s erial number, tracking number, and will distinguish ERC type ( i.e., if it is BB2 or not) when issued to an affected EGU.

b. Issuance of ERCs for Measures Used to Adjust an Emi ssion Rate In the final EGs, the EPA has specified requirement s for an ERC issuance process for the quantification and ver ification of measures used to adjust an emission rate that provi de the necessary rigor and transparency while being effici ent and streamlined. This is the intent of the federal plan as well, where there is a particular concern with implementi ng a streamlined and efficient federal process for ERC i ssuance across federal plan states. As required in the fina l EGs, we are

66 As described in section IV.C.1 of this preamble.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 173 of 478

proposing a two-step application process to the fed eral plan tracking systems for ERCs that allows for project a pproval to take place prior to the performance period, and mak es the issuance of ERCs as quick and efficient as possible after generation has been quantified and verified, while still assuring a rigorous approval process. For the first step in the ERC issuance application process, the EPA proposes that RE and nuclear generation providers submit to the EPA an e ligibility application for EPA approval, or its designated age nt, demonstrating that the project is eligible for the issuance of credits, including an EM&V plan that meets EPA requ irements. The EPA takes comment on all aspects of the proposed ER C issuance process. The EPA is also taking comment on how an E RC issuance process would apply to emission reduction measures for which we are taking comment regarding their eligibility for ERC issuance under the federal plan, including types of RE not c overed by the federal plan, demand-side EE, CHP, biomass, and any other measure that could be considered eligible under the final guidelines. The following are proposed required components of t he eligibility application, as specified for these mea sures in the final emission guidelines:***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 174 of 478

(1) The EPA proposes that the federal plan will require that providers must show that the generation they w ould be providing to the federal plan system for ERC iss uance is only being credited in the federal plan, and wil l not be submitted for ERC issuance in any other rate-bas ed crediting system in any other state. As discussed i n section IV.C. of this preamble, it is proposed that states with rate-based emission standards plans tha t have eligibility and EM&V requirements compatible with t he federal plan will have the opportunity to participa te in the federal plan trading systems, and create a shar ed pool of creditable reductions, in which case credit s approved by such states would be eligible for use b y affected EGUs in the federal plan. (2) The provider must show that the project is using an eligible RE or nuclear resource. Specific requireme nts are proposed in section IV.C of this preamble. (3) The provider must show that the project has an EM&V plan that meets the federal plan requirements. Prop osed requirements specific to the federal plan are propo sed in section IV.D.6 of this preamble. As specified in se ction IV.D.8 of this preamble, we take comment on whether nuclear energy resources should be subject to the s ame***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 175 of 478

EM&V requirements as renewable energy resources, an d if not, we take comment on to which EM&V requirements nuclear energy resources should be subject. (4) There are special conditions if the provider is located in a state with a mass-based plan. For elig ible RE capacity, the provider can only be credited in a ratebased state or rzate-based multi-state system if th e provider can demonstrate that the measure must be implemented to meet electricity load in a state wit h a rate-based plan. The EPA is proposing that an RE pr ovider can make this demonstration by providing documentat ion of a power purchase agreement (PPA) or delivery contra ct

from the rate-based state and show that the measure was treated as a generation resource used to serve regi onal load

that included the rate-based state . For incremental nuclear capacity, no provider in a state with a mass-based plan can be eligible for ERC issuance in a rate-based st ate. This requirement and the justification for its incl usion is further discussed in section III.A of this pream ble on

Interstate Effects and also discussed in the Inters tate Effects section of the final EGs (section VIII.L of the final EGs). The EPA is proposing that there is no o ther geographic limitation on the location of the provid ers of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 176 of 478

RE and incremental nuclear generation under the fed eral plan. (5) This application must include an independent thirdparty verifier’s review and approval of the eligibi lity requirements, as is reflected in EM&V requirements for the final guidelines, and specified as part of prop osed federal plan EM&V requirements in section IV.D.6 of this preamble.

We request comment on each criterion of the eligibi lity application described herein and in the proposed mo del rule, for each eligible resource. Specifically, we seek c omment on the substantive content of the criteria, and we see k comment on the level of detail provided and whether more or less detail (and what detail) should be included in the final model

rule. ERCs will be tracked in the Allowance Tracking and Compliance System (ATCS). Additionally, the EPA is proposing that the agency will establish a complementary trac king system for the ERC issuance process. It will provide for t ransparent access to RE project and program eligibility applic ations and regulatory approvals as well as information on the activities of accredited third party verifiers (third party ve rifiers are further discussed in section IV.D.6 of this preambl e), as well***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 177 of 478

for the public to be able to generate reports based on this

information. The agency is proposing that the project eligibilit y applications will be accepted after the finalizatio n of the federal plan and prior to the first compliance peri od, as soon as the agency is able to establish an application p rocess, and that applications will be accepted on an annual bas is. The agency requests comment on whether a quarterly or b iannual application process is more appropriate. These appl ications will be accepted through the entirety of all compli ance periods. The EPA will review and approve the projec t applications. It is proposed that the EPA may desig nate an agent to coordinate the project application process and assist with review of applications. For the second step in the credit issuance applicat ion process, the EPA proposes that providers submit an M&V report to the EPA, or its designated agent, prior to the E PA’s issuance of ERCs. This can only occur after the app roval of a project application, the RE has been generated, and necessary EM&V has been completed. The following are proposed required components of t he ERC issuance application:***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 178 of 478

(1) Documentation of completed EM&V in accordance with the EM&V plan submitted by the RE provider, including quantification of the MWh of generation to be credi ted

and verification of their creation. (2) Documentation that the generation has not been submitted for crediting under any other federal or state plan, including to another rate-based credit tracki ng system. (3) Documentation that the MWh resulted from RE or incremental nuclear capacity eligible for crediting under the federal plan requirements and in accordance wit h final emission guidelines. This documentation shoul d note if the MWh are from an RE project located in a stat e with a mass-based plan, and show if the generation is ap proved to be eligible for ERC issuance under the federal p lan. See section &&& of this preamble for specifics on t he required demonstration for this type of RE generati on. As discussed in that section, this option is proposed to not be available to incremental nuclear capacity locate d in a state with a mass-based plan. (4) This application must include a verification report from an independent third-party verifier, submitted after the verifier’s review and approval of the eligibili ty***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 179 of 478

application, as is reflected in EM&V requirements f or the final guidelines, and specified as part of proposed federal plan EM&V requirements described below and included in detail in the proposed model rule.

If the application meets these requirements, pursua nt to review by the EPA or its designated agent, ERCs wil l be issued to the provider by the EPA through the Allowance Tr acking and Compliance System (ATCS). The specific steps of the process by which an eligible resource seeks ERCs, and by which an affected EGU may use ERCs in its compliance demonst ration are laid out in the proposed model rule. One of the ste ps requires the proponent to register for a general account in the EPA tracking system where the ERCs would be recorded. S ee 40 CFR 62.16515 for the requirements to establish a genera l account. While EPA is proposing to allow eligible resources to use a general account to receive any ERCs issued under th is section, the EPA requests comment on extending the designate d representative provisions in 40 CFR 62.16485 to eli gible resources instead of the general account provisions . Requiring eligible resources to submit information similar to that collected in the certificate of representation in 4 0 CFR 62.16500 and to appoint a designated representative to act on behalf of all owners/operators for all projects req uesting***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 180 of 478

ERCs may improve the EM&V process by making the eli gible

resources more accountable. Because it is critical to the integrity of an ERC t hat it represents the actual MWh of energy generated or sa ved that it purports to represent, and as required in the emiss ion guidelines for state plans, the federal plan and mo del rule include provisions to address error correction (mec hanisms to adjust the number of ERCs issued based on all form of errors, from clerical, to over- and under-statements, to ma terial inconsistency with rule provisions, to fraud, etc.) . In addition, the federal plan and model rule include p rovisions that provide that, at any time for cause, the EPA m ay temporarily or permanently revoke the qualification status of eligible resources (from being issued ERCs for at l east the duration it does not meet the requirements for bein g issued ERCs) and independent verifiers (from providing ver ification

services for at least the duration it does not meet the requirements of your state plan). For the federal p lan, as discussed in section III.I of this preamble above, we propose to use the administrative appeals process set forth 40 CFR part 78 to address party-specific disputes concerni ng the issuance and/or validity of ERCs. States may adopt a similar procedural and substantive process at the state lev el to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 181 of 478

enable them to rescind or withhold approval of spec ific credits. We request comment on the content of each of these provisions in the model rule, and specifically seek comment on

whether the model rule should include different or additional details related to either procedure or substance fo r error correction and the revocation of the qualification status of an eligible resource or independent verifier. The agency is proposing that ERC eligibility applic ations will be accepted starting before the beginning of t he first compliance period (January 1, 2022), through an app lication process the agency will establish and administer (u nless delegated or taken over through a partial state pla n), and that applications will be accepted on an annual bas is. These applications will be accepted through the entirety of all compliance periods. The EPA will review and approve eligibility applications, and may designate an agen t to coordinate and assist with ERC eligibility applicat ions. The EPA is proposing that it will issue ERCs for a give n year no later than 6 months after the end of the relevant y ear. This amount of time may be necessary to accommodate the ERC issuance process, including necessary EM&V. The ove rall proposed schedule for trading and true-up has been constructed to allow for this period of time for EM&V after the compliance***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 182 of 478

period. For purposes of the proposed rate-based federal pla n, the EPA proposes to implement the Clean Energy Incentive Pr ogram (CEIP) by issuing early action ERCs for eligible actions loca ted in or benefitting a state that are implemented following the effective date of the federal plan for that state and that re duce or avoid

CO 2 emissions in 2020 and 2021. The EPA intends to imp lement the program in a way that maintains the stringency of t he rate-based emission standards for affected EGUs in the complia nce periods established in this rule. The EPA is proposing to a ward early action ERCs to two types of eligible projects locat ed in or benefitting a state subject to the federal plan, as listed below. The rationale for including these projects is inclu ded in section VIII.B.2 of the final emission guidelines.

• RE investments that generate metered MWh from wind or solar resources; and

• Demand-side EE programs and measures that result in quantified and verified avoided generation, and dem onstrate

a direct benefit to low-income communities. The EPA proposes the following framework to implem ent the CEIP in the rate-based federal plan. First, the EPA prop oses to implement a mechanism for issuing early action ERCs for eligible

actions that reduce or avoid CO 2 emissions in 2020 and 2021. The***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 183 of 478

EPA proposes to design this mechanism in a manner t hat would have no impact on the aggregate emission performance of sources required to meet rate-based emission standards during the co mpliance periods. The EPA requests comment on the structure of this mechanism, which could include adjusting the string ency of the emission standards during the compliance periods to account for the issuance of early action ERCs for MWh generated or avoided in 2020 or 2021. For example, during the interim perfo rmance period, a number of ERCs could be retired in an amount equi valent to the number of early action ERCs that were awarded for M Wh generated or avoided in 2020 and 2021. As another option, the EP A, or a state under the model trading rule, could use modeling to project expected emissions and generation for covered sourc es. New targets could then be obtained by dividing the modeled leve l of emissions by the modeled level of generation adding in the nu mber of borrowed ERCs. Alternatively, future targets could be adjust ed by assuming reference case generation and emissions over the 20 22-2029 period and allocating those to fossil steam and NGCC using 2012 shares, then adding in the number of early action ERCs. The EPA requests comments on these ideas, as well as alternatives fo r maintaining the stringency of a rate-based plan implementing th e CEIP so as to have no impact on the aggregate emission performanc e of sources required to meet rate-based emission standards duri ng the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 184 of 478

compliance periods. Second, the agency proposes to create an account of “matching” ERCs for each state participating in the CEIP – reg ardless of whether a state is implementing a state plan or the agency is implementing a federal plan on its behalf. This dis tribution would reflect each state’s pro rata share of a federal po ol of additional ERCs, which would be limited to the equivalent of 3 00 million short

tons of CO 2 emissions. The EPA proposes to distribute matching ERCs to all participating states based upon the amount o f the reductions

from 2012 levels each state must achieve relative t o that of the other participating states. Thus, states under a fe deral plan whose EGUs face greater reduction obligations would be el igible to secure a larger proportion of the federal allocation upon demonstration of quantified and verified MWh of RE generation or demand side-EE savings realized in 2020 and 2021. The number of ma tching ERCs distributed to participating states will determine the total level of ERCs available for provision to eligible project s in each state participating in the CEIP. The EPA proposes to execute an initial distribution of matching ERCs following receipt of 2016 state submittals, an d a final distribution following receipt of all complete stat e plans in 2018, and at which time the EPA may have issued federal p lans for some states. Eligible projects may receive awards from t hese matching***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 185 of 478

accounts upon demonstration of quantified and verif ied MWh of generation or savings achieved by eligible projects in 2020 and 20201. The EPA requests comment on how the 300 mill ion short ton

CO 2 emissions-equivalent pool may be converted into ER Cs for the purpose of populating the CEIP accounts of states w ith rate-based plans. Third, the EPA is proposing to award early action E RCs and matching ERCs to eligible projects as follows, base d upon the quantified and verified MWh of generation or saving s achieved by the projects in 2020 and 2021:

• For RE projects that generate metered MWh from wind or solar resources: for every two MWh generated, the project will receive one early action ERC and one matching ERC from the EPA.

• For EE projects that benefit low-income communities : for every two MWh in end-use demand savings achieved, the pro ject will receive two early action ERCs and two matching ERCs from the EPA. ERCs awarded by the EPA pursuant to the CEIP may be used for compliance by an affected EGU with its emission sta ndards in any compliance period and are fully transferrable prior to such use. All matching ERCs that have not been used by Januar y 1, 2023 would be retired by the EPA. The EPA requests comment on all aspects of implemen ting the CEIP under a rate-based federal plan approach, including (1) The method***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 186 of 478

for maintaining the stringency of rate-based emissi on standards; (2) the criteria for eligible projects, including c riteria for awards to EE projects that benefit low-income commu nities; (3) the mechanism for reviewing project submittals and issu ing early action ERCs; (4) EM&V requirements for eligible pro jects; (5) measurement and verification (M&V) reports; and (6) verification reports from an independent verifier. The EPA also requests comment on not providing matching ERCs in the rate-based tr ading federal plan. The EPA also seeks comment on how states, tri bes and territories for whom goals have not yet been establ ished in the final emission guidelines may be able to participat e in the CEIP

in the future.

7. Independent Verifiers The EPA has determined in the final EGs that indepe ndent verification requirements are necessary to ensure t he integrity of any rate-based emission trading program, given t he types of eligible measures that may generate ERCs and the br oad geographic locations in which those measures may oc cur. Inclusion of an independent verification component provides technical support for the EPA in the context of the proposed federal plan, and the states in the context of thei r plans, to ensure that eligibility applications and monitoring and verification reports are appropriately reviewed pri or to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 187 of 478

issuance of ERCs. Inclusion of an independent verif ication component is also consistent with similar approache s required by state PUCs for the review of demand-side EE program results and GHG offset provisions included in state GHG emissio n budget trading programs. The remainder of this section and the related langu age in the proposed model rule provide the proposed basis by which the EPA intends to evaluate the independence of the ver ifiers that it uses to provide verification reports pursuant to the federal plan. The qualifications described here and in the model rule would be presumptively approveable in the context o f a state plan. As a starting point, an independent verifier must h ave the necessary technical qualifications to provide verif ication services for the subject in question, as well as fu lfill certain codes of conduct in providing verification services . Only verifiers approved or “accredited” by the EPA may p rovide verification services related to ERC issuance, in t he same way that only verifiers approved by a state may be elig ible to perform verification services pursuant to a state p lan. 67

67 In this section, the term “verifier” is used inter changeably to refer to both a “verification body” ( i.e ., a verification company***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 188 of 478

In addition, verifiers must have sufficient knowled ge of the rate-based emission trading program rules, tech nical expertise, and knowledge of auditing, accounting, a nd information management practices, in order to perfo rm verifcation services related to the Clean Power Pla n. Accredited verifiers must be independent. Accredited verifiers may not provide verification services for any eligible reso urce for which they have a financial, management, or other i nterest. 68

or organization) and a “verifier,” which is an indi vidual that is a principal or employee of a verification body.

68 Accredited verification bodies and individual veri fiers may not have any direct or indirect organizational or perso nal relationships with an ERC provider that would impac t their impartiality in assessing the validity and accuracy of the information in an eligibility application or M&V re port. In addition to this general requirement, the following specific requirements also apply. Accredited verifiers must have no direct or indirect financial interest in, or other financi al relationships with, an ERC provider or any related program or project that seeks issuance of ERCs. Accredited ver ifiers must have no relationship with the implementer of a prog ram or project that seeks the issuance of ERCs, or any related ERC provider, that would represent a COI. Accredited verifiers must ha ve no role in the development and implementation of a program or project that seeks issuance of ERCs, beyond the provision of ver ification services. Accredited verifiers must not be compensa ted, directly or indirectly, in relation to the quantified and ve rified MWh in an M&V report or on the basis of program or project approval, ERC***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 189 of 478

Such relationships constitute a conflict of interes t (COI). COI situations may also arise as a result of personal r elationships among individuals representing an ERC provider and an accredited verifier. A verification report will not be accepte d as part of an eligibility application or M&V report where the accredited verification body or any individual verifier has a COI. Accredited verification bodies must have management protocols in place to identify and remedy any COI prior to provi sion of verification services. That the proposed federal pl an and model rule provide that failure of an accredited verifier to identify and adequately address any COI prior to provision o f verification services is grounds for revocation of accreditation. The EPA will perform periodic review s of accredited verifiers, to ensure that verifiers are maintaining necessary technical and professional qualifications and are meeting program requirements for provision of verif ication services. The EPA may recognize, in part, accredita tion by an

issuance, or the number of ERCs issued. Accredited verifiers may not hold ERCs, or other financial derivatives relat ed to ERCs, or have a financial relationship with other parties th at hold ERCs or other related financial derivatives. Verification r eports must include an attestation by the accredited verifier t hat it assessed potential COI related to an ERC provider and adequa tely addressed any identified COI.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 190 of 478

outside organization where such outside accreditati on demonstrates that federal plan requirements are met

. 69 The EPA requests comment on the proposed necessary requirem ents for an independent verifier to perform verification servic es in connection with the federal plan, including those r equirements specifically detailed in this section of the preamb le and the related language in the proposed model rule, and in cluding whether there are any requirements that are not inc luded in this proposal that should be included in the final rule. We further request comment on the level of detail that we shou ld include in the final model rule regarding all requirements for indepenent verifiers, and all aspects of verification.

8. Evaluation, Measurement, and Verification (EM&V) Pl ans, Monitoring and Verification (M&V) Reports, and Veri fication Reports This section identifies and discusses the EM&V appr oaches used to quantify and verify MWh from RE, demand-sid e EE, and other eligible measures used to generate ERCs or ot herwise

69 An example is ANSI accreditation under ISO 14065:2 013 for GHG validation and verification bodies. More informatio n is available at https://www.ansica.org/wwwversion2/outside/GHGgener al.asp?menuID =200

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 191 of 478

adjust an emission rate. 70 Only a subset of the potentially creditable ERC re sources discussed in this section are actually being propos ed as part of the federal plan. The remainder, and their associat ed requirements, are provided as part of the proposed model trading rule. Thus, all provisions of this subsection relat ing to such resources are presented only for the purpose of com ment in the context of the federal plan, but are actually propo sed for inclusion in the model trading rule. The ERC resour ces proposed in the federal plan must meet the following criteri a: 1) they are in the following categories of measures: on-sho re wind, solar photovoltaics (PV), concentrated solar power, geothermal power, hydropower, new nuclear units and capacity u prates at existing nuclear units, and 2) they can provide qua ntified generation data from a revenue quality meter. The l anguage pertaining to all other measures ( e.g ., demand-side EE) is proposed only for the model rule. While they are cu rrently being

70 EM&V is defined here as the set of procedures, met hods, and analytic approaches used to quantify the MWh from R E, demand-side EE, and other eligible measures and thereby ensure that the resulting savings and generation are quantifiable a nd verifiable. In this proposal, we are proposing EM&V for the eli gible RE, and taking comment on EM&V for demand-side EE and any o ther measures that could be eligible.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 192 of 478

proposed as part of the model rule and not the fede ral plan, the EPA requests comment on the inclusion of other RE m easures, demand-side EE measures, and any other measures tha t may be eligible under the final guidelines as eligible mea sures under the federal plan. For stakeholders that are submitt ing comments on the inclusion of such additional measures, the E PA requests comment on how the EPA could implement across appli cable jurisdictions a rigorous, straightforward, and wide ly demonstrated set of EM&V methods, procedures, and a pproaches that could be implemented in the time frame allowed by the federal plan and that also meet the requirements ou tlined in the final guidelines. To the extent proposed for inclus ion in the model trading rule, we also invite comment on these requirements in the context of state implementation as part of a state plan. Thus, commenters on this aspect of the proposal sho uld consider whether and how these provisions could be implement ed at the state level. Comments that suggest an approach not authorized by the EGs will likely be considered out of scope of t his action. Additionally, with respect to EM&V, the EPA describ es certain established industry best-practice methods, procedures, and appraoches that would be presumptively approvab le if included in state plans. States wishing to adopt th e model rule must submit these methods, procedures, and approach es as***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 193 of 478

specified, or may submit alternative EM&V that is f unctionally equivalent to the industry best-practices described as presumptively approvable. 71 As discussed in section IV.C.3 of this preamble, qu antified and verified MWh of RE generation and other means o f generating ERCs may be used to adjust a CO 2 emission rate when demonstrating compliance with the emission guidelines. Providers other than affected EGUs who seek to earn ERCs must develop EM &V plans outlining how they will quantify and verify the res ulting MWh from their efforts. These providers must then submi t these EM&V plans as part of their application to the Administr ator for project approval. 72

a. Overall Approach and Measure-Specific Requirements The proposed Clean Power Plan stated that the EPA w ould establish EM&V requirements and procedures to help states,

71 The EPA recognizes that EM&V is routinely evolving to reflect changes in markets, technologies and data availabil ity, and expects to update its EM&V guidance over time. Ther efore the agency expects that alternative quantification approaches will emerge that can be approved for use, provided that such ap proaches are functionally equivalent to the provisions for EM&V outlined in this section.

72 A full discussion of applicable requirements for t he establishment and functioning of the rate-based tra ding system is provided above, in section &&& of this preamble.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 194 of 478

sources, and resource providers quantify and verify MWh savings and generation resulting from zero-emitting RE and demand-side EE efforts. This federal plan proposes those requir ements that

the EPA committed to establish. The Clean Power Pla n proposal

and associated “State Plans Considerations” TSD 73 suggested that such EM&V requirements would leverage existing indu stry practices, protocols, and tracking mechanisms curre ntly utilized by the majority of states implementing RE and deman d-side EE. The EPA further noted that many state regulatory bo dies and other entities already have significant EM&V infras tructure in place and have been applying, refining, and enhanci ng their evaluation and quality assurance approaches for ove r 30 years, particularly with regard to the quantification and verification of energy savings resulting from utility-administer ed EE programs. The EPA also observed that the majority o f RE generation is typically quantified and verified usi ng readily available, reliable, and transparent methods such a s direct metering of MWh. The EPA is proposing EM&V methods, procedures, and approaches, described herein, that are intended to be

73 See discussion beginning on p. 34 of the State Pla n Considerations TSD for the Clean Power Plan Propose d Rule: http://www2.epa.gov/carbon-pollution-standards/clea n-power-planproposed-rule-state-plan-considerations

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 195 of 478

consistent with and leverage prevailing industry be st-practices. In addition, the EPA’s proposed EM&V methods, proce dures, and approaches reflect several overarching objectiv es and principles offered by states, private organizations , and the public during the comment period of the CPP EGs. On e of these is the importance of balancing the accuracy and reliab ility of

results with the associated costs of EM&V. Another objective for the EPA’s proposed EM&V is to avoid excessive inter ference with existing practices that are already robust, transpa rent and

effective. (1) Submittals

. Applicable submittals under a rate-based emission t rading program include eligibility applications (including EM&V plans), monitoring and verification reports, and verficatio n reports.

These submittals are described in section VIII.K.3. b of the final EGs preamble and in this model rule and feder al plan. At the initiation of a program or project, ERC provide rs develop and submit to the state or the EPA, respectively, a n EM&V plan that documents how requirements for quantification and verification will be addressed as EM&V is performed over the program or project period. After implementation has occurred, the ERC provider must submit periodic monitoring an d verification (M&V) reports to document and describe how each of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 196 of 478

the requirements were applied. These reports must a lso specify the resulting MWh savings or generation values, as determined on a retrospective (ex-post) or real-time basis. MWh v alues may not be determined using projections or other ex-ante qu antification approaches. Each EM&V plan submitted in support of an eligibili ty application must identify the eligible resource cov ered by the plan, and provide specific EM&V criteria that speci fy the manner in which the energy generated or saved by the eligi ble resource will be quantified, monitored and verified. The man ner of quantification, monitoring and verification must me et the criteria outlined below and included in the propose d model rule, as applicable to the specific eligible resource. We take broad comment on each criteria specified below and in the proposed model rule, for each eligible resource. Specificall y, we seek

comment on the substantive content of the criteria. Each M&V report submitted in support of the issuanc e of ERCs to a specific eligible resource must include s pecific criteria described here and in the proposed model r ule. For the first M&V report submitted, a key component is docu mentation that the electricity-generating resources or electr icity-saving measures were installed or implemented consistent w ith the description in the approved eligibility application . Each***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 197 of 478

following M&V report must then identify the time pe riod covered by the M&V report, describe how the methods specifi ed in the EM&V plan were applied during the reporting period, and document the quantify (in MWh) of energy generation and/or e lectricity savings quantified and verified for the period cove red by the M&V report. Any change in the energy generation or savings capability of the eligible resource during the peri od covered by the M&V report must also be included in the M&V rep ort, along with the date on which the change occurred, and inf ormation sufficient to demonstrate whether the eligible reso urce continued to meet all eligibility requirements duri ng the period covered by the M&V report. Any change should also b e specified in the report. The EPA takes broad comment on each of these criteria, as described here and in the proposed mod el rule. Specifically, we seek comment on the substantive co ntent of the criteria, and we seek comment on the level detail p rovided and whether more or less detail (and what detail) shoul d be included in the final model rule, and whether the criteria s hould differ for each eligible resource. Each verification report submitted by an independen t verifier in support of the issuance of ERCs to a sp ecific eligible resource must address the criteria describ ed here and in the proposed rule text. Each verification report must set***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 198 of 478

forth the findings of the verifier, based on an ass essment of all relevant requirements, information and data, in cluding an assessment of any material misstatements or data di screpancies. Any verification report included as part of an elig ibility application must further describe the review conduc ted by the verifier and verify the following: the eligibility of the resource to be issued ERCs; that the eligible resou rce exists and has been, or will be, generating energy or savi ng electricity in the manner required; that the EM&V p lan meets its requirements; and any other information required or that the verifier finds, in its professional opinion, is nec essary to assess the accuracy of the subject of the verificat ion report. Each verification report included as part of a M&V report must also describe the review conducted by the verifier and verify the following: the adequacy and validity of the inf ormation and data submitted to quantify eligible MWh of electric generation or electricity savings during the period covered by the report, as well as all supporting information and data iden tified in the EM&V plan and M&V report; evaluate whether all gene ration or savings data is within a technically feasible range for that specific eligible resource (determined through a qu ality assurance and quality control check of the data); t hat the M&V report meets its requirements; and any other inform ation***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 199 of 478

required or that the verifier finds, in its profess ional opinion, is necessary to assess the accuracy of the subject of the verification report. The EPA takes broad commen t on each of these criteria, as described here and in the propos ed model rule. Specifically, we seek comment on the substant ive content of the criteria, and we seek comment on the level d etail provided and whether more or less detail (and what detail) should be included in the final model rule, and whe ther the criteria should differ for each eligible resource. For demand-side EE, all EM&V plans that are develop ed for purposes of adjusting an emission rate under this f inal rule are intended to leverage and closely resemble the plans already in routine use for a wide range of publicly or rate-pa yer funded EE programs and energy service company (ESCO) projects . For RE, EM&V plans similarly leverage resources and approac hes to MWh tracking for RE that are broadly applied in the sta te and regions. The existing reports and documentation fro m existing tracking systems may serve as the substantive basis for a monitoring and verification report for RE.

b. Renewable Energy EM&V Requirements This section describes the EM&V requirements associ ated with quantifying electricity generation from eligib le RE and nuclear, and for documenting these requirements in EM&V plans***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 200 of 478

and reports. Consistent with prevailing views expre ssed in public comments, the EPA’s requirements presume tha t the quantification of RE generation can leverage the in frastructure

and documentation associated with the establishment of renewable energy certificate (RECs) and registration of such certificates in REC registries. These registries typically inclu de wellestablished safeguards, documentation requirements, and procedures for registry operations intended to supp ort the demonstration of compliance with state RPS policies . A key element of RPS compliance is that each RE generatin g unit must be uniquely identified and recorded in a registry t o avoid the double counting of RECs. The primary metric for all RE is electricity genera tion, in units of MWh. Measured output must be derived eithe r from (1) A revenue quality meter that meets the applicable ANS I C-12 standard or equivalent, which is the typical requir ement for settlements with RTO and other control-area operato rs; or (2) for customer-sited generators that are interconnect ed behind the customer meter, measurement at the AC output of an inverter, adjusted to reflect the energy delivered into eithe r the transmission or distribution grid at the generator bus bar. Further, a RE generating facility of 10 kW capacity or less may estimate the facility’s output if the state where i t is located***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 201 of 478

explicitly allows estimates to be used and provides rules for when it will be allowed. In the latter case, calcul ations of system output must be based on the RE unit’s capaci ty, estimated capacity factors, and an assessment of the local co nditions that affect generation levels. All such input parameters and assumptions must be clearly described and documente d. For RE units that are managed by regional transmission ope rators or other control area operators, metered generation da ta should be electronically collected by the control area’s ener gy management system, verified through an energy accounting or se ttlements process, and reported by the control area operator to the REC registry at least monthly. The EPA requests comment on this proposed requirement for quantifying RE generation for the purpose of ERC issuance. For RE units that do not go through a control area settlements process, metered data may be read and t ransmitted to the ERC registry by an independent third party, or may be selfreported. Third-party and self-reported generation data must be reported on an annual basis. All such data must be verified for reasonableness by the agency, state or the REC regi stry. For reporting purposes, RE generation may be aggreg ated from multiple generators into a single MWh value fo r the group, provided the following requirements are met: each R E unit is***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 202 of 478

uniquely identified in the federal tracking system, the nameplate capacity of each RE unit is less than 150 kW, the aggregated RE units collectively have nameplate gen erating capacities less than 1.0 MW, the units aggregated a re located in the same state, the RE units being aggregated utili ze the same technology/fuel type, and the RE unit’s generation data are based on the same metering or the same generation e stimating software or algorithms. The EPA requests comment on how existing reporting systems can play a role in meeting EM&V r equirements under the federal plan, particularly, in assuring t hat each MWh of RE generation is uniquely identified and recorde d to avoid double counting. An additional criterion that applies to distributed RE units that directly serve on-site end-use electrici ty loads is that avoided transmission and distribution (T&D) sy stem losses can be considered, as is commonly practiced with de mand-side EE. Such calculations must apply the requirements speci fied for

demand-side EE as described below. The EPA requests comment on all metering, measureme nt, verification, and other requirements included in th is subsection, includuing the appropriateness of their use for each type of renewable energy resource (including the re lvant size and distribution of such resource) that qualifies f or issuance***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 203 of 478

of ERCs for use in Clean Power Plan compliance. For renewable energy resources with a nameplate cap acity of 10 kW or more and for renewable energy resources wi th a nameplate capacity of less than 10 kW for which met ered data are available, we take comment on the appropriateness o f the requirement to use a revenue quality meter for moni toring generation, and we take comment on the definition o f revenue quality meter. We take comment on the appropriatene ss of other types of meters for monitoring generation. We take comment on whether 10kW is the appropriate threshold, under wh ich an eligible resource can be issued ERCs for generation based on data other than metered generation, and if not, wha t would be the appropriate threshold. For renewable energy resources of all sizes and mea ns of monitoring, we take comment on the appropriate requ irements for allowing generation data to be aggregated, includin g comment on the provisions in the proposed model rule and any a lternatives

to them. We take comment on whether the all of the generating units have the same essential generation characteri stics, in order for their data to be aggregated, and if so, w hat the appropriate content of the definition of “essential generation characteristics” ( e.g ., are essential generating characteristics determined on a resource by resource basis, or can generation***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 204 of 478

from a group of wind turbines be aggregated with ge neration from a group of solar panels? We seek comment on the app ropriate thresholds for the aggregated of individual units ( e.g ., nameplate capacity of less than 150 kW per unit and the units collectively do not exceed a total nameplate capaci ty of 1 MW when aggregated, as in the proposed model rule). For non-metered units of less than 10 kW, we take c omment on whether the final model rule should specify the specific estimating software or algorithms by which generati on data should be measured, and if so, we take broad commen t on the appropriate estimating software or algorithms and/o r the appropriate characteristics for such estimating sof tware or algorithms. We request comment on any other requirements that s hould be included in the final model rule regarding EM&V of renewable

energy resources. For all energy generating resources (such as RE, bu t also including applicable resources requiring EM&V descr ibed below), we take comment on the appropriate place of measure ment of the generation, including comment on whether measuremen t should be at the bus bar or at a different location (or in th e case of meter on units of less than 10kW, at the AC output of the inverter or elsewhere), whether measurement should be before or***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 205 of 478

after parasitic load (and how to separate out paras itic load). In addition, for all energy generating resources, w e take comment on whether generation data should go throug h a control area settlement process prior to issuance of ERCs, and if so, what level of specificity with respect to that proc ess we should include in the final model rule. If not, or if the unit does not go through a control areas settlement process, we t ake comment on how the data collection should be specified in t he final model rule. Finally, we take comment on the frequen cy with which data should be collected, for all energy generating resources, of all sizes.

c. Nuclear EM&V Requirements The EM&V requirements associated with quantifying electricity generation from eligible nuclear, and f or documenting these requirements in EM&V plans and re ports are the same as the requirements for RE discussed in the pr eceding

section. The EPA requests comment on all metering, measureme nt, verification, and other requirements included in th is subsection, includuing the appropriateness of their use for each type of nuclear energy resource (including the relv ant size and distribution of such resource) that qualifies for i ssuance of ERCs for use in Clean Power Plan compliance. We tak e comment on***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 206 of 478

whether nuclear energy resources should be subject to the same EM&V requirements as renewable energy resources, an d if not, we take comment on to which EM&V requirements nuclear energy resources should be subject.

d. Non-Affected Combined Heat and Power EM&V Requireme nts In additon to the CHP specific EM&V requirements di scussed below and in the associated provisions in the model rule, all CHP must follow the requirements for RE discussed i n the preceding section, including metering requirements, special treatment for units of less than 10 kw, and how to account for

T&D losses. To calculate a CHP unit’s creditable MWh, the elect rical output is prorated based on the “incremental CO 2 emission rate” of the CHP unit relative to the applicable CO 2 emission rate for

affected EGUs in the state. The CHP unit’s electric al output would be prorated based on the CO 2 emission rate of the electrical output associated with the CHP unit. 74 The incremental

74 The applicable CO 2 emission limit rate depends on the type of state plan being implemented. Where a state plan in cludes a single CO 2 emission limit rate for the fleet of affected EGUs , the applicable rate is the rate that applies to all aff ected EGUs. Where a state plan includes subcategorized rates fo r different categories of affected EGUs, the applicable rate is the rate that applies to affected NGCC EGUs.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 207 of 478

rate would be relative to the applicable CO 2 emission rate

standard for affected EGUs in the state and would b e limited to

values between 0 and 1. Prorated MWh = (1 – incremental CHP emission rate/applicable affected EGU emission standard rate ) * CHP MWh output, where the ratio is limited to values betwee n 0 and 1.

The CHP electrical emission rate is the net emissio n rate when the CHP unit’s thermal output emissions are de ducted from

the CHP unit’s total emissions. It can be derived a s follows [CHP fuel input * fuel emission factor – (UTO/boile r efficiency) * fuel emission factor]/CHP MWh

In order to determine the incremental CO 2 emission rate, a CHP unit would monitor requirements for CO 2 emissions and energy output. 75 The monitoring requirements are standard methods currently in use and the requirements would depend on the size

of the CHP units and the fuel used in the unit.

Non-affected CHP facilities 76 with electric generating capacity greater than 25 MW would follow the same m onitoring and reporting protocols for CO 2 emissions and energy output as are

75 Where a CHP unit uses biomass fuel, it must report both total CO 2 emissions and biogenic CO 2 emissions. Proposed requirements for reporting biogenic CO 2 emissions are discussed below in the section titled ‘ EM&V requirements that apply to biomass RE faciliti es.’

76 A CHP facility may consist of one or more electric generators.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 208 of 478

required for affected EGU CHP units. These requirem ents are discussed in section IV.D.13 of this preamble. For non-affected CHP facilities with electric generating capacity le ss than or equal to 25 MW, which use only natural gas and/or d istillate fuel oil, the low mass emission unit CO 2 emission monitoring and reporting methodology outlined in 40 CFR 75 is acce ptable. The EPA requests comment on all metering, measureme nt, verification, and other requirements included in th is subsection with respect to CHP, including the appropriateness of their use for CHP (including with respect to the size of the CHP resource). We take comment on whether a CHP unit sh ould be subject to the same EM&V requirements as renewable energy resources, and we take comment on any additional EM &V requirements to which CHP units should be subject. Specifically, we take comment on specifying in the final model ru le that if a combined heat and power unit has an electric genera ting capacity greater than 25 MW, its EM&V plan must specify that it will meet the requirements that apply to an affected EGU unde r 40 CFR 62.16540. We also take comment on specifying in the final model rule that if a combined heat and power unit has an electric generating capacity less than or equal to 25 MW, th e EM&V plan must specify that it will meet the low mass emissio n unit CO 2 emission monitoring and reporting methodology in 40 CFR 75. We***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 209 of 478

take comment on any alternatives to these measureme nt methodologies that should be specified in the final model rule. We take comment on any other requirements that shou ld be included in the final model rule regarding EM&V of CHP.

e. Biomass EM&V Requirements A state plan that is adopting the rate-based model rule must propose EM&V requirements for monitoring and r eporting biogenic CO 2 emissions from the use of qualified biomass at RE facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to use the monitoring and repor ting requirements for biogenic CO 2 emissions in 40 CFR part 98 (40 CFR 98.3(c), 98.36(b)-(d), 98.43(b), and 98.46) in its plan submission, those requirements are presumptively ap provable. An EM&V plan that addresses biomass RE must follow the requirements for monitoring and reporting biogenic CO 2 emissions from the facility that were approved by the EPA in connectio n with the specific state plan. The EPA requests comment on all metering, measureme nt, verification, and other requirements included in th is subsection with respect to biomass, including the appropriaten ess of their use for qualified biomass. We take broad comment on the types of qualifying biomass feedstocks that should be specif ied in the final model rule, if any. We take comment on the me thods that we***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 210 of 478

should specify in the final model rule for the meas urement of the associated biogenic CO 2 for such feedstocks, as well as what other requirements we should specify in the final m odel rule related to qualfied biomass. We take comment on any other requirements that should be included in the final m odel rule regarding EM&V for qualified biomass. Detailed disc ussion on the role of qualified biomass feedstocks can be found i n section IV.C.3 of this preamble.

f. Waste-to-Energy EM&V Requirements A state plan that is adopting the rate-based model rule must propose EM&V requirements for monitoring and r eporting biogenic CO 2 emissions from waste-to-energy facilities that are eligible for adjusting a CO 2 emission rate. If a state proposes to include the monitoring and reporting requirement s for biogenic CO 2 emissions in 40 CFR part 98 (40 CFR 98.3(c), 98.36(b)-(d), 98.43(b), and 98.46) in its plan subm ission, those requirements are presumptively approvable. The EPA may approve other requirements of similar rigor, at its discret ion. An EM&V plan that addresses the biogenic CO 2 emissions from a waste-toenergy facility must follow the requirements for mo nitoring and reporting biogenic CO 2 emissions from the facility that were approved by the EPA in connection with the specific state plan. As discussed in the final EGs (see section VIII.K.1 of the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 211 of 478

final EGs), only the portion of electric generation at a wasteto-energy facility that is due to the biogenic cont ent of the MSW may be used to generate ERCs or counted by a st ate towards its achievement of its obligations pursuant to this regulation. The EPA requests comment on all metering, measureme nt, verification, and other requirements included in th is subsection with respect to WTE, including the appropriateness of their use

for WTE. We take comment on whether a waste-to-ener gy resource should be subject to the same EM&V as renewable ene rgy resources, and we take comment on any additional EM &V requirements to which waste-to-energy resources sho uld be subject, including comment on any specific methods for determining the specific portion of the total net e nergy output from the resource that is related to the biogenic p ortion of the

waste that the EPA should include in the final mode l rule.

g. Demand-Side Energy Efficiency EM&V Provisions The following section describes presumptively appr ovable EM&V provisions that may be included in state regul ations governing how EE is quantified by EE providers and is verified by independent entities acting on behalf of the sta te. These provisions apply to all demand-side EE used to adju st an

emission rate. For all demand-side EE used to generate ERCs, the m etric is***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 212 of 478

MWh of electricity savings, which is quantified on an ex-post basis and defined as a reduction in facility- or pr emises-level electricity consumption due to an EE program, proje ct, or

measures. (1) Common Practice Baseline Based on public input and assessments of industry b estpractice protocols and procedures, the EPA has dete rmined that a presumptively approvable EM&V provision is quantify ing EE saving

as the difference between actual metered electricit y usage after an EE program, project, or measure is implemented, and a “common practice baseline” (CPB). A CPB is the equipment th at would most frequently be installed – or that a typical consume r or building owner would have continued using – in a given circu mstance (i.e., a given building type, EE program type or de livery mechanism, and geographic region) at the time of EE implementation. It defines what would commonly have happened in

the absence of the EE intervention. The applicable CPB depends on a number of factors, such as characteristics of the EE measure, the delivery mec hanism to implement the EE measure, local consumer and market characteristics, and the applicable building energy codes and product standards (C&S), including the C&S complian ce rate. Examples of appropriate CPBs to apply in specific c ontexts, with***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 213 of 478

consideration of these factors, can be found in the EPA’s draft EM&V guidance. EE providers must document the selec ted CPB in their EM&V plans, along with clear documentation an d discussion of the rationale, applicability, and relevant data sources, protocols, and other supporting information. 77 Monitoring and verification reports must refer to the EM&V plan an d confirm that the CPB was applied. (2) Methods Used to Quantify Savings from Energy Effici ency Programs and Projects This section discusses presumptively approvable pro visions for the general types of EM&V methods that EE provi ders may use to quantify the MWh savings from demand-side EE pro grams, projects, and measures. During the CPP EG’s public comment period, the EPA received input indicating that stat e PUCs typically allow utilities and other EE providers to use a range of EM&V methods that reflect applicable circumstanc es and onthe-ground conditions (versus mandating which metho ds must be used in a particular situation). Consistent with th is approach, the EPA’s presumptively approvable provisions offer flexibility

77 For one source of applicable baselines, see Table 7.1. State and Local Energy Efficiency Action Network. 2012. Energy Efficiency Program Impact Evaluation Guide . Prepared by Steven R. Schiller, Schiller Consulting, Inc., http://www.seeaction.energy.gov . Or current version.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 214 of 478

for EE providers to select from three broad categor ies of EM&V methods to determine savings. These categories include project-based measurement and verification (M&V), deemed savings, and comparison group approaches such as randomized control trials (RCT). Regardless of the approach selected, the EPA is proposing that annual savings values must be quantified using these EM&V methods at specified time intervals (in years) on a recurring basis over the effective useful life of the EE project or meas ure in order to ensure accurate and reliable savings values. To be considered presumptively approvable, EE providers must conduct apply the above methods at a minimum of 4-year intervals for building energy codes and product standards; every 1, 2 or 3 years for publicly or rate-payer funded EE programs, dependin g on the program type, magnitude of savings, and experience with the program; and annually for large individual commerci al and industrial projects, unless the EE provider can cre dibly demonstrate why this is not possible and how the ac curacy and reliability of savings values will be maintained. F or all demand-side EE used to adjust an emissions rate, th e selected method, associated assumptions, and data sources mu st be identified and described in EM&V plans. For comparison group approaches, EE providers can r efer to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 215 of 478

the EPA’s draft EM&V guidance for a discussion of i ndustry bestpractice protocols and guidelines, such as those pu blished by

the SEE Action Network and the U.S. DOE’s Uniform M ethods Protocols (UMP) project. Where feasible, the EPA se eks to encourage the use of RCT methods, which determine s avings on the basis of energy consumption differences between a t reatment group and a comparison group, and therefore increas e the reliability of results. As noted above, an alternative to comparison group methods is the use of deemed savings values, which establis h predetermined annual electricity savings values for sp ecific EE measures. The presumptively approvable provisions a re that deemed values (a) be documented in a publicly avail able database (also known as a Technical Reference Manual) that i s accessible on a public Web site, or is otherwise readily acces sible; (b) specify the conditions for which each deemed value can be applied, including but not limited to climate zone, building type, and EE implementation mechanism; and (c) be u pdated at a minimum of every 3 years to reflect the per-measure MWh savings documented in ex-post EM&V studies apply measuremen t and verification or comparison group methods. For M&V methods, the presumptively approvable provi sion is that industry best-practice protocols must be follo wed. These***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 216 of 478

include the International Performance Measurement a nd Verification Protocol (IPMVP), protocols published by the Federal Energy Management Program (FEMP), the Ameri can Society of Heating, Refrigeration and Air-Conditioning Engi neers (ASHRAE), and the U.S. DOE’s UMP. EE providers can consult the EPA’s EM&V guidance to assess the applicability of such protocols and guidelines to the EE programs and pro jects generating savings, and must document how these wil l be applied in EM&V plans (along with clear documentation and d iscussion of the rationale, applicability, and relevant data sou rces, and other supporting information). Monitoring and verif ication reports must refer to the EM&V plan and confirm tha t the relevant protocol was applied. (3) Quantifying Savings Regardless of the approach used to quantify and ver ify MWh savings, EM&V plans must describe how they will add ress the following presumptively approvable provisions:

• How major changes in independent variable condition s (weather, occupancy, production rates, etc.) that affect energy consumption and savings estimates wil l be analyzed. The effects of these changes must be calculated using industry best-practices such as re altime conditions or normalized conditions that are***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 217 of 478

reasonably expected to occur throughout the lifetim e of the EE project or measure.

• How the initial installation of EE will be verified for EE program categories that involve the installation of identifiable measures ( e.g ., most consumer-funded EE programs and project-based EE ar e evaluated site-by-site). Verification is required within the first year of program implementation. Al l verification activities must be performed using industry best-practice techniques ( e.g ., phone or mail surveys, document review, site inspections, spot or short-term metering). For projects implemented as p art of a program, verification can be performed using a sample of projects to represent the full program population.

• How avoided T&D system losses 78 will be quantified and applied to EE savings determined at the customer facility or premises. Demand-side EE programs (othe r than T&D efficiency measures such as CVR and volt/V AR

78 T&D losses are defined as the difference between t he quantified EGU generation required to serve a customer’s load (measured at the EGU bus bar) and the customer’s actual electric ity consumption (measured at the customer meter).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 218 of 478

optimization 79 ) may adjust reported savings by using a T&D adder. If such an adder is applied, the presumptively approvable appraoch is to use the smaller of 6 percent or the calculated statewide annual average T&D loss rate (expressed as a percentage) calculated using the most recent data published by the U.S. EIA State Electricity Profile

. 80

• How the duration of EE program or project electrici ty savings will be determined. This must be determined using industry best-practice protocols and procedur essuch as annual verification assessments, industrystandard persistence studies, deemed estimates of effective useful life (EUL), or a combination of al l

three.

• How the accuracy and reliability of quantifying MWh

79 More information about these technologies is in se ction VIII.F.1 of this preamble above.

80 Estimated losses in MWh, total electric supply, and direct electricity use values are available in the U.S. EI A’s State Electricity Profiles. See table on Supply and Dispo sition of Electricity (currently Table 10). Direct electricity use refers to the electricity generated at facilities that is not put onto the electricity grid, and therefore does not contribute to T&D losses.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 219 of 478

savings values will be assessed, and the rigor 81 of the methods used to control the types of bias or error inherent to the applied EM&V methods. Sampling of populations is appropriate, provided that the quantified MWh derived from sampling have at least 90 percent confidence intervals whose end points are n o more than +/-10 percent of the estimate.

• How double counting will be avoided through the use of tracking and accounting procedures to ensure that t he same MWh of electricity savings is not claimed more than one time (for example, two EGUs claiming savin gs from the same lighting retrofit). The types of doub le counting that may arise are discussed in the EPA’s draft EM&V guidance. (4) Use of Energy Efficiency EM&V Protocols In the CPP EG’s public comments, the EPA heard that EM&V protocols for demand-side EE are currently in wide use, and that they should be continued and encouraged. The agency agrees with

81 Rigor refers to the level of effort expended to mi nimize uncertainty from factors such as sampling error and bias. The higher the level of rigor, the more confident one i s that the results of the EM&V activities are both accurate an d precise.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 220 of 478

this observation and is therefore proposing the app lication of industry best-practice protocols and procedures for demand-side EE. A presumptively approvable provision for EM&V p lans is that they must include a clear description and documenta tion of how the relevant protocols will be applied, as well as after-thefact documentation in EM&V reports of how they were actually applied. EE providers can refer to the EPA’s EM&V g uidance document for information about protocols that are c onsidered “industry best-practice protocols and procedures.” (5) Eligible Demand-Side Energy Efficiency Programs and Projects. There has been stakeholder interest expressed thro ugh the CPP EG rulemaking process in accounting methods for quantified and verified MWh savings from DS-EE in state plans. Consistent with these perspectives, the EPA position is that a ny demandside EE program and project that results in MWh sav ings may be potentially eligible to states, including under thi s proposed model trading rule, provided that it meets the pres umptively approvable provisions for eligibility described in section IV.C.3 of this preamble, and that supporting EM&V i s rigorous, complete and fulfills the requirements provided in the emission guidelines and the state plan. Common demand-side EE programs and project types in clude:

• Publicly or consumer-payer funded customer-funded***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 221 of 478

demand-side management programs, including those implemented in low-income residences and facilities

.

• Project-based EE evaluated site-by-site, for exampl e those implemented by ESCOs at commercial buildings and

industrial facilities.

• State and local government building energy code and compliance programs.

• State and local government incremental product ener gy standards. The EPA’s EM&V guidance contains supplemental infor mation about applicable protocols, methods, and other key considerations for quantifying and verifying saving s from the

above-listed EE activities in an accurate and relia ble manner. The agency also recognizes that the programs and po licies listed above will evolve and change over the rule period, as new technologies emerge and efficiency improves. The ag ency also expects that new EE program types will emerge and e xpand throughout the rule period, and that MWh savings re sulting from any such programs can similarly be considered if th ey meet the requirements of the emission guidelines. (6) Requests for Comment on Energy Efficiency EM&V

We take broad comment on each EE EM&V criteria desc ribed herein and in the proposed rule text, for each type of EE***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 222 of 478

activity, project, program, or measure. Specificall y, we seek comment on the substantive content of the criteria, and we seek comment on the level detail provided and whether mo re or less detail (and what detail) should be included in the final model rule. In addition, we seek comment on whether some of the EE EM&V criteria (and if so, which criteria) included in the draft guidance document proposed simultaneously with this proposed rulemaking should instead be included in the final model rule, instead of in guidance. We seek comment on what EE criteria the EPA should described in guidance versus what criter ia the EPA should specify in the final model, whether or not t hose criteria are already included in the draft guidance or draft model rule. We take broad comment on the appropriate EE EM&V cr iteria for quantifying the electricity savings from every type of EE activity, project, program, or measure. We take bro ad comment on what constitute EE best practices protocols for eve ry type of EE activity, project, program, or measure. We take broad comment on how common practice baseli nes should and should not be used in calculating electr icity savings from EE activities, projects, programs, and measure s, including comment on which common practice baselines should b e used in

which circumstances. We take broad comment on the appropriateness of qua ntifying***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 223 of 478

electricity savings by applying one or more of the following methods and comment on all aspects of each method: project-based measurement and verification (PB-MV), comparison gr oup approaches, or deemed savings. We take further comm ent on circumstances in which it is appropriate (or inappr opriate) to use each of these methods, including when it is app ropriate to use random control trials and quasi-experimental me thods, and the circumstances in which they can be encouraged a nd applied in practice ( e.g ., when a suitable control or comparision group can be identified and applied in a cost-effective manne r). If deemed savings are to be used in quantifying electricity savings from an EE program, project, or measure, we take comment on the appropriate characteristics and presumptively approvable provisions for their use i n generating qualifying ERCs, including the basis and frequency for their determination. We further take comment on the presu mptively approvable provision for public access and input to the development of the TRMs used to house the applicabl e deemed savings values.

We take comment on the minimum and maximum interval s (in years) over which electricity savings must be quant ified, including those time intervals specified in the pro posed model rule, and we take comment on any factors that must be taken into***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 224 of 478

consideration when determining the appropriate time interval for specific EE programs, projects, or measures. Because many states have different EE programs in p lace today, and we would expect them to build off of the se programs if they incorporated EE into a rate-based trading s cheme with ERCs, it is theoretically possible that an ERC coul d be issued

in one state that would not have been issued in ano ther, even if both states have rate-based programs in place that meet all of the emission guidelines. The EPA takes comment on w hat criteria it should include in the final model rule, and what level of details with respect to those criteria that it shou ld include,

in order to ensure that an ERC issued for an EE act ivity, project, program, measure in one state reflects the same 1 MWh of energy or electricity saved in another state. We further take comment on whether there are provisions that the EP A should include in the final model rule that would prevent an entity seeking to be issued an ERC (whether from EE or ene rgy generation) from forum shopping, in an effort to fi nd a state

with standards for ERC issuance that it deems less burdensome

than those in another state. We take comment on how to appropriately consider fa ctors that affect energy savings in the quantification an d verification process, including those identified in the proposed***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 225 of 478

model rule, and we take comment on whether these fa ctors should be addressed in every plan or just certain types of plans. Such factors may include the effect of changes in indepe ndent factors, effective useful life (and its basis), and interactive effects of EE programs, projects, and measures. We take comment on the circumstances and frequency in which savings verification must occur to ensure that EE m easures have been installed, are functioning, and have the poten tial to save

energy. We take comment on the appropriate steps for avoidi ng double counting, and how such steps should be docum ented in an EM&V plan. In particular, we take comment on the ci rcumstances and conditions in which double counting is most lik ely to occur (such as those identified in this section), and the presumptively approvable provisions that must be ad opted in state plans for avoiding and mitigating double coun ting. We take comment on the appropriate means by which a n EM&V plan can ensure the accuracy and reliability of ele ctricity savings results, including the necessary rigor of t he method selected to evaluate the electricity savings, the m ethods used to control all relevant types of bias and to minimi ze the potential for systematic and random error, and the potential

effects of such bias and error. We further take com ment on the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 226 of 478

presumptively approvable provision that samples tak en to quantify EE program savings must achieve 90/10 conf idence and precision. We take comment on the presumptively approvable app roach to quantifying the electricity savings that result fro m avoiding a transmission and distribution system loss, includin g the provisions in the proposed model rule, which specif y that each EM&V plan must measure the transmission and distrib ution loss based on the lesser of 6 percent of the site-level electricity savings measured at the end use meter or the statew ide annual average transmission and distribution loss rate (ex pressed as a percentage) from the most recent year that is publi shed in the U.S. EIA State Electricity Profile expressed as a p ercentage. We take comment on the appropriateness of including su ch a

restriction in the final model rule that no other t ransmission and distribution loss factors may be used in calcul ating the electricity savings. We take comment on any additional criteria that we should include in the final model rule regarding EE EM&V.

h. Skill Certification Standards Using a skilled workforce to implement demand-side EE and RE projects and other measures intended to reduce C O 2 emissions, and to evaluate, measure and verify the savings ass ociated with***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 227 of 478

EE projects or the additional generation from perfo rmance improvements at existing EGU’s are both important. Several commenters pointed out that skill certification sta ndards can help to assure quality and credibility of demand-si de EE,RE and other carbon emission reduction projects. The EPA a lso recognizes that a skilled workforce performing the EM&V is important to substantiate the authenticity of emiss ions

reductions. The EPA agrees that in conjunction with other EM&V measures discussed in this section, and in the cont ext of the model trading rules although this is not an aspect needed for presumptive approvability, states are encouraged to include in their plan a description of how states will ensure that workers installing demand side EE and RE projects, or other measures intended to reduce CO 2 emissions, as well as workers who perform the EM&V of demand side EE and existing EGU perform ance will be certified by a third party entity that:

• Develops a training or competency based program aligned with a job task analysis and/or certificati on scheme;

• Engages with subject matter experts in the developm ent of the job task analysis and/or certification schem es that represent appropriate qualifications, categori es***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 228 of 478

of the jobs, and levels of experience;

• Has clearly documented the process used to develop the job task analysis and/or certification schemes, covering such elements as the job description, knowledge, skills, and abilities;

• Has pursued third-party accreditation aligned with consensus-based standards, for example ISO/IEC 1702 4

or IREC 14732. Examples of such entities include: parties aligned with the Department of Energy’s (DOE) Better Building Workfo rce Guidelines and validated by a third party accrediti ng body recognized by DOE; or parties aligned with an appre nticeship program that is registered with the federal Departm ent of Labor (DOL), Office of Apprenticeship; or with a state ap prenticeship program approved by the DOL, or by another skill ce rtification validated by a third party accrediting body can hel p to substantiate the authenticity of emission reduction s due to

demand-side EE and RE and other carbon emission red uction

measures. 9. ERC Transfers and Trading All affected EGUs that may be subject to this propo sed federal plan would be required to be a part of the allowance tracking and compliance system (ATCS) that the EPA runs,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 229 of 478

although the affected EGUs that are regulated under the ratebased federal plan would use ERCs as a compliance i nstrument, not allowances. To register to participate in the A TCS an affected EGU must submit designated representative information. More information on the designated representatives is described above in section IV.D.1 of this preamble. Non-EGUs who wish to participate ( e.g., RE sources) may submit registration criteria to participate in the ATCS. The ATCS will allow the trading and holding of ERCs that qualify for CPP compliance in a system that also will be used to determine compliance. Quarterl y, an affected EGU under the federal plan must submit inf ormation and data consistent with part 75. 82 These quarterly submission dates

are the 30 th of April, July, October and January corresponding with the quarterly data ending the month previous t he submission deadline ( e.g., an April 30, 2024 submission would include data from January through March of 2024). The data that are posted online would be publicly available. Non-EGU ERC generating sources are required to subm it generation data annually (see section IV.C.3 of thi s preamble for a comprehensive discussion of non-EGU ERC gener ating sources). The data must follow the EM&V procedures delineated in

82 See section IV.D.11 of this preamble for more info rmation.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 230 of 478

section IV.D.8 of this preamble. Because of the req uired rigor of the EM&V process, the EPA provides a time frame of January 1 to June 1 of the year that follows the data’s incep tion to complete all EM&V processes ( e.g , 2024 RE data must go through the EM&V process and be submitted to the EPA no lat er than June 1, 2025). After receiving all emission and generati on data from ERC generating sources and affected EGUs, the EPA w ill issue ERCs through a NODA as described in section IV.E.4 of this preamble. The EPA is proposing to issue ERCs annual ly. ERCs are acquired and traded throughout the compliance perio d. An affected EGU is responsible to hold sufficient ERCs that qualify for CPP compliance in its ATCS compliance account b y November 1 at midnight of the year following the conclusion of the compliance period. 83 The process for transferring ERCs from one account to another is quite simple. A transfer would be submit ted providing, in a format prescribed by the agency, th e account numbers of the accounts involved, the serial number s of the ERCs involved, and the name and signature of the transfe rring authorized account representative or alternate. If the transfer form containing all the required information were s ubmitted to

83 This true-up process is further described in secti on IV.D.8 of this preamble.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 231 of 478

the EPA and, when the Administrator attempted to re cord the transfer, the transferor account included the ERCs identified in the form, the Administrator would record the transf er by moving

the ERCs from the transferor account to the transfe ree account within 5 business days of the receipt of the transf er form.

10. Compliance with Emissions Standards Once the compliance period has ended, affected EGU s would have a window of opportunity to evaluate their repo rted emissions and obtain any ERCs that they might need to cover their emissions during the compliance period. The a gency proposes to require sources to demonstrate complian ce, i.e., ERC true-up, on November 1 of the year after the last y ear in the compliance period. For example, if the first compli ance period comprises the three years 2022, 2023, and 2024, the n the ERC

transfer deadline 84 for that first compliance period (after which point the EPA would evaluate compliance) would be o n November 1, 2025. The agency also requests comment on an earlie r allowance transfer deadline, such as June 1 or March 1, of th e year after the last year in the compliance period. Each ERC issued in the proposed rate-based trading program

84 The “ERC transfer deadline” is the deadline for tr ansferring allowances that can be used for compliance in the p revious compliance period to a source’s compliance account.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 232 of 478

would, if applied, be averaged into the compliance rate as one MWh of energy with zero CO 2 emissions deemed associated with it for the compliance period that includes the year fo r which the ERC was issued or be averaged into a later complian ce period. Consequently, each affected EGU would need, as of t he ERC transfer deadline, to have in its compliance accoun t enough ERCs usable for its compliance obligations for the compl iance period. The authorized account representative could identif y specific ERCs to be applied, but, in the absence of such ide ntification or in the case of a partial identification, the Adm inistrator would deduct on a first-in, first-out basis. The ER Cs that are used to meet compliance obligations are moved from the compliance account to the EPA’s retirement account. ERCs that are deducted for compliance will remain in the syst em in an EPA account, which ensures they will not be used again. The EPA will use the submitted generation, CO 2 emissions and ERCs in the affected EGU’s compliance account to ca lculate an average emission rate for the EGU. It is the respon sibility of

an affected EGU to calculate the number of ERCs tha t will need to be held in a compliance account to meet the EGU’ s compliance obligations. The method for determining the quantit y of ERCs needed to meet compliance obligations has been disc ussed previously in an example. To reiterate the process, the affected***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 233 of 478

EGU would need to solve for the number of zero-emit ting MWh ( i.e., ERCs) that would need to be added to the total MWh of the EGU to make the adjusted emission rate equal to the emission

standard. 789:;<=8	>?@;;@AB	CD<= = ED;;	AF	GH2	=?@<<=8	IJ; K=B=LD<@AB  EMh  + EMh	>CG; This equation can be rearranged to:

EMh	>CG; = ED;;	AF	GH2	=?@<<=8	IJ;

789:;<=8	>?@;;@AB	CD<=	 IJ; EMh  − K=B=LD<@AB	EMh

If an affected EGU fails to hold sufficient ERCs to comply with its emission standard then, upon notification of the deficiency, the owners and operators of the affecte d EGU must provide, for deduction by the Administrator, two ER Cs as soon as available for every ERC that the owners and operato rs failed to hold as required to cover emissions, in addition to the ERCs owed for compliance in that next period. The owed E RCs will be deducted from the EGU’s compliance account as soon as they are available in this account; the Administrator will n ot wait until the next true-up date to make this deduction. The t wo ERCs owed for each ERC needed for compliance is in addition t o any other recourse provided in sections 113 (a)–(h) or sectio n 304 of the CAA. This requirement to surrender two times the ER Cs needed to make up the shortfall for the prior period is an on going***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 234 of 478

obligation until compliance is achieved, and there is an ongoing obligation to comply in the current period. Failure to surrender these replacement ERCs is an additional violation t hat may be subject to federal enforcement. The EPA solicits co mment on sources owing two ERCs to make up for each insuffic ient ERC in previous compliance periods and whether two for one is the proper make-up rate or whether there should be a st ricter or a

more lenient ratio. The EPA believes that it is important to include a requirement for an automatic deduction of ERCs. The deduction of one ERC per ERC that the owners and operators faile d to hold

would offset this failure. The deduction of another ERC per ERC that the owners and operators failed to hold provid es a strong incentive for compliance with the ERC-holding requi rement by ensuring that non-compliance would be a significant ly more expensive option than compliance. This is consisten t with other existing trading programs.

11. Other ERC Tracking and Compliance Operations Provis ions These sections also would provide that the Administ rator could, at his or her discretion and on his or her o wn motion and consistent with existing federal trading programs, correct any type of error that he or she finds in an account in the ATCS. In addition, the Administrator could review any submis sion under***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 235 of 478

the rate-based trading program, make adjustments to the information in the submission, and deduct or transf er ERCs based on such adjusted information. These provisions are a standard part of other trading programs administered by the EPA including the Acid Rain Program and Cross State Air Pollution Rule (see , e.g., 40 CFR 72.96, 73.37, 97.427, and 97.428). The EPA solicits comment on potential alternatives for error correct ion that is simpler or more efficient.

12. Banking of ERCs The EPA is proposing to allow unlimited banking or ERCs within and between the interim and final compliance periods.

This means that if an affected EGU has more ERCs th an are necessary during true-up, it may save ( i.e., bank) those ERCs for application during a future compliance period. The EPA requests comment on whether there should be a quant itative limit or cap on the number of ERCs that can be banked. Th e EPA also requests comment on whether an ERC should be eligib le to be banked between the interim and final compliance per iods. The EPA is also proposing that ERCs will not expire after a ny duration of time. Other trading rules that the EPA has insti tuted (e.g., CSAPR) do not have expiration on the tradable prope rties. The EPA requests comment on the shelf-life of an ERC. ERC “borrowing” is a flexibility that the EPA is no t***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 236 of 478

proposing, but is soliciting comment on. ERC borrow ing is the concept that an affected EGU may use an ERC that th e EGU will acquire in a future compliance period to meet its c urrent compliance obligations. The EPA requests comment on a methodology that would allow ERC borrowing while ma intaining the integrity of the compliance obligations. The EPA al so has reservations due to the fact that future ERC genera tion is not guaranteed.

13. Emissions Monitoring and Reporting The EPA would require that emission and generation data be reported to the EPA quarterly starting on April 30, 2022, and continuing every 3 months thereafter ( i.e., the 30th of April, July, October, and January). The EPA proposes that affected EGUs subject to the rate-based federal plan trading prog ram would monitor and report CO 2 emissions in accordance with 40 CFR part 75. The EPA is proposing to require affected EGUs i n all states covered by the rate-based federal plan trading prog ram to monitor and report CO 2 emissions by and output data by January 1, 2022. Quarterly reporting would be required, with e ach quarterly report due to the Administrator 30 days after the l ast day in the quarter. The reporting would be in accordance w ith 40 CFR part 75.60. The use of part 75 certified monitoring methodologies would be required. Many affected EGUs that might***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 237 of 478

be covered by the proposed federal plans will gener ally have no changes to their monitoring and reporting requireme nts and will continue to monitor and submit reports under part 7 5 as they have under existing programs. The EPA anticipates f ewer than 50 (approximately 10 of these affected EGUs are coal f ired with the remainder being gas and oil fired that will qualify for an excepted monitoring methodology) affected EGUs, tha t would not otherwise be subject to the Acid Rain Program, will have to purchase and install additional CEMS and data handl ing systems or upgrade existing equipment in order to meet the monitoring and reporting requirements of this program. Several of the affected EGUs not otherwise subject to the Acid Rai n Program are subject to the MATS program and therefore will have already installed stack flow rate and/or CO 2 monitors in order to comply with the MATS rule which are also necessary to comp ly with this rule. The CEMS used to comply and report data for M ATS will be used for this rule to generate and report CO 2 emissions data without having to install duplicative monitors. The same CO 2 and stack gas flow rate monitored data used in conjunct ion with Hg and other CEMS to calculate a toxic pollutant emiss ion rate may

be used to calculate a CO 2 mass or CO 2 emission rate for this program. RGGI, ARP, MATS and this rule all refer to CEMS installed and certified in accordance with 40 CFR p art 75. RGGI***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 238 of 478

and ARP currently require the reporting of CO 2 mass emissions on an hourly basis and cumulative totals at the end of each calendar quarter. The same monitors and data collec ted may be used for multiple purposes for RGGI, ARP, MATS and this rule. Relying on the same monitors that are certified and quality ensured in accordance with 40 CFR part 75 ensures c ost efficient, consistent, and accurate data that may b e used for different purposes for multiple regulatory programs . The majority of the affected EGUs covered by this rule are already affected by the Acid Rain and/or Regional Greenhous e Gas Initiative programs and will have minimal additiona l monitoring and reporting requirements. The EPA also requests comment on requiring monitori ng and reporting of CO 2 mass and net generation for the year before the initial compliance period begins, i.e., to commence January 1, 2021. Only monitoring and reporting would be requir ed in 2021 — compliance with an enforceable emission standard wo uld commence on the compliance period schedule that is detailed in section IV.E.3 of this preamble.

E. Federal Plan and State Plan Interactions

1. Interstate Trading The EPA proposes that all affected EGUs within stat es that are covered by the federal plan, if a rate-based fe deral plan is***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 239 of 478

finalized for two or more states, would be allowed to trade with

one another since there will be an assured commonal ity in the ERC currency and criteria surrounding the trading p rogram. In addition, the EPA proposes, consistent with the pro vision for “ready-for-interstate-trading” plans in the EGs tha t affected EGUs located in states with approved ready-for-inte rstatetrading state plans using the sub-categorized unifo rm rate standards, and a common credit currency ( i.e., ERCs representing one zero-emitting MWh) may trade with affected EGUs operating under the federal trading program established in th is federal plan. Rate-based EGUs subject to the federal plan and rat e-based EGUs in ready-for-interstate-trading state plans wi ll be able to trade ERCs seamlessly across jurisdictional borders because of the assurances of being presumptively approvable. R eady-forinterstate-trading states must submit information t hat lists all affected EGUs and the EGU type to the Administrator to be able to trade within the federal trading program. To be able to trade in the federal trading program an affected EGU that is subject to a ready-for-interstate-trading state plan must: (1) Certify and authorize a designated representative per secti on IV.D.1 of this preamble; and (2) register a general account i n the federal trading program, ATCS, in order to have a means of transferring***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 240 of 478

ERCs with entities operating in the federal trading program. An affected EGU under a state plan will not register a compliance account in the federal system because it will not b e demonstrating compliance under the federal plan. Co mpliance will be achieved in the EGU’s corresponding state plan. Affected EGUs under a state plan have the ability to acquire ERCs through the federal trading program. These ERCs will be stored in the EGU’s general account in the federal trading program. To use these ERCs for compliance purposes, the ERCs must be tran sferred to the EGU’s compliance account in the state’s program . The EPA proposes to provide software to states to maintain a state’s compliance and tracking program. A state’s program will have the capability to interact with the federal trading pro gram and software, ATCS, for transferring ERCs if the state is ready-forinterstate-trading. A state’s program can be tailor ed to meet its needs while still providing a platform for a st ate to be transferring ERCs between the state’s system and th e federal trading program. ERCs can flow between a state syst em and the federal trading program bilaterally. The EPA acknow ledges that states may have additional criteria for generating ERCs that are not outlined as part of the federal plan, but becau se the EPA will have vetted these criteria through a state pla n approval

these ERCs will be able to be traded within the fed eral trading***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 241 of 478

program. 2. Treatment of States Entering or Exiting the Trading Program. The EPA proposes that a rate-based trading federal plan may be replaced by a state plan for a future compliance period. The EPA is proposing that a state must transition to a state plan at the conclusion of a federal plan compliance period. The EPA requests comment on whether there are reasons that a state should be allowed to transition from a federal plan to a state plan in the middle of a compliance period and if so what requirements should be put in place to do so while ensuring the integrity of both the federal plan and the state pl an and while enabling the affected EGUs covered by the plans to understand and meet their compliance requirements. If a state subject to the federal plan transitions to a state plan, any a ffected EGU impacted by the change remains responsible for meet ing any outstanding obligations under the federal plan. To make the transition to a state plan, a state must have an ap proved state plan as laid out in sections VIII.D and VIII.E of t he final EGs.

V. Mass-based Implementation Approach

A. Trading Program Overview In addition to the rate-based implementation approa ch discussed above, the EPA is proposing a mass-based***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 242 of 478

implementation approach for the federal plan. As wi th the ratebased approach, this proposed federal plan is also a proposed model trading rule that states can adopt. The mass- based approach that the agency proposes to implement is a mass-based trading program ( i.e., an emissions budget trading program, also referred to as an “allowance system”). This section provides a brief overview of the proposed mass-based trading p rogram. The

next sections describe the various elements of the proposed trading program in further detail. A mass-based trading program establishes an “aggreg ate emissions limit” that specifies the maximum amount of emissions authorized from affected EGUs included in the progr am, and creates allowances that authorize a specific quanti ty of

emissions. The total number of allowances created a re equal to, and constitute, the emissions budget or the aggrega ted emissions limit expressed in terms of short tons of emissions . The EPA is proposing that allowances be issued in short tons f or the federal plan. Each facility with affected EGUs in the program mus t surrender allowances equal in number to the quantit y of the emissions of its affected EGUs during the complianc e period. A facility with affected EGUs may buy allowances from , or transfer or sell allowances to, other affected EGUs or other entities***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 243 of 478

that participate in the market. A mass-based tradin g program provides sources with great flexibility in choosing compliance strategies. In the proposed mass-based trading program for the federal plan, the aggregate emissions limit for a state is its statewide mass-based emission goal (or “mass goal”) as finali zed in the Clean Power Plan EGs. The proposed approach to link ing states for interstate allowance trading is detailed in sec tion III.A.1 of this preamble; in an interstate trading program the aggregate emissions limit is the sum of the mass goals for th e covered

states. The EPA believes that a broad trading region provid es greater opportunities for cost-effective implementa tion of controls compared to a smaller region. Therefore, t he agency proposes that an affected EGU in any state covered by the proposed mass-based trading federal plan may use fo r compliance an allowance distributed in any other state covered by the massbased trading federal plan. The EPA also proposes t o provide for allowance trading between affected EGUs and other e ntities in states with approved mass-based-trading state plans that meet the conditions specified in section III.A.1 of this preamble, above, and affected EGUs and other entities in any state covered by the federal plan mass-based trading program.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 244 of 478

A mass-based trading program can provide environme ntal certainty at lower cost than other policy mechanism s, because it assures the specified emissions outcome while maxim izing compliance flexibility available to individual affe cted EGUs. Further, allowance banking in such a program create s an incentive to make reductions earlier than required. Mass-based trading programs are relatively simple to operate, which reduces administrative time and cost. Additionally, to info rm the massbased trading approach proposed here, the EPA draws upon more than two decades of experience implementing federal lyadministered mass-based emissions budget trading pr ograms including the Acid Rain Program SO 2 trading program, the NO X Budget Trading Program, the CAIR, and the CSAPR. In the proposed mass-based trading program federal plans,

the emissions limits in each state would be the mas s goals that the EPA promulgated in the Clean Power Plan EGs (if there is interstate trading then the sum of the mass goals f or the states in the trading program would constitute the aggrega te emissions limit). The total amount of allowances distributed in each state for each year would sum to the state’s mass goal fo r that year. As detailed in section V.E of this preamble, the EP A is proposing that a state covered by the federal plan can determine its own approach to distribute allowances, and beli eves that***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 245 of 478

state allocation has important merits. The EPA woul d distribute

allowances in a state if the state does not choose to do so, as

detailed below.

Each allowance would authorize the emission of one short

ton of CO 2 during the compliance period applicable to the allowance’s vintage year or a later compliance peri od. The proposed approach to distribute allowances, includi ng three types of allowance set-asides, is discussed in sect ion V.D of this preamble, below. After each compliance period, an affected EGU would surrender for compliance an amount of allowances eq ual to its emissions during the course of the compliance perio d. See section V.C of this preamble for the proposed lengt h of the multi-year compliance periods. Allowances could be transferred, bought, sold, or banked (carried over for future us e) and any party could participate in the allowance market. Th e EPA is not proposing allowance “borrowing” ( i.e., the bringing forward of future-period allowances for use in an earlier peri od); the multi-year compliance periods inherently provide th e flexibility to schedule relatively greater emission reductions for later years within each period, as discussed further in s ection V.C of this preamble. In the proposed mass-based trading p rogram, the emission standard applied to individual affected EG Us is the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 246 of 478

requirement to surrender emission allowances equal to reported emissions for each compliance period. The EPA also proposes that a state may choose to re place the federal-plan allowance-distribution provisions with its own allowance-distribution provisions ( i.e., to determine the

distribution of allowances for its EGUs or other en tities) using a state allowance-distribution methodology. State a llowance distribution can have important advantages, because it allows a state to design and shape allowance allocation to i ts specific goals and characteristics, and because states may h ave additional flexibility on allocation approaches, in cluding auctions. See section V.E of this preamble for furt her discussion of the proposed approach for state-deter mined allowance-distribution methodologies. This proposed requirement to hold and surrender all owances equal to emissions for each compliance period would apply to all reported emissions from a facility’s affected EGUs including any

emissions from co-fired biomass if biomass is inclu ded as an eligible measure. Section IV.C.3 of this preamble d iscusses an approach on which the EPA requests comment on the i nclusion of biomass as an eligible measure and on a proposed op tion where the agency would identify qualified biomass feedsto cks (i.e.,

biomass feedstocks that are demonstrated to be a me thod to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 247 of 478

control increases of CO 2 levels in the atmosphere) and potential methods for demonstrating compliance, and thus redu ce the mass

emissions attributed to a biomass co-fired affected EGU. If the EPA took such an approach, then for purposes of com pliance with the proposed mass-based federal plan trading progra m, the affected EGU would need to hold allowances equal to its

emissions less the emissions attributed to the co-f ired qualified biomass; such an approach would reduce th e number of

allowances the affected EGU would need to hold to d emonstrate compliance. The EPA requests comment on this approa ch.

B. Statewide Mass-based Emissions Goals

In the Clean Power Plan EGs the EPA established sta tewide mass-based emission goals (“mass goals”) for all st ates that are equivalent to the rate-based goals. As discussed in section V.C of this preamble, below, the EPA proposes to implem ent the massbased trading program with multi-year compliance pe riods that are consistent with the compliance timing provision s in the Clean Power Plan EGs, i.e., two three-year compliance periods followed by a 2-year compliance period in the Inter im Period, and successive 2-year periods in the Final Period. In the Clean Power Plan EGs, the EPA established mass goals for all states for this pattern of compliance periods. The EPA pro poses to use those mass goals promulgated in the Clean Power Pla n EGs as the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 248 of 478

mass limits ( i.e., emissions budgets) for any state covered by the mass-based trading program (or, if implementing interstate trading, then the EPA would use the sum of a covere d group of states’ mass goals as the aggregate mass limit). Th e EPA is not opening for comment the determinations, made in the Clean Power Plan EGs, of each state’s mass goals. The mass goal s are provided for convenience in Table 8of this preamble

.

Table 8. Statewide Mass-Based Emission Goals (“Mass Goals”) (Short Tons)

State Interim period Final period Step 1 2022-2024 Step 2

2025-2027 Step 3

2028-2029 2030-2031

and thereafter

Alabama 66,164,470 60,918,973 58,215,989 56,880,474

Arizona 35,189,232 32,371,942 30,906,226 30,170,750

Arkansas 36,032,671 32,953,521 31,253,744 30,322,632

California 53,500,107 50,080,840 48,736,877 48,410,120

Colorado 35,785,322 32,654,483 30,891,824 29,900,397

Connecticut 7,555,787 7,108,466 6,955,080 6,941,523

Delaware 5,348,363 4,963,102 4,784,280 4,711,825

Florida 119,380,477 110,754,683 106,736,177 105,094,704 Georgia 54,257,931 49,855,082 47,534,817 46,346,846

Idaho 1,615,518 1,522,826 1,493,052 1,492,856

Illinois 80,396,108 73,124,936 68,921,937 66,477,157***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 249 of 478

Indiana 92,010,787 83,700,336 78,901,574 76,113,835

Iowa 30,408,352 27,615,429 25,981,975 25,018,136

Kansas 26,763,719 24,295,773 22,848,095 21,990,826 Kentucky 76,757,356 69,698,851 65,566,898 63,126,121 Lands of the Fort Mojave Tribe 636,876 600,334 588,596 588,519 Lands of the Navajo Nation 26,449,393 23,999,556 22,557,749 21,700,587 Lands of the Uintah and Ouray Reservation 2,758,744 2,503,220 2,352,835 2,263,431

Louisiana 42,035,202 38,461,163 36,496,707 35,427,023

Maine 2,251,173 2,119,865 2,076,179 2,073,942 Maryland 17,447,354 15,842,485 14,902,826 14,347,628

Massachusetts 13,360,735 12,511,985 12,181,628 12,104,747 Michigan 56,854,256 51,893,556 49,106,884 47,544,064

Minnesota 27,303,150 24,868,570 23,476,788 22,678,368 Mississippi 28,940,675 26,790,683 25,756,215 25,304,337

Missouri 67,312,915 61,158,279 57,570,942 55,462,884

Montana 13,776,601 12,500,563 11,749,574 11,303,107

Nebraska 22,246,365 20,192,820 18,987,285 18,272,739

Nevada 15,076,534 14,072,636 13,652,612 13,523,584 New Hampshire 4,461,569 4,162,981 4,037,142 3,997,579 New Jersey 18,241,502 17,107,548 16,681,949 16,599,745

New Mexico 14,789,981 13,514,670 12,805,266 12,412,602

New York 35,493,488 32,932,763 31,741,940 31,257,429

North Carolina 60,975,831 55,749,239 52,856,495 51,266,234

North Dakota 25,453,173 23,095,610 21,708,108 20,883,232***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 250 of 478

Ohio 88,512,313 80,704,944 76,280,168 73,769,806

Oklahoma 47,577,611 43,665,021 41,577,379 40,488,199 Oregon 9,097,720 8,477,658 8,209,589 8,118,654 Pennsylvania 106,082,757 97,204,723 92,392,088 89,822,308

Rhode Island 3,811,632 3,592,937 3,522,686 3,522,225

South Carolina 31,025,518 28,336,836 26,834,962 25,998,968

South Dakota 4,231,184 3,862,401 3,655,422 3,539,481

Tennessee 34,118,301 31,079,178 29,343,221 28,348,396

Texas 221,613,296 203,728,060 194,351,330 189,588,842

Utah 28,479,805 25,981,970 24,572,858 23,778,193 Virginia 31,290,209 28,990,999 27,898,475 27,433,111 Washington 12,395,697 11,441,137 10,963,576 10,739,172 West Virginia 62,557,024 56,762,771 53,352,666 51,325,342

Wisconsin 33,505,657 30,571,326 28,917,949 27,986,988 Wyoming 38,528,498 34,967,826 32,875,725 31,634,412

C. Compliance Timing and Allowance Banking The EPA proposes to evaluate compliance ( i.e., compare emissions from affected EGUs to allowances held by facilities) in multi-year periods. A multi-year compliance peri od provides greater flexibility to affected EGUs and reduces ad ministrative burden, compared to a single-year compliance period . The EPA seeks to strike a reasonable balance between provid ing***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 251 of 478

flexibility and reducing burden while assuring that any noncompliance can be addressed in a timely fashion. The compliance periods in the proposed mass-based trading program would be the same as promulgated in the Cle an Power Plan EGs, i.e., the interim period would be divided into three compliance periods: a 3-year compliance period (202 2 through 2024), a second 3-year compliance period (2025 thro ugh 2027), and then a 2-year compliance period (2028 and 2029) , for the Interim Period. As in the EGs, the Final Period wou ld be divided into successive 2-year compliance periods commencin g in 2030. The EPA would evaluate compliance only after the en d of a compliance period in the mass-based trading federal plan, e.g., if a compliance period is 3 years long, the agency would evaluate compliance only after the end of the third year in the period. The EPA is not reopening for comment the co mpliance periods promulgated in the Clean Power Plan EGs. Some existing greenhouse gas mass-based trading pro grams ( i.e., emissions budget trading programs) use multi-year compliance periods. The Regional Greenhouse Gas Ini tiative (RGGI) uses 3-year compliance periods, along with i ntervening compliance requirements. The RGGI intervening compl iance requirement is that sources must hold allowances to cover 50 percent of emissions for the first two calendar yea rs of each 3-***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 252 of 478

year compliance period; at the end of each 3-year c ompliance period sources must hold allowances to cover 100 pe rcent of emissions for the period and allowances already ded ucted for the intervening requirement are subtracted from the 3-y ear obligation. 85 The California Air Resources Board (CARB) Cap-andTrade Program also uses 3-year compliance periods, along with intervening compliance requirements. The CARB inter vening requirement is to evaluate compliance on 30 percent of each source’s previous year’s emissions every year, and evaluate compliance for the remainder of emissions every 3 y ears. 86 The EPA proposes to evaluate compliance after each mult i-year compliance period and is not proposing to implement intervening compliance requirements such as those in the RGGI o r CARB programs, however, the agency requests comment on t he inclusion of such requirements. The EPA recognizes that the compliance periods prov ided for in this rulemaking are longer than those historical ly and typically specified in CAA rulemakings. As reflecte d in long-

85 RGGI, Summary of RGGI Model Rule changes: February 2013. http:// www.rggi.org/docs/ProgramReview/_FinalProgramReview Materials/Model_Ru le_Summary.pdf Accessed June 9, 2015.

86 Overview of ARB Emissions Trading Program. http:// www.arb.ca.gov/cc/capandtrade/guidance/cap_trade_ov erview.pdf Accessed June 9, 2015.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 253 of 478

standing CAA precedent, “[t]he time over which [the compliance standards] extend should be as short term as possib le and should generally not exceed one month.” See e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New Sourc e Permitting and January 25, 1995 Guidance on Enforceability Req uirements for Limiting Potential to Emit through SIP and §112 Rul es and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are accepta ble in the context of this specific rulemaking because of the unique characteristics of this rulemaking, including that CO 2 is longlived in the atmosphere, and this rulemaking is foc used on performance standards related to those long-term im pacts. The EPA proposes that allowances may be banked for use in any future compliance period, with no restriction o n the use of banked allowances, including from the Interim Perio d (2022 through 2029) into the Final Period (2030 and there after). The agency requests comment on the proposal to provide for unlimited allowance banking including the banking of Interim- Period allowances for use during the Final Period. Allowance “borrowing” is a type of timing flexibili ty wherein allowances from a future compliance period may be “brought forward” and used for compliance in an ear lier compliance period (thus reducing the amount of allo wances***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 254 of 478

available for the future period). The EPA notes tha t the proposed multi-year compliance periods inherently p rovide the flexibility to emit at relatively higher amounts in earlier years of a given compliance period by using allowan ces from future years within each compliance period ( e.g., if the first compliance period covers years 2022 through 2024, a vintage 2024

allowance could be used to cover a ton emitted in 2 022). The EPA is not proposing to allow allowance borrowing acros s compliance periods in the mass-based trading federal plans; ho wever the agency is requesting comment on the use of borrowin g across compliance periods. Allowance borrowing across comp liance periods would increase the complexity of the propos ed mass-based trading program and reduce the flexibility for stat es to replace the federal plan with an approved state plan. First , in order for borrowing to occur, the EPA would have to make allowances from future compliance periods available early so t hat sources could use these future allowances in earlier compli ance periods. The EPA proposes to record allowances in source acc ounts for one compliance period at a time in order to maximize th e opportunities for a state to replace the federal pl an (or replace the allowance-distribution provisions of th e federal plan) with an approved state plan (or approved stat e allowancedistribution methodology). The EPA proposes to allo w a state to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 255 of 478

replace the mass-based trading federal plan (or the federal-plan allowance-distribution provisions) with a state pla n (or state allowance-distribution methodology) for a complianc e period for which the agency has not yet recorded allowances in source accounts. Recording allowances for multiple complia nce periods at once – in order to make future-period allowances available for borrowing – would therefore limit these opportu nities for states to take over implementation (or implementati on of the allowance-distribution). If allowance borrowing from a future compliance per iod were allowed, and the EPA provided the opportunity for a state to replace the federal plan for a year for which allow ances had already been borrowed and retired for compliance in an earlier period, those borrowed allowances would constitute additional emissions beyond the levels specified in the Clean Power Plan EGs. In that event, the EPA would then need to addr ess whether and how to remove allowances from circulation to pr event

inflation of the allowable emissions at affected EG Us in the remaining states subject to the federal plans (to “ repay” the borrowed allowances). To avoid disruption to source s already subject to the mass-based trading federal plan, the EPA is not proposing to allow allowance borrowing across compl iance periods.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 256 of 478

Although not proposing to provide for allowance bor rowing across compliance periods, the agency requests comm ent on the potential inclusion of allowance borrowing in the p roposed massbased trading federal plans, including from how far into the future to allow allowances to be borrowed, how incl usion of borrowing would affect opportunities for states to take over implementation of the EGs (or implementation of the allowancedistribution provisions in the mass-based trading f ederal plan), how to address removing the extra allowances from c irculation that would result if borrowed allowances originate in a state that subsequently withdraws from the mass-based tra ding program, and on other complexities that borrowing across com pliance periods would introduce. The agency proposes to require sources to demonstra te compliance, i.e., allowance true-up, on May 1 of the year after the last year in the compliance period. For example , if the first compliance period comprises the three years 2 022, 2023, and 2024, then the allowance transfer deadline 87 for that first compliance period (after which point the EPA would evaluate

87 The “allowance transfer deadline” is the deadline for transferring allowances that can be used for compli ance in the previous compliance period to a source’s compliance account. For further information see section V.G of this preamble.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 257 of 478

compliance) would be on May 1, 2025. The agency als o requests

comment on an earlier or later allowance transfer d eadline. The EPA proposes to evaluate compliance ( i.e., allowance true-up) at the facility level, not at the individu al affectedEGU level, in the mass-based trading program. Facil ity-level compliance may ease implementation compared to unit -level compliance; each facility has a single compliance a ccount in

which to hold allowances to cover emissions from al l its affected EGUs rather than having individual unit-le vel compliance accounts. Fewer accounts may make it eas ier for the designated representatives to manage their allowanc es. The EPA has adopted facility-level compliance in previous e missions budget-trading programs including the Acid Rain Pro gram (70 FR 25162), the CAIR (70 FR 25162), and the CSAPR (76 F R 48208). The

EPA would continue to track unit-level emissions – while evaluating compliance at the facility level – allow ing us to track increases and decreases of pollutants at indi vidual EGUs.

D. Initial Distribution of Allowances Establishing a mass-based trading program requires that policymakers establish an approach for the initial distribution of allowances, historically referred to as “allowan ce allocation.” The EPA believes that states may be we ll positioned to design their own allowance distribution approach because they***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 258 of 478

can take into account a wide range of consideration s and tailor decisions to the particular characteristics and pre ferences of their state. We are proposing that states have the flexibility to determine their own approach for distributing al lowances in the federal plan, through a process that is detaile d in section V.E of this preamble. The EPA believes that states should have the opportunity to make decisions about allowance d istribution and that they may have additional flexibility on ap proaches, including allowance auctions. The EPA is also propo sing an allocation approach that we intend to use in the ev ent we implement the federal plan in a state that does not choose to determine its own allowance-distribution approach. The EPA is requesting comment on all of these, and any other, approaches to

distribute allowances. The initial allowance allocation approach that is b ased on

historical data does not affect the environmental r esults of the program or generation patterns; regardless of the m anner in which allowances are initially distributed, the fin ite total

number of allowances limits allowable emissions acr oss all

affected EGUs. Allowance allocations also are not i ntended to prescribe or suggest any unit-level compliance requ irements nor do they limit unit-level operational flexibility, b ecause a mass-based trading program provides operators of af fected EGUs***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 259 of 478

with the flexibility to buy, sell, or bank allowanc es. Allowance allocation is simply a procedure by which allowance s are distributed into the marketplace so that they may b e available for affected EGUs to acquire as desired to authoriz e emissions under the program. However, because these allowance s are finite in number and thus a limited resource, they have va lue, and as a result, initial allowance allocations may raise iss ues of equity among recipients. Thus the agency recognizes that its choice of alloc ation methodology is important from the perspective of di stributional effects, and the importance of selecting an approac h that is fair and reasonable in light of this consideration and the overall purpose of CAA section 111 informs the agen cy’s thinking in this proposal. We also invite comment on these considerations, and on any other factors or conside rations which

commenters believe should inform the allocation met hod.

The EPA believes that the most reasonable basis for an initial allowance allocation procedure is an approa ch that uses historical data reported by the affected EGUs subje ct to the requirement to hold allowances under this program. This approach relies on known data rather than future projections . The EPA believes this approach is preferable because any ap proach tied to future indicators ( e.g., the expected future EGU-level***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 260 of 478

pattern of emissions or the ultimate use of allowan ces) would depend on future outcomes that the EPA cannot proje ct with perfect certainty in advance. Basing allocation on historical data is also consistent with the EPA’s approach to initial allowance allocation under previously established m ass-based trading programs. The EPA proposes to allocate most CO 2 emission allowances to existing affected EGUs in each state covered by a f inal massbased trading federal plan, with set-asides for a p ortion of allowances (discussed in more detail below). For ea ch compliance period, the agency would distribute CO 2 allowances in each

covered state in the amount of the state’s CO 2 “mass goal” ( i.e.,

the state’s CO 2 statewide mass-based emission goal as promulgated in the Clean Power Plan EGs) for that compliance pe riod. For example, if a compliance period is 3 years long, th e EPA would aggregate and distribute allowances for all 3 years at the same time. The agency is not proposing to allocate allow ances to new EGUs, which do not have a compliance obligation und er this proposed federal plan. For each year of the program , the agency proposes to allocate most of the allowances directl y to affected EGUs using a historic-generation based approach. Th e EPA is also proposing three set-asides of allowances, which are detailed

below.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 261 of 478

Although the EPA cannot anticipate the future EGU-l evel pattern of emissions, it is possible to consider po tential future emission patterns at the source subcategory level. In developing the Clean Power Plan EGs, the agency con ducted analysis of emission reduction potential in the two affected EGU source subcategories, i.e., electric utility steam generating units (steam generating units) and NGCC units. With that analysis as a basis, the EPA is requesting comment on an alternative allocation approach that would first di vide the total number of allowances from each state’s mass g oal into source subcategories based on analysis done in deve loping the source category-specific CO 2 emissions performance rates promulgated in the EGs and then allocate to affecte d EGUs within each category based on shares of historic generatio n. This

alternative is described later in this section. The EPA recognizes that states may prefer different approaches to distribute CO 2 allowances from the EPA’s approach and that there may be advantages in having states t ailor and apply their own allocation approach. Therefore, the agency is proposing that a state may choose to replace the fe deral-plan allowance-distribution provisions with its own allo wancedistribution provisions, using any approach to dist ribute allowances that the state chooses, including method s that the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 262 of 478

EPA is not proposing here, provided that the state’ s approach addresses emissions leakage through an allowance allocation strategy, such as the one detailed in section V.E of this preamble 88 , and includes a Clean Energy Incentive Program as detailed later in this section. It is the agency’s intention that states electing to submit a state allowance-di stribution methodology under the federal plan will have the fl exibility to

determine whether to include a set-aside and how su ch a setaside will be distributed if they choose to submit a state allowance-distribution methodology. The EPA propose s that a state could choose its own method for distributing allowances for any compliance period including the first perio d that would commence in 2022. The proposed process for a state to replace federal-plan allowance-distribution provisions with its own allowance-distribution provisions is detailed in se ction V.E of this preamble. The following sections discuss and request comment on the

88 The state can adopt an allowance allocation strate gy to address leakage, or they may alternatively make the justification that leakage is already addressed by existing jurisdiction policy, by uniqu e characteristics of the jurisdiction or by some other aspect of their state plan. This justification must be supported by credible analysis. See section V.D.3 below for more information on the requirement to address leakage. Further information is also available in the final EGs sections VII.D. and VIII.J.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 263 of 478

EPA’s proposed approach to allocate CO 2 allowances to affected EGUs based on shares of historic generation, the pr oposed timing of allowance recordation, three proposed allowance set-asides, allocations to units that change status, and the pr oposed approach for states to replace federal-plan allocat ion provisions with their own allowance-distribution ap proaches. In addition, we request comment on alternative allowan ce distribution approaches – such as auctioning or all ocations to load-serving entities – that the EPA or states migh t adopt. The EPA requests comment on all of these aspects of all owance distribution.

1. Proposed Allocation Approach and Alternatives The EPA proposes to allocate most of the CO 2 allowances in the mass-based trading program to affected EGUs bas ed on historic generation (output) data. The EPA also pro poses three allowance set-asides. The first would set aside a p ortion of allowances in each state from the first compliance period only; this set-aside is for a proposed Clean Energy Incen tive Program that is detailed in section V.D.4 of this preamble. The second would set aside a portion of allowances in each com pliance period except for the first period; theEPA proposes to

distribute allowances from this set-aside to affect ed EGUs via an updating output-based approach as detailed in se ction V.D.3***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 264 of 478

of this preamble). The third would set aside five p ercent of allowances in each state, in all compliance periods , to be distributed to renewable energy projects as detaile d in section V.D.3 of this preamble. In summary, the proposed se t-asides

include: (1) Clean Energy Incentive Program. This set-aside would be of first compliance period allowances only. (2) Output-based allocation set-aside. This set-asi de would start in the second compliance period and continue for each compliance period. (3) Renewable energy set-aside. This set-aside woul d be implemented in all compliance periods.

This section describes the proposed historic-genera tionbased approach that the agency would use to allocat e all allowances except for the set-aside allowances. The EPA is proposing affected-EGU-level allocations (based on available data) in every state. Further detail on this propos ed allocation approach is provided in the Allowance Allocation Pr oposed Rule

TSD in the docket. The affected-EGU-level allocatio ns resulting from this proposed historic-generation-based approa ch are***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 265 of 478

provided in the docket in an appendix to the TSD. T he agency requests comment on the proposed historic-generatio n based allocation approach and on other allocation approac hes. The EPA proposes to allocate the historic-generatio n-based portion of the allowances ( i.e., the mass goal minus the setasides 89 ) to individual affected EGUs based on each affecte d EGU’s share of the state’s historic generation, usi ng 2010 through 2012 data. The calculation steps for this p roposed historic-generation–based allocation approach are a s follows:

1. For each unit in the list of likely affected EGUs i n each state, identify annual net generation values for th e historic period of 2010 through 2012 (reflecting af fectedEGU-specific generation assumptions incorporated in the data adjustments, e.g., assumed capacity factor for “under construction” units). For a year for which an affec ted EGU has no generation data ( e.g., a year before the year when a unit started operating), assign the affected EGU a value of

89 In the first compliance period this would be the m ass goal minus the Clean Energy Incentive Program set-aside and th e RE set-aside. In all other compliance periods this would be the m ass goal minus the output-based allocation set-aside and the RE se t-aside.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 266 of 478

zero. 90 (See step 2, below, for how zero values would be treated in the calculations.)

The EPA proposes to use a 3-year historic period ( i.e., 2010 through 2012) to reflect unit-level operations over time. In the Clean Power Plan EGs, the EPA identifi ed a reasonable basis for using aggregate data at the re gional level largely based on the most recent data year (i n that case, 2012) to inform the establishment of category -wide EGs (as opposed to individual, unit-specific parame ters). As a distinct matter, in this context the EPA is considering data at the unit level to inform unit-s pecific initial allowance allocations; notwithstanding that these allowance allocations do not impose any unit-level compliance requirements in and of themselves, the E PA finds it reasonable to consider a multi-year data period to

90 The EPA proposes that for affected EGUs that were under construction and began operation during 2012 or aft er 2012 (and thus don’t have a full year of generation data from the 2010 through 2012 period), the allocation calculations b e based on the same 2012 generation estimate as the agency used in the Clean Power Plan EGs for the goal-setting calculations. That is , the EPA proposes to estimate 2012 generation for such units based on a unit’s net summer capacity and assuming a 55 percen t capacity factor for gas units and a 60 percent capacity fact or for steam units.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 267 of 478

inform unit-level initial allocations in order to c onsider a broader range of unit-specific operations over ti me.

2. Determine each affected EGU’s average generation va lue by averaging all (non-zero) 2010 through 2012 annual generation values for the unit. The proposed approa ch would use only non-zero values in calculating a unit’s av erage generation. For example, if generation data for a u nit were available for only 2011 and 2012 then the EPA would only

use the 2011 and 2012 values to determine the unit’ s unadjusted average generation value. The EPA includ ed generation from all units in the historic data set in the proposed allowance calculations and calculated allo wances for all such units; the agency requests comment on the treatment of generation from and allocations to uni ts that operated in the historic data set but retire before the start of the program.

3. In each state, sum the average generation values fr om all affected EGUs to obtain that state’s “total average historic generation.”

4. Divide each affected EGU’s average generation value by the state’s total average historic generation to determ ine that***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 268 of 478

affected EGU’s share of the state’s total average h istoric generation.

5. Multiply each affected EGU’s share of the state’s t otal average historic generation by the historic-generat ionallocation portion of the state’s mass goal ( i.e., the state’s mass goal minus the set-asides) to determin e that

affected EGU’s allocation.

The agency believes that this proposed historic-gen erationbased allocation approach is a reasonable approach for several

reasons:

• The agency believes that the proposed historicgeneration-based approach maximizes transparency an d clarity of allowance allocations. The EPA has place d in the docket the historic generation data and the calculations used to determine the proposed affecte d-EGUlevel allocations. The agency also placed the propo sed affected-EGU-level allocations, resulting from thes e calculations, into the docket. These calculations c an be relatively easily replicated.

• To calculate allocations, the EPA proposes to use***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 269 of 478

historic affected-EGU-level net generation data com piled using a methodology similar to the Emissions & Gene ration Resource Integrated Database (eGRID) methodology. T he proposed calculation approach is described further below and in the Allowance Allocation Proposed Rule TSD i n the docket. The historic-data methodology is described in the

CO 2 Emission Performance Rate and Goal Computation TSD for CPP Final Rule. The majority of the generation- unitlevel data in this approach are from reports that emissions sources submit to the EPA under 40 CFR pa rt 75

and to the EIA on forms EIA-860 and EIA-923. The EP A

believes these are the best data available to the a gency at the time of this proposed rule for calculating

affected-EGU-level allocations.

• Allocating based on historic data (as opposed to da ta not yet reported) allows for the distribution of allowa nces prior to the start of the program, which can facili tate compliance planning.

The proposed approach is transparent, based on reli able data, and, like the approaches used in the NO X SIP Call, the Acid Rain Program, and the CSAPR, based on historic data . For all these reasons, the agency believes that it is appro priate to use***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 270 of 478

a historic-generation-based allocation methodology in this proposed rule. The EPA also requests comment on a h istoric-data approach based on historic emissions. The proposed historic-data-based allocations approa ch would not generally affect the ultimate pattern of genera tion across individual power plants, as compared to other metho ds of allocation. The combination of plants, and their co ntributing generation, that will be used to meet a particular demand for electric power will be based on the relative effici ency (cost of production) of available plants. The relevant measu re of this efficiency is the marginal cost of generation, whic h for a particular power plant would be the sum of the cost of additional fuel to generate an additional MWh, addi tional maintenance costs to increase output by an addition al MWh, and

costs associated with the additional emissions that result from generating an additional MWh. In a mass-based tradi ng program, additional emissions must be covered by additional allowances, so the cost of emitting is the price of the allowan ces that must

be consumed to authorize those emissions. These emi ssionsrelated costs of electricity production are the sam e regardless

of whether the allowances used to cover those emiss ions were initially allocated to the user or whether they wer e acquired subsequently in the marketplace.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 271 of 478

The same concept applies to any other cost of elect ricity production. For example, a coal-fired EGUs operator would account for the cost of consuming coal to produce g eneration whether or not the coal was discovered already on-s ite, given to the unit at “no charge”, or purchased from the mark etplace; in all cases, the combustion of that coal consumes its value ( i.e., it can no longer be sold). Similarly, the approach taken to

distribute allowances does not affect the cost acco unting for emissions at units because the use of any tradable allowance has an opportunity cost – a firm loses the opportunity of selling an

unneeded allowance when it emits an additional ton. Because a firm loses the opportunity of selling an unneeded a llowance when it emits an additional ton, even the emission of a ton covered by a “free” allowance causes the generator to incur the cost of emissions based on the market price of allowances t he owner must forgo by emitting that ton and using that allowance

. The proposed historic-data based allocation approac h would not be expected to have any effect on freely compet itive electricity markets, because the marginal cost of e mitting under the mass-based trading program is determined by the level of the overarching mass goals and is not affected by the d istribution of the underlying allowances. This marginal cost of emitting is what will inform prices, outputs, and competition a mong power***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 272 of 478

plants. While cost-of-service markets are structure d differently from competitive markets, the regulated utility sti ll makes the dispatch decision on the basis of marginal costs am ong the units in its fleet, which is not affected by the amount o f allowances that any particular unit in that fleet was initiall y allocated (assuming a competitive allowance market). The EPA recognizes that some stakeholders are conce rned about the potential future distribution of emission s at the facility level, and possible effects on communities . However, for the reasons discussed in the above paragraphs, allowance allocations that do not change based on future acti vity (such as allocations under the proposed historic-generation based approach) do not affect the distribution of emissio ns under the program. This proposed rule is expected to achieve significant emission reductions across the electric power secto r; see section IX of this preamble for discussion of antic ipated broad

benefits to communities. In addition to the proposed historic-data-based all ocations approach, the EPA also requests comment on other al location approaches. One alternative approach on which the a gency requests comment is similar to the proposed approac h in that it allocates allowances based on historic generation. However, this alternative approach would divide the total number of allowances***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 273 of 478

from a state’s mass goal (minus the set-asides) int o affected EGU source categories – based on analysis done in d eveloping the source category-specific CO 2 emissions performance rates promulgated in the Clean Power Plan EGs – before de termining unit-level allocations. The EPA requests comment on this alternative approach because dividing the allowance s in a state by source category in this manner may result in an initial

distribution of allowances that would be closer at the sourcecategory level to the future category-level pattern of emissions, and thus to allowances ultimately used, than the proposed approach. To the extent that this category -level division of allowances is a reasonable proxy for th e future category-level emissions pattern under the program, this approach may reduce wealth transfer between parties that occurs as a consequence of a less-anticipatory initial all ocation procedure. The EPA cannot observe in advance the fu ture affected-EGU-level pattern of emissions. In this alternative approach, for each state the EP A would multiply historic steam-generating-unit generation by the steamgenerating-unit source category-specific CO 2 emissions performance rate, and multiply historic NGCC-unit g eneration by the NGCC-unit source category-specific CO 2 emissions performance

rate. The EPA would do these calculations for each of the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 274 of 478

compliance periods in the Interim Period using the glide path interim performance rates, and for the Final Period using the final performance rates. These performance rates ar e shown in Table 8 in section IV.B of this preamble, above. Th e EPA established the source category-specific emissions performance rates in the Clean Power Plan EGs (see section VI o f the final EGs); these rates are not within the scope of this proposed federal plan rulemaking. Next, for each compliance period the EPA would split the total number of allowances from the state’s mass goal (minus the set-asides) into affected-EGU source categories in proportion to the values resulting fr om the above

calculation. The EPA would then allocate the steam– generatingunit portion of the allowances to individual steam generating units using the same historic-generation based appr oach described above, and would also allocate the NGCC-u nit portion of the allowances to individual NGCC units using th e historicgeneration based approach. The EPA notes that there are multiple approaches th at policymakers may use to distribute allowances, beyo nd the proposed or alternative allocation approaches we in cluded in this proposed rule. Examples of other allocation ap proaches include allocating based on historic heat input (fu el) or historic emissions data, rather than historic gener ation data.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 275 of 478

The choice to use historic data for allocation ( e.g., generation, heat input, or emissions) means that th e distribution of allowance value will be based on pa st behavior. For example, allocations based on historic emission s would benefit those that have historically been the large st emitters, whereas allocations based on historic heat input or generation (output) would benefit those that have historically used the most fuel or generated the most electricity. 91 Alternatively, allocations could be distributed based on projected or observed future activity ( e.g., generation, heat input, or emissions). The proposed and alternative allocation approaches would

determine most of the allocations before the start of the program. Other potential allocation approaches woul d change allocations for future compliance periods based on future activity – referred to as “updating” allocations. T his proposed rule includes an updating-allocation component, as we are proposing to set aside a portion of the allowances in each state for distribution using an updating output-based app roach as detailed in section V.D.3 of this preamble. The EPA requests comment on the use of other updating allocation app roaches. Another allowance allocation approach that could mi nimize

91 Tools of the Trade, A Guide to Designing and Opera ting a Cap and Trade Program for Pollution Control, EPA, 2003.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 276 of 478

the difference between the initial allowance alloca tion and the ultimate distributional pattern of allowance use fo r compliance is to conduct an auction, a process whose express i ntent is to align the allocation of a scarce good (in this case , the limited

authorization to emit CO 2 ) with the parties most willing to pay for its use. Many ascribe benefits, in terms of eco nomic efficiency, to the use of auctioning as a means of allocating allowances. The EPA notes that some states ( e.g., RGGI participating states) have used auctions to distrib ute

allowances and have used auction revenues for a var iety of purposes, including the implementation of demand-si de EE measures intended to help reduce electricity rate i mpacts and overall program costs, as well as targeted investme nts in lowincome communities. The EPA believes that if it con ducted allowance auctions, any revenue from such auctions received by the agency must be deposited in the U.S. Treasury u nder federal

law. 92 As a result, the EPA notes that states implementin g state plans may have greater flexibility than the federal government would to direct auction funds for particular activi ties. The

92 The EPA believes authority to conduct auctions is located in CAA section 111 alone, as well as by its reference to C AA section 110(c) FIPs. The statutory definition of a FIP auth orizes “techniques (including economic incentives, such as marketable permits or auctions of emissions allowances).” 42 U .S.C. 7602(y).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 277 of 478

agency requests comment on the idea of auctioning a ll, or a portion of, each state’s allowances in the proposed federal plan, on how much of each state’s allowances to auc tion if not the entire amount, on the frequency ( e.g., yearly or every few years), design of auctions ( e.g., spot or advance; first, second-price or other) and who may participate in t he auction. The EPA requests comment on an alternative approach , which is allocating a portion of the allowances to load-s erving entities (LSEs) rather than to affected EGUs. LSEs are the entities responsible for delivering power to retail consumers. Allocation to LSEs can help mitigate bill impacts o n electricity consumers when applied in concert with certain additional design features. In particular, if LSEs commit and/or are required to pass through to ratepayers the valu e from their selling of the allocated allowances, this approach can mitigate the impact of electricity bill increases on consume rs that might otherwise result from application of the federal pl an. As described in the Allowance Allocation TSD, this typ e of approach can also help to avoid or mitigate the potential fo r windfall profits for affected EGUs. The EPA could apply this approach by conditioning the receipt of allowances by LSEs on t he pass through to consumers of any allowance value if nece ssary. The EPA requests comment on the design and utility of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 278 of 478

allocating allowances to LSEs to help mitigate elec tricity price impacts. In particular, the EPA requests comment on options to establish conditions requiring pass through of allo wance value and verification of such pass-through, whether it w ould be appropriate to identify any conditions related to e quitable distribution of allowance value among ratepayer cat egories, as well as the EPA’s legal authority to apply any such conditions. The EPA requests comment on the additional design a spects of any potential allocation to LSEs, including but not limited to the following questions: In particular, what met ric should provide the basis for LSE allocation, e.g ., electricity demand served by the LSE, population served by the LSE, em issions associated with generation serving the LSE, or some other

metric. If emissions are used as the basis for such allocation, what approach should be taken: on a historic basis or a continually updated basis, on the basis of estimate d emissions for the relevant region or some other basis, and us ing what data to calculate such emissions. Also, the EPA requests comment on the form by which LSEs may distribute the allowance value to rate-payers, e.g . as a fixed amount, through reduced rates, etc. Finally, the EPA requests comment on what share of the total

number of allowances should be distributed to LSEs and what monitoring and reporting requirements may be necess ary to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 279 of 478

support an effective program.The EPA requests comment on the proposed historicgeneration based allocation approach, the alternati ve approach that divides total allowances from a mass goal into source subcategories before allocating to individual affec ted EGUs within each source category based on historic gener ation, and on the other alternative approaches described in this section. The agency also requests comment on the proposed allowa nce setasides, which are detailed below. The agency reques ts comment on allocation approaches that may minimize the impact of this proposed rule on small entities. The EPA also reque sts comment on any other approaches to distribute allowances. F inally, the agency notes that we propose to provide that any st ate may choose to replace the federal-plan allocation provi sions with an allocation approach of its choosing as discussed be low.

2. Timing of Allowance Recordation The proposed historic-data-based allocation approac h – which the EPA proposes to use to allocate all of th e allowances in each state except for the set-aside allowances – is a onetime determination that is not updated. The allocat ions resulting from this approach would be determined pr ior to the start of the program. The EPA proposes to record th e historicdata based allowances for each compliance period in source***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 280 of 478

accounts prior to the start of each compliance peri od, and to record allowances for one compliance period at a ti me. Recording allowances prior to the start of a compliance perio d provides certainty to affected EGUs of their allocations in advance of when the allowances are needed for compliance and c an facilitate long-term planning. Recording allowances for one co mpliance period at a time provides flexibility for a state t o replace the federal plan with its own plan in a timely way. As discussed in section V.F of this preamble, the EPA proposes to a llow a state to replace the federal plan with its own approved s tate plan, for a compliance period for which allowances have n ot yet been recorded (the proposed schedule for allowance recor dation is detailed below). The EPA also proposes that a state could choose to replace the federal-plan allocations to its affe cted EGUs (and other entities) with its own allocations appro ach, for a compliance period for which allowances have not yet been recorded as detailed in section V.E of this preambl e. The agency proposes to record allowances for the ma ss-based trading program in accounts of affected EGUs seven months prior to the start of each compliance period. For example , if compliance periods are 3 years long and the first c ompliance period comprises the years 2022, 2023, and 2024, th e EPA would record allowances for 2022, 2023, and 2024 by June 1, 2021. The***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 281 of 478

EPA requests comment on the proposed approach of re cording allowances 7 months prior to the start of each comp liance period, and on an alternative of recording allowanc es 13 months prior to the start of each compliance period. See s ection V.D.3 of this preamble for timing of recordation of allow ances from the proposed set-asides.

3. Allowance Set-asides to Address Leakage to New Sour ces In addition to the general allocation method propos ed above, the EPA is proposing two additional componen ts of allowance allocation under a mass-based federal pla n. These two set-asides are being proposed to satisfy the requir ement in the final guidelines that mass-based plans demonstrate that they have addressed the risk of leakage to new unaffecte d units, as specified below. 93

The final EGs specify the concern of leakage, which is defined in section VII.D of the final EGs preamble as the potential of an alternative form of implementation ( e.g ., the rate-based and mass-based state goals) to create a larger incentive for new fossil fuel-fired sources to gene rate compared

93 The EPA is also proposing a third set-aside, for a Clean Energy Incentive Program, which is detailed in section V.D .4 of this preamble, below.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 282 of 478

to implementation in the form of subcategory-specif ic emission performance rates.. The final EGs specified that ma ss-based plan approaches must address leakage, because the nature of the mass goals would create differing incentives to run affe cted existing EGUs and for new sources, which could result in new sources running more and producing more emissions. These ci rcumstances are much less likely to be present under a rate-bas ed plan approach, where both affected EGUs and new sources face similar incentives to run. By requiring plan components tha t address leakage, the final EGs ensure that mass goals are a n equivalent alternative to the subcategory CO 2 performance rates and the rate-based state goals. Section VII.D of the final EGs details the requirement for addressing leakage and why it i s needed, and section VIII.J of the final EGs specifies options f or plan components that address leakage. We are proposing, as part of the mass-based approach under the federal plan and model rule, to implement allowance allocation approaches to add ress leakage, specifically through establishing an output-based a llocation set-aside and a set-aside that encourages the insta llation of

RE. As noted in the EG, if a state were to adopt allow ance set-aside provisions exactly as they are outlined i n this model rule once it is finalized, the requirement for that state plan***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 283 of 478

to address leakage would be considered presumptivel y approvable. Section VIII.J of the final EGs provides a discussi on of how set-asides can effectively address leakage in a mass-based plan approach. That section of the final EGs also d escribes why the allowance allocation alternative for addressing leakage must be chosen for the federal plan and model rule propo sal instead of the option to regulate new non-affected fossil f uel-fired

EGUs. This is because the EPA does not have authori ty to extend regulation of and federal enforceability to new fos sil fuelfired sources under CAA section 111(d), and therefo re we cannot include new sources under a federal mass-based plan approach. The set-asides we are proposing – described in deta il below - would establish a pool of allowances that would b e allocated to affected EGUS or other entities based upon crite ria designed to address leakage.

These set-asides are essentially a type of “economi c incentive” authorized by the CAA as a means of poll ution prevention and control, and the expected benefits o f this particular type of economic incentive to address le akage make it appropriate here. 94 The EPA believes these set-aside programs are

94 In designing a federal plan under CAA section 111( d), the EPA recognizes its authority as being, in some sense, t he same as that***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 284 of 478

both authorized and consistent with the purpose of the Clean Power Plan under CAA section 111(d) and the specifi c requirements specified in the final guidelines. The y do not have the effect of increasing the stringency of the fede ral plan because the overall budget of allowances (represent ing allowable emissions) remains the same.

The EPA is aware of the successful use of set-aside s and similar programs in other emissions trading program s. The following are examples of set-asides and similar pr ograms used in other federal air quality rules, and in state-ba sed GHG regulatory programs. The EPA has previously established set-asides of em issions allowances in FIPs under CAA section 110. For examp le, in the Cross State Air Pollution Rule (CSAPR), the EPA use d a 5 percent set-aside for new units, because we believed it was “important

to have a small new unit set-aside in each state to cover new units within the budget that was set aside in order to address the state’s significant contribution and interferen ce with maintenance.” (75 FR 45310; Aug. 2, 2010). This was important, in the EPA’s view, because it allowed for growth in the electric

available under CAA section 110(c), where the use o f economic incentives is authorized. See 42 USC 7602(y) (authorizing use of “economic incentives” in FIPs).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 285 of 478

utility sector consistent with the EPA’s modeling, where new units showed up in the modeling output as surrogate facilities representing potential new EGUs that come online in future years in response to demand increases or other market dri vers. 95 As between a choice of requiring these new units to pu rchase their allowance on the open market, versus being treated in the same manner as existing – and generally understood to be less efficient and more polluting – units, i.e., by being eligible to

receive an initial allowance allocation out of the new unit setaside, the EPA chose the latter. As part of the Acid Rain Program under Title IV of the 1990 CAA Amendments, Congress established a “conservatio n and renewable energy reserve” account. CAA section 404( f), 42 U.S.C.

7651 c (f). This is in essence a set-aside account of SO 2 allowances which the regulated utilities could earn by undertaking “qualified energy conservation measures ” and “qualified renewable energy” projects. The size of the reserve was set at 300,000 allowances, and utilities could earn one SO 2 allowance for every 500 MWh of energy saved through DS-EE savings or RE generation. In the first years of the program, utilities received bonus allowances equivalent to c lose to 3,000

95 See also EPA, Allowance Allocation Final Rule TSD, EPA-HQ-OA R2009-0491, at 3-4 (June 2011).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 286 of 478

tons of avoided SO 2 emissions, while achieving co-benefits from reductions in other pollutants, and, in the words o f one industry representative, “creating a culture change where utilities are looking for opportunities everywhere. ” 96 The reserve program was nonetheless undersubscribed, an d the EPA and other parties have learned from this case and made adjustments to similar programs to promote participation. This proposal

seeks to minimize the administrative burden associa ted with participation in this rule’s proposed set-asides.

In the NO X SIP Call, the EPA encouraged states to “consider including EE and renewables as a strategy in meetin g their [emission] budgets. One way to achieve this goal is including a provision with a state’s NO x Budget Trading Rule that allocates a portion of a state’s trading program budget to impl ementers of EE and renewable energy projects that reduce energy -related NO x emissions during the ozone season.” See 63 FR 57356, 57438 (Oct. 27, 1998). A number of states created RE and demand -side EE setasides in their SIPs in response, and later, for th e implementation of CAIR. A “roundtable” meeting with 25 states in

2006 indicated that states that had established the se programs were generally having success with them, and provid ed a forum

96 U.S. EPA, Acid Rain Program, Conservation and Rene wable Energy Reserve, EPA 430-R-94-010 (Nov. 1994).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 287 of 478

for exchanges of ideas on how to handle a variety o f implementation issues, such as over- and under-subs cription, application issues, compliance and verification, th e appropriate size of a set-aside account, how to garner public i nput on which projects are selected, and other issues. 97 In general, the EPA believes its experience and those of the states wit h these setaside programs support the view that they are an ef fective means to spur clean energy projects, which in turn we bel ieve can help to reduce the risk of leakage in this instance. 98

97 U.S. EPA, State Clean Energy-Environment Technical Forum Roundtable on State NOx Allowance EE/RE Set Aside P rograms, Call Summary (June 6, 2006), available at http:// www.epa.gov/statelocalclimate/documents/pdf/summary _paper_nox_allowan ce_6-6-2006.pdf . 98 The agency has extensive experience in the design and establishment of set-aside programs. See, e.g., Guidance on Establishing an Energy Efficiency and Renewable Ene rgy (EE/RE) Set-Aside in the NOx Budget Trading Program (March 1999), available at http:// www.epa.gov/statelocalclimate/documents/pdf/ee-re_s etasides_vol1.pdf ; Creating an EE and RE Set-aside in the NOx Budget Trading Program: Designing the Administrative and Q uantitative Elements (April 2000), available at http:// www.epa.gov/statelocalclimate/documents/pdf/ee-re_s etasides_vol2.pdf ; Creating an EE and RE Set-aside in the NOx Budget Trading Program: Evaluation, Measurement, and Veri fication of Electricity Savings for Determining Emission Reduct ions from Energy Efficiency and Renewable Energy Actions (Jul y 2007), available at http:// www.epa.gov/statelocalclimate/documents/pdf/ee-re_s etasides_vol3.pdf .***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 288 of 478

Below, the EPA describes two potential allowance se tasides. First, the EPA proposes a set-aside for all owances distributed to existing NGCC units based on output ( i.e., output-based allocation) to mitigate emission leaka ge to new sources. Second, the EPA proposes a set-aside for e lectricity generation from qualifying renewables. This set-asi de also addresses the potential for leakage to new sources, as increased RE capacity can serve electricity demand in place o f new

sources. The EPA also solicits comment on other set -aside options that could address leakage, including a set -aside that provides an incentive for demand-side EE. The EPA s eeks comment on all aspects of the set-aside options specified i n this

section. This includes the inclusion of a set-aside , the method for allocation of allowances to set-asides, the siz e of the setasides, the requirements for the process of distrib ution, eligibility requirements for receiving set-aside al lowances, the proposed process for redistribution of undistribute d allowances from each set-aside, and any other appropriate set- asides.

a. Set-asides for Output-based Allocation The EPA is proposing a set-aside approach referred to as output-based allocation, which provides targeted al locations of a limited portion of allowances to existing NGCC un its as a means of mitigating leakage. The EPA believes that this proposed***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 289 of 478

set-aside would reduce incentives for generation to shift away from EGUs covered under mass-based plans to new una ffected EGUs. We seek comment on all aspects of this proposal and its underlying rationale. Under the output-based allocation approach we are proposing, beginning with the second compliance per iod, a portion of the total allowances within each mass-ba sed federal plan state would be allocated to existing NGCC unit s based, in part, on their level of electricity generation in t he previous compliance period. Each eligible EGU would get a la rger allowance allocation from this set-aside if it gene rates more, such that owner/operators of eligible EGUs will hav e an incentive to generate more in order to receive more allowances. Because the total number of allowances is limited, this allocation approach will not exceed the overall emi ssion goal. Instead, it merely modifies the distribution of all owances in a manner designed to align the generation incentives for eligible EGUs in mass-based states with new emitting EGUs th at are not subject to a mass-based limit, mitigating emissions leakage.

The EPA is inviting comment on key parameters for t he appropriate design of the output-based allocation a pproach used for this proposed set-aside. Key parameters to be i dentified***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 290 of 478

under the output-based allocation approach include which affected EGUs receive the allocation, the timing of the setaside’s allocation procedure, the allocation rate(s ), and the

size of the set-aside. The EPA also invites comment on what other parameters may be relevant for design of an a ppropriate output-based set-aside.

The EPA first solicits comment on which EGUs should be eligible to receive output-based allocation from th e set-aside. The EPA proposes that only NGCC units subject to th e final emissions guidelines receive output-based allocatio n from the set-aside. The EPA recognizes that performance of o utput-based allocation may be improved by targeting which units receive this additional incentive. In particular, this approach can most effectively address emission leakage if targeted to those affected EGUs subject to a mass goal that face the greatest difference in their incentive to generate relative to otherwise similar EGUs that are not subject to a mass goal. A s noted in the discussion of the allocation rate below, new co mbustion turbines (i.e., NGCC units and simple cycle combust ion turbines) would be expected to generate more absent this set- aside. Therefore, the difference in generation incentives between affected stationary combustion turbines subject to a mass goal and otherwise similar new stationary combustion tur bines that***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 291 of 478

are not subject to a mass goal is likely one of the most salient deviations in production incentives to address. The EPA also requests comment on extending output-b ased allocation from this set aside to affected steam ge nerating units. Output-based allocation for steam generating units may increase generation subject to the mass limit, lead ing to reduced generation and emissions from new emitting sources. However, the EPA does not propose this approach bec ause it is not as effective as output-based allocation to NGCC units. This is because output-based allocation to steam generat ing units would incentivize generation from relatively high-e mitting EGUs, which would likely increase allowance prices as oth er emission reductions are made to respect the overarching mass limit. This approach would thus strongly counteract the intende d effect of lowering the production cost from sources subject t o the proposed mass-based federal plan (compared to emitt ing sources not subject to the plan). The EPA also requests com ment on extending output-based allocation from this set-asi de to zeroemitting generators. The EPA also proposes that this approach be targete d towards marginal generation that may not have other wise occurred absent this set-aside, by providing allocations und er this setaside only to eligible EGUs that exceed a 50 percen t capacity***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 292 of 478

factor on a net basis over the compliance period, a nd only for the portion of their generation that exceeds that c apacity

factor. 99 The EPA also solicits comment on the timing of the OBA setaside’s allocation procedure, which involves the re lationship between the time at which eligible generation occur s and the vintage year(s) of the allowances allocated from th is set-aside to recognize that generation. The EPA is proposing a lagged accounting procedure for this set-aside, where elig ible generation that occurs during a given compliance pe riod would receive allowances through this set-aside taken fro m vintage years in the subsequent compliance period. In keepi ng with this lagged accounting procedure, the EPA is proposing n ot to reserve any allowances of vintage years during the first co mpliance period (2022-2024) for allocation through this set- aside; eligible generation that occurs during the first co mpliance period would be recognized through this set-aside w ith allowances of vintage years from the second complia nce period (2025-2027). The EPA is proposing this lagged accounting procedu re because the amount and location of eligible generat ion in any

99 Effectively, the allocation rate (defined below) o f output-based allocation is zero up until this average capacity f actor.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 293 of 478

given compliance period remains uncertain until the compliance period has ended and the relevant data has been rep orted and verified. Without this lagged accounting procedure, the EPA

would have to withhold an amount of allowances for this setaside from certain vintage years even as the corres ponding compliance period was already underway. Given the s ize of this proposed OBA set-aside in certain states, the EPA b elieves it would be more advantageous for affected EGUs to kno w in advance how many allowances they will be allocated in a giv en period, inclusive of allowances allocated through this OBA set-aside. 100

The EPA requests comment on options for the allocat ion rate under this approach. The allocation rate is the num ber of allowances, in an amount equal to a specific amount of emissions, that the affected EGU receives per one n et MWh of generation eligible for the set-aside. The EPA prop oses to set the allocation rate equal to the emission rate stan dard (on a net basis) for new NGCC units under 111(b), in orde r to align the generation incentives across EGUs eligible for the set-aside and the type of new emitting source that would gene rate more

100 The EPA recognizes that under this lagged accounti ng procedure, if the federal plan is replaced by a state plan in a futur e compliance period, the incentive to create eligible generation in the last compliance period subject to the federal plan is potentially diminished.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 294 of 478

absent this set-aside. Specifically, an additional MWh of eligible generation would earn the affected EGU all owances equal to the level of emissions permitted per MWh of net generation under the 111(b) new source standard, which is 1,03 0 lb/MWh-net (Carbon Pollution Standards for new, modified, and reconstructed EGUs). The EPA requests comments on other values fo r the allocation rate. For example the allocation rate ma y be the expected net emissions rate of newly constructed NG CC units, the historic average emissions rate from NGCC units, or the NGCC or fossil steam source category-specific emissions per formance rates promulgated in the Clean Power Plan EGs (see section VI of the final EGs).

The EPA proposes to calculate an NGCC unit’s capaci ty factor based on the previous compliance period’s ne t generation and the net summer capacity of the unit. The EPA is proposing to require affected EGUs to report net generation to t he agency. 101 The EPA proposes to use net summer capacity as repo rted to EIA. In the alternative, the EPA proposes to require tha t NGCC units report net summer capacity directly to the EPA by a dding it as

101 See section V.H of this preamble for proposed moni toring and reporting requirements. The EPA proposes to make th e reported generation data available to the public on the agen cy’s Web site.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 295 of 478

a required data field in the certificate of registr ation that a unit’s owner or operator would submit to the agency (see section V.G of this preamble). The EPA notes that the EIA n et summer capacity data is reported at the generator level; i f we add this data point to the certificate of registration it wo uld be reported at the affected-EGU level, which would fac ilitate calculation of capacity factors. The EPA also reque sts comment on whether the “maximum load value,” which is a par ameter that EGUs report to the EPA in their monitoring plans, i s a reasonable proxy for EGU-level net summer capacity for these calculations. The EPA also requests comment on an a lternative approach of basing the capacity-factor calculation on nameplate capacity instead of net summer capacity, or other a pproaches to

the calculation.

The EPA proposes to determine the size of the outpu t-based set-aside once, before the start of the program, an d not to change the size thereafter. The EPA proposes to det ermine the size of the set-aside assuming that it would incent ivize existing NGCC to increase utilization to a 60 perce nt capacity factor. The assumed 60 percent capacity factor offe rs a way to limit the size of this set-aside, which allows the remainder of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 296 of 478

the allowances in a given compliance period to be a llocated through the historic-generation approach (as detail ed above) and the other proposed set-asides (as detailed below). Furthermore, limiting the size of the set-aside avoids the risk of incentivizing too much generation from eligible sou rces, as discussed further in the Allowance Allocation Propo sed Rule TSD. The EPA proposes to determine the size of the outpu t-based set-aside using 2012 baseline data from the Clean P ower Plan

EGs. 102 The EPA would calculate the size of the set-aside as 10 percent of the NGCC capacity in the state 103 multiplied by the hours in a year multiplied by the allocation rate f or the setaside. The EPA takes comment on the proposed capaci ty data used as the basis for determining the size of the output -based setaside, and alternative sources of capacity data tha t may be used for determining its size. The set-asides resulting from this proposed approac h are shown in Table 9 of this preamble. The set-asides i n the table would apply to every compliance period except for t he first compliance period for which there would be no outpu t-based set-

102 CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule.

103 The sum of net summer capacity for affected NGCC u nits in the 2012 baseline for the Clean Power Plan EGs (CO 2 Emission Performance Rate and Goal Computation TSD for the C PP Final Rule).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 297 of 478

aside. Although the size of the set-aside would rem ain the same for each compliance period, as the mass goals decre ase with each step in the Interim Period and to the Final Period, the setasides would constitute an increasing share of a st ate’s mass goal. The Allowance Allocation Proposed Rule TSD fu rther details the proposed approach to determine the size of the set-aside. The EPA requests comment on a potential limit for t he size of the set-aside in a compliance period based on a per centage of the state’s total allowances for the compliance per iod.

Table 9. Proposed Size of Output-Based Set-Aside fo r the Second Compliance Period and Later (Short Tons)

State Allowances in outputbased set-aside Alabama 4,185,496 Arizona 4,197,813 Arkansas 2,102,538 California 8,458,604 Colorado 1,348,187 Connecticut 1,090,811 Delaware 649,190 Florida 12,102,688 Georgia 3,563,104 Idaho 246,638 Illinois 1,598,615 Indiana 1,106,150 Iowa 492,510 Kansas 62,257 Kentucky 288,730 Lands of the Fort Mojave Tribe 248,127***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 298 of 478

Lands of the Navajo Nation 0 Lands of the Uintah and Ouray Reservation 0 Louisiana 2,207,879 Maine 563,925 Maryland 103,762 Massachusetts 2,439,991 Michigan 2,105,786 Minnesota 909,724 Mississippi 3,132,671 Missouri 815,210 Montana 0 Nebraska 144,635 Nevada 2,326,529 New Hampshire 542,721 New Jersey 3,413,100 New Mexico 627,085 New York 3,815,381 North Carolina 2,120,178 North Dakota 0 Ohio 1,757,326 Oklahoma 3,121,167 Oregon 1,291,027 Pennsylvania 4,392,931 Rhode Island 778,307 South Carolina 1,029,366 South Dakota 130,831 Tennessee 632,949 Texas 15,990,657 Utah 825,586 Virginia 3,011,811 Washington 1,383,060 West Virginia 0 Wisconsin 1,181,175 Wyoming 45,114

Given the proposed limit on the total size of the s etaside, and the amount of potential generation eligi ble for the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 299 of 478

set aside, there may be fewer allowances available in the set

aside than can be earned at the allocation rate. Th e EPA proposes that, if the amount of total generation el igible for the set aside multiplied by the allocation rate exc eeds the size of this set-aside, then the allowances in this set- aside would be allocated to eligible generation on a pro-rata b asis. The EPA proposes that if the number of allowances a llocated

from the set aside is less than the size of this se t-aside, then the remaining allowances would be distributed to al l affected EGUs using the historic-generation based-approach d escribed

above. The EPA proposes to provide notice of the capacity and generation data used to calculate allocations from the setaside, and the resulting allocations, by August 1 o f the first year in each compliance period, e.g., by August 1, 2025 for the compliance period that commences in 2025 (and based on the data from the prior compliance period). The agency propo ses to provide 30 days for comment on the data and allocat ions, until August 31, and to provide notice of the final set-a side allocations by November 1 of the same year and reco rd the

allocations in the source accounts at that time. Th e EPA requests comment on other approaches to providing n otice of the

data and allocations.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 300 of 478

The EPA requests comment on all aspects of the prop osed approach to calculate output-based set-aside alloca tions.

Further details are in the Allowance Allocation Pro posed Rule

TSD in the docket.

b. Set-asides for Renewable Energy Projects The EPA proposes to provide a set-aside of allowanc es for distribution to renewable energy (RE) in each state covered by the proposed mass-based federal plan. The agency is also taking

comment on whether distribution should extend to de mand-side energy efficiency (DS-EE) and combined heat and pow er (CHP) projects. Under this program, the EPA would reserve a percentage

of each state’s allowances in a set-aside account f or each state. Developers of RE projects could apply to rec eive setaside allowances based on the projected generation from eligible RE capacity. This set-aside is expected to address concerns rega rding leakage by lowering the marginal cost of production of the incented clean energy technologies within the state . This will make RE more competitive against new sources, reduc ing the potential for leakage to new sources. While the pro posed setasides would provide additional incentive for the c reation of additional RE capacity, it should also be noted tha t the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 301 of 478

proposed mass-based trading program itself would pr ovide incentive for new and existing low and zero-emittin g generation. The EPA is proposing that a unique set-aside would be created for each state covered by a mass-based fede ral plan. The

allowances in each set-aside would be reserved from each vintage of the assigned mass goal to that state prior to al location of allowances to sources. The EPA is proposing that fi ve percent of

allowances will be reserved from the allocation for each state for the purpose of the set-aside. We are also reque sting comment on options for a percentage of allowances to be res erved ranging from 1 to 10 percent of total allowances in each st ate. The proposed percentage has been determined to provide a meaningful

additional incentive for RE activities in each stat e, while assuring that the vast majority of allowances are f reely

allocated to affected EGUs. The EPA made this concl usion based upon determining an appropriate volume of set-aside resources that, at a range of possible allowance prices, are projected to incent the development of additional RE projects. T he analysis is provided in the docket as part of the Allowance Allocation Proposed Rule TSD. We note that, under the proposed framework,

these allowances would be available to affected EGU s either in the marketplace or through subsequent distribution of unclaimed set-aside allowances, and thus the provision of the se set-asides***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 302 of 478

does not affect the overall stringency of the progr am. In section V.D.5 of this preamble, below, the EPA is proposing that the size of the RE set-asides may gr ow over time as certain units shift out of the program. We are proposing that a project is eligible to rece ive setaside allowances if it is renewable energy (RE) tha t meets the eligibility requirements for rate-based ERC issuanc e as specified in section IV.C of this preamble and sect ion VIII.K of the final EGs. This includes, for example, the requ irement that only capacity incremental to 2012 is eligible for t he set-aside. The agency is requesting comment on an additional p otential condition that would limit eligibility to project p roviders that are also the owners or operators of affected EGUs. This approach has precedent in the eligibility requirements for t he Acid Rain Program set-aside, and would limit the entities eli gible to receive set-aside allowances to those that are subj ect to the federal plan. The EPA is proposing that eligible RE capacity must meet the following conditions regarding geographic eligi bility. Eligible RE projects must be located in the mass-ba sed state for which the set-aside has been designated. The agency invites comment on whether capacity outside the state shoul d be recognized, and how that could be implemented. The EPA also***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 303 of 478

proposes that the generation for which an entity re ceives allowances from the set-aside would not be eligible for ERC

issuance in rate-based states. As specified in section IV.C of this preamble, the EPA is proposing that the same RE measures are eligible to receive setaside allowances under a mass-based federal plan as would be eligible for ERC issuance under a rate-based federa l plan. Specifically, the following RE measures are eligibl e: on-shore wind, solar photovoltaics (PV), concentrated solar power, geothermal power, and hydropower. The RE measure mu st also have the capacity to provide data quantified by a revenu e-quality meter, as described in the eligibility requirements for ratebased ERC Issuance in section IV.F.2 of this preamb le, above. New nuclear units and capacity uprates at existing nuclear units are not proposed to be eligible to receive set-asid e allowances,

as we do not think a set-aside used as an incentive for incremental nuclear capacity is a useful way to add ress leakage to new sources during the performance period, due t o unique costs and development timelines for incremental nuc lear power. All other proposed aspects of the eligible measure types described in section IV. C of this preamble and the requests for comment included within that section also apply in the massbased set-aside context. For example, we are reques ting comment***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 304 of 478

on the inclusion of other RE measures, incremental nuclear, demand-side EE measures, CHP and any other technolo gies as eligible measures to receive set-aside allowances. We particularly request comment on how a set-aside to provide an incentive from these particular measures will serve to address leakage to new sources. We also request comment on the implications of the inclusion of such technologies for the streamlined implementation of projection-based EM&V requirements of the set-aside specified below in a federal plan context across the applicable jurisdictions, while still ma intaining necessary rigor. We request comment on the appropri ateness of the biomass eligibility options offered in section IV.F.2 of this preamble in a mass-based set-aside context to address leakage. We also request comment on appropriate pro cesses through which the EPA and/or stakeholders could mak e a demonstration of the appropriateness of new measure types and the EPA could evaluate and approve the demonstratio n so that a new measure type can be considered eligible for the set-aside. To demonstrate that an RE project meets the require ments proposed above, it is proposed that the project pro ponent must provide the following: documentation of the nature of the project and that it meets eligibility requirements,

documentation that it will be located within the st ate in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 305 of 478

question, and a projection of expected annual megaw att-hour generation for an RE project. The EPA must approve the documentation of eligibility and the projection of megawatthours before the project becomes eligible for a dis tribution of the set-aside allowances. In addition, the proponen t must register for a general account in the EPA tracking system where

the allowances would be recorded. See 40 CFR 62.163 20 for the requirements to establish a general account. While the EPA is proposing to allow eligible resources to use a gene ral account to receive any allowances allocated under this sect ion, the EPA requests comment on extending the designated repres entative provisions in 40 CFR 62.16290 to eligible resources instead of the general account provisions. Requiring eligible resources to

submit information similar to that collected in the certificate of representation in 40 CFR 62.16305 and to appoint a designated representative to act on behalf of all owners/opera tors for all projects requesting allowances may improve the EM & V process by making the eligible resources more accountable. The EPA requests comment on what documentation would be required if other measure types were considered eligible to receive set-aside allowances. The EM&V requirements for the mass-based set-aside differ from those for rate-based ERC issuance, particularl y because it is based upon projections provided prior to generat ion rather***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 306 of 478

metered data provided after the generation occurs ( though we are proposing that the projections will be checked agai nst ex-post metered data). The projection method enables the di stribution of set-aside allowances prior to the year during which the generation occurs. The EPA feels this still provide s sufficient rigor because the set-aside does not directly affec t program stringency. The reason that stringency is not affec ted is because of key differences between issuance of cred its and

distribution of set-aside allowances. Under rate-ba sed implementation, each decision to issue an ERC based on a quantification of RE generation affects the ultimat e amount of

allowable CO 2 emissions, because the number of ERCs is determine d by the amount of MWhs approved as eligible for ERC issuance and

the ERC does not exist until the issuance decision is made. Thus

the amount of ERCs that are issued can affect the s tringency of the rule. As a result, the EPA has laid out specifi c requirements (including EM&V procedures) in the fin al CPP, and in this proposed federal plan and model rule, to as sure the environmental reliability of measures qualifying fo r ERC recognition under rate-based implementation. In con trast, any decision to recognize RE with set-aside allowance a llocations under a mass-based approach does not affect the val idity of the

allowance itself and does not affect the CO 2 emissions outcome***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 307 of 478

because the ultimate amount of allowable CO 2 emissions is determined by the total number of allowances initia lly created (regardless of how they are distributed). As a resu lt, while the

EPA believes it is reasonable to consider a minimum set of qualifications for recognizing RE through these all owance setasides to assure that the RE generation that is inc ented is actually produced, the EPA does not believe the ove rall integrity of mass-based implementation is significa ntly affected by the robustness of whatever eligibility requireme nts the EPA ultimately sets for RE recognition through allocati on from these set-asides. This being said, the agency is proposin g to require robust demonstrations of the eligibility and EM&V p rojections for RE generation submitted for the set-aside, demo nstrations that are based in the best practices of existing pr ograms. This is necessary to assure the delivery of RE as a resu lt of the

set-aside. The EPA proposes that the projections of megawatt-h ours provided will be the basis of the distribution of s et-aside allowances. A satisfactory demonstration of the fut ure RE generation from an eligible project must use techni cally sound quantification methods that are reliable, replicabl e, and accompanied by underlying analytical assumptions an d verifiable data sources used to demonstrate future performance . These***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 308 of 478

methods, assumptions and data sources must be speci fied in documentation accompanying the projections. These p rojections and supporting documentation should all be provided in the setaside project application, and that application mus t be approved by a third-party verifier. The EPA invites comment on these proposed requirements for projections. We also take comment on whether set-asides should be distributed proportion al to actual megawatt-hours provided by the installation in a pr ior year or compliance period, or another form of historical ge neration data. This type of allocation method could also be similar to the structure proposed for the OBA set-aside. The EPA is proposing the following process for dist ribution of RE set-aside allowances. Starting prior to the c ompliance period, and going forward through the compliance pe riod, RE providers in each state will have an opportunity to apply to the EPA or a designated agent to be approved as eligibl e to receive set-aside allowances in their state. This applicati on must include all the requirements outlined above, includ ing projections of expected megawatt-hours of generatio n. The EPA is proposing to accept RE set-aside project applicatio ns up to a deadline of June 1 in the year prior to the year du ring which the RE generation occurs (the “generation year”). T he EPA or its agent will review and approve the project as eligib le and it***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 309 of 478

will be entered into the pool of projects that will receive setasides in any compliance period. If approved, the n umber of projected megawatt-hours in each generation year wi ll be the basis of the number of allowances the provider will receive, as an input to the methodology specified below. The pr oviders will have an opportunity to update projections for futur e generation years, these projections must be received by June 1 of the year prior to the generation year in question. On December 1 of the year prior to each year of the compliance period in question, the EPA is proposing to distribute allowances from the set-aside to approve d providers. The agency is proposing to distribute set-aside all owances to approved RE providers pro-rata, with the number of allowances distributed to each provider according to the perce ntage of total approved RE megawatt-hours for that state tha t the approved MWHs from their project represent. This me thod is proposed because it treats all eligible RE projects equally in

the distribution of set-aside allowance. It also in herently provides a more significant incentive in states wit h less eligible RE generation, but will become less signif icant as RE generation increases. We would also like to take co mment on whether to restrict projects to a maximum number of allowances they can receive per megawatt-hour of generation, s uch as 1***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 310 of 478

allowance per megawatt-hour. After each generation year, RE providers receiving allowances will have to provide an M&V report with the megawatthours of RE generation actually produced, to assure that they have met the projected level of generation. These M &V reports need to document that the generation was by an appr oved project, and the report should be approved by a third party verifier. As discussed in the rate-based approach EM&V section a bove, these data should be readily available from existing mete ring. The EPA requests comment on the process for submitting M&V reports with actual generation. If the project or program does not reach the megawa tt-hours projected in a particular generation year, the unfu lfilled megawatt-hours will be subtracted from that RE prov ider’s megawatt-hours eligible for the set-aside in the ne xt generation year, or multiple years if the deficit exceeds the MWhs projected for the upcoming year. If this deficit is greater than 10 percent in a particular year, the provider will need to provide an explanation of the deficit and will be r equired to reevaluate their projections for future years. If s uch deficits continue through all three years of the any perform ance period in which they participate, the provider will be dis qualified from receiving future set-asides for the following compliance***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 311 of 478

period. We also take comment on whether a provider with continuing deficits should also be disqualified fro m receiving ERCs for some or all of the remaining performance p eriods. The agency requests comment on all of the specified asp ects of this distribution process. The EPA is proposing that once allowances have been distributed to all approved providers, any remainin g allowances in the set-aside, such as set-aside allowances desi gnated for projects that no longer exist, will be redistribute d to affected EGUs in the state in a pro rata fashion on the same distribution

basis as their initial allocations were made. It is proposed that this will occur immediately after the distribu tion of setaside allowances to eligible RE providers on Decemb er 1 of the year prior to the generation year in question. The EPA requests comment on this approach. The EPA is also seeking comment on whether a portio n of this set-aside should be targeted to RE projects th at benefit

low-income communities. This benefit could be in th e form of MWh provided to the low-income community, financial pro ceeds from the project primarily benefiting the low-income com munity, or the project lowering utility costs of low-income ra te-payers. The EPA seeks comment on how a low-income community should be defined as eligible under this set-aside. We seek c omment on how***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 312 of 478

much of the set-aside should be designated as targe ted at lowincome communities. We also request comment on whet her the methods of approval and distribution of allowances to projects

that benefit low-income communities should differ f rom the methods that are proposed to apply to other RE proj ects. The EPA seeks comment on all aspects of this propos ed RE allowance set-aside program, including whether it s hould be included as part of a mass-based federal plan, the structure of the set-aside reserve, eligibility requirements for receiving set-aside allowances, demonstration of eligibility, and the process for distribution of allowances.

4. Provisions to Encourage Early Action For purposes of the proposed mass-based federal pla n, the EPA proposes to implement the Clean Energy Incentive Pr ogram (CEIP) by issuing early action allowances for actions that re duce or avoid

CO 2 emissions in 2020 and 2021. These early action all owances would

be drawn from a third set-aside of allowances from the general distribution methodology. The EPA believes it is re asonable to establish the total amount of the early action-set aside in an amount equal to the pool of matching allowances. Th us, the EPA proposes that the total early action set-aside woul d be of an amount equal to the pool of matching allowances: no more than 300

million CO 2 allowances, depending on how many states are subje ct***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 313 of 478

to a federal plan. The EPA proposes to distribute the 300 million earl y action set-aside allowances among the states based upon th e amount of the

reductions from 2012 levels each state must achieve relative to that of the other participating states. The EPA pro poses to calculate these values as each state’s proportional share of the

total difference between the 2012 baseline and the 2030 mass goals. 104 See Table 10 of this preamble for the proposed set -asides for each state under the mass-based federal plan. T he agency proposes to set aside 100 million early action allo wances from each of the three years in the first compliance per iod (2022, 2023, and 2024) for a total of 300 million allowances to be set aside. While the table shows set-asides for every state, t he EPA proposes to implement this set aside, according to the amoun ts listed in Table 10, only for those states for whom the EPA is implementing the mass-based federal plan. The EPA also requests comment on other approaches to determining the size of this set-asid e in the massbased federal plan.

104 The 2012 baseline is from the CO 2 Emission Performance Rate and Goal Computation TSD for the CPP Final Rule. Where a state’s relative share of the reductions from 2012 levels w ould yield a set-aside of less than zero, the EPA proposes to as sign such a state a set-aside equal to one percent of the state ’s 2030 mass goal and adjust the remaining state set-asides acco rdingly.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 314 of 478

In accordance with the final emission guidelines, t he EPA is proposing to award early action allowances to two t ypes of eligible projects located in or benefitting the state for wh ich the EPA is implementing a federal plan:

• RE investments that generate metered MWh from wind or solar resources; and

• Demand-side EE programs and measures that result in quantified and verified avoided generation, and dem onstrate

a direct benefit to low-income communities. The EPA proposes the following framework to implem ent the CEIP in the mass-based federal plan. First, the EPA prop oses to create a set-aside of early action allowances for all fede ral-plan states, as described above. Second, the agency proposes to create an account of matching allowances for each state parti cipating in the CEIP – regardless of whether a state is implementin g a state plan or the agency is implementing a federal plan on its behalf. This distribution would reflect each state’s pro rata sh are of a federal pool of additional allowances, which will be limite d to the equivalent of 300 million short tons of CO 2 emissions. The matching allowances would be distributed to all participatin g states based upon the amount of the reductions from 2012 levels each state must achieve relative to that of the other participating states. Thus, states whose EGUs face greater reduction obligation s would be***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 315 of 478

eligible to secure a larger proportion of the feder al allocation upon demonstration of quantified and verified MWh o f RE generation or demand side-EE savings realized in 2020 and 2021 . The EPA also seeks comment on whether the number of matching all owances available to a state under the federal plan should be limited to a number equal to the number of early action allowa nces included in each federal plan state’s early action allowance set-aside

account. The EPA proposes to execute an initial distribution of matching allowances following receipt of 2016 state submitta ls, and a final distribution following receipt of all complete stat e plans in 2018, by which time the EPA may also have issued federal plans for some

states. Third, for any state subject to a federal plan, the EPA proposes to award early action allowances and matching allow ances to eligible projects as follows, based upon the quanti fied and verified MWh of generation or savings achieved by t he projects in

2020 and 2021:

• For RE projects that generate metered MWh from wind or solar resources: for every two MWh generated, the p roject will receive a number of allowances equivalent to o ne MWh from the state early action allowance set-aside, an d a***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 316 of 478

number of matching allowances equivalent to one MWh from

the EPA.

• For EE projects that benefit low-income communities : for every two MWh in end-use demand savings achieved, t he project will receive a number of allowances equival ent to two MWh from the state early action allowance set-a side, and a number of matching allowances equivalent to t wo MWh

from the EPA. The EPA will address implementation details, includ ing the appropriate factor for determining equivalence betw een allowances and MWh, in a subsequent action. Allowances awarded by the EPA pursuant to the CEIP may be used for compliance by an affected EGU with its emission standards in any compliance perio d and are fully transferrable prior to such use. All matching allow ances that have not been used by January 1, 2023 would be retired b y the EPA. The EPA proposes to distribute any remaining early acti on set-aside

allowances in a state – after distribution to all e ligible projects

in the state – to the affected EGUs in the state on a pro-rata basis in proportion to the initial allocations made to those EGUs under the mass-based federal plan. As discussed in section V.E of this preamble below, the EPA proposes to allow any state where a federal plan is being implemented to take responsibility for distributing allowances to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 317 of 478

affected sources. This will allow a state to tailor its allowancedistribution approach to the characteristics and pr eferences of the state. The EPA proposes that for approval of a delegation or a partial state plan to handle allocations, a state that chooses to replace the federal-plan allocations with a stat e-determined approach must include a CEIP set-aside, as authoriz ed in section

VIII.B.2 of the final EGs. The EPA intends that suc h a state would have the same flexibilities as a state implementing a full state plan with respect to implementation of the CEIP. Th at is, the state would not be required to implement a set-aside of t he same size as proposed in Table 10 of this preamble, but rather c ould choose how many of its allowances to set-aside for the CEIP. The EPA requests comment on all aspects of implemen ting the CEIP under a mass-based federal plan approach, incl uding (1) The size of the early action allowance set aside; (2) t he approach for distributing the early action allowance set-aside a mong states; (3) the timing of distribution of set-aside and mat ching allowances; (4) the amount of allowances awarded pe r eligible MWh generated or avoided; (5) the criteria for eligible projects, including criteria for awards to EE projects that b enefit lowincome communities; (6) the mechanism for reviewing project submittals and issuing early action allowances; and (7) EM&V requirements for eligible projects. The EPA also se eks comment on***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 318 of 478

how states, tribes and territories for whom goals h ave not yet been established in the final emission guidelines m ay be able to participate in the CEIP in the future. The EPA also requests comment on the proposed appro ach of requiring states to implement this program as a con dition of a state choosing to determine its own allocation appr oach via a partial state plan or a delegation of the federal p lan. In addition, the EPA requests comment on not providing matching allowances in the mass-based trading federal plan, or on only providing matching allowances in federal plan state s that choose to determine their own allocation approach.

Table 10. Proposed Clean Energy Incentive Program E arly Action Set-Aside in Mass-Based Federal Plan for Projects i n 2020 and 2021 (Short Tons)

State Set-Aside 2022 through 2024 Alabama 3,122,306 Arizona 1,719,618 Arkansas 2,187,230 California 218,846 Colorado 2,223,192 Connecticut 69,415 Delaware 138,392 Florida 3,230,248 Georgia 2,755,623 Idaho 14,929***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 319 of 478

Illinois 5,968,721 Indiana 5,754,076 Iowa 2,191,183 Kansas 2,115,630 Kentucky 4,952,862 Lands of the Fort Mojave Tribe 5,885 Lands of the Navajo Nation 1,623,066 Lands of the Uintah and Ouray Reservation 175,509 Louisiana 1,497,428 Maine 20,739 Maryland 972,775 Massachusetts 170,471 Michigan 3,727,861 Minnesota 2,002,903 Mississippi 357,307 Missouri 3,771,322 Montana 1,310,344 Nebraska 1,481,695 Nevada 336,288 New Hampshire 107,798 New Jersey 446,005 New Mexico 823,049 New York 557,771 North Carolina 2,674,590 North Dakota 2,150,635 Ohio 4,788,372 Oklahoma 2,067,006 Oregon 154,353 Pennsylvania 5,039,346 Rhode Island 35,674 South Carolina 1,652,802 South Dakota 264,207 Tennessee 2,178,084***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 320 of 478

Texas 10,400,192 Utah 1,401,189 Virginia 1,386,546 Washington 751,434 West Virginia 3,506,890 Wisconsin 2,393,870 Wyoming 3,104,324

5. Allocations to Units that Change Status Units that retire. The EPA proposes that, if an aff ected EGU does not operate for two consecutive calendar y ears, the

unit would continue to receive allocations for a li mited number of years after it ceases operation, after which the allowances

that would otherwise have been allocated to that un it would be allocated to the renewable energy set-aside for the state in

which the retired unit is located. 105 Continuing allocations to non-operating units for a period of time reduces th e incentive to keep a unit operating simply to avoid losing the allowance allocations for that unit ( e.g., a unit that would otherwise be retired due to age and inefficiency). On the other hand, nonoperating units are no longer emitting and so do no t need

105 This is similar to the approach taken in CSAPR of continuing allocations to retired units for four years and the n allocating the allowances to a set-aside; in CSAPR the set-asi de is for new units.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 321 of 478

allowances. The EPA believes that the proposed appr oach of allocating allowances for a specified, but limited, period after a unit ceases operating is a reasonable middle grou nd approach. The proposed approach also allows the renewable ene rgy setasides to grow over time. The EPA proposes to record allowances for each year of a multi-year compliance period at once, 7 months prio r to the start of each compliance period, as discussed above . The agency proposes that, if an affected EGU does not operate for two full calendar years, then starting with the next complia nce period for which allowances have not yet been recorded, th e allowances

that would otherwise have been allocated to the uni t would be allocated to the renewable energy set-aside. As a r esult, the number of years of non-operation for which a retire d unit would receive allocations would vary depending on when a unit retires. For example, if an affected EGU does not operate fo r the first two calendar years of a 3-year compliance period, t hen starting with the next compliance period the allowances that would

otherwise have been allocated to that unit would be allocated to the renewable energy set-aside — in other words the unit would receive allocations for 3 years of non-operation. A s a further example, if an affected EGU does not operate for bo th calendar years of a 2-year compliance period, then starting with the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 322 of 478

compliance period after the next compliance period the

allowances would be allocated to the renewable ener gy set-aside

— in other words the unit would receive allocations for 4 years of non-operation. The agency requests comment on this approach for tr eatment of allocations to affected EGUs that retire, includ ing on the number of years of non-operation for which a unit w ould continue to receive allocations. The EPA also requests comme nt on an alternative of distributing such allowances to the set-aside for output-based allocations, or to the remaining affec ted EGUs in the state in a pro-rata fashion (on the same distri bution basis as the initial allocations were made), instead of a llocating such allowances to the state’s renewable energy set -aside. The agency requests comment on a further alternative ap proach, which

would be to continue allocations to the retired uni ts. The EPA also requests comment on treatment of allocations t o units that are in long-term cold storage.

Units that are modified or reconstructed. Similar t o the approach for an affected EGU that retires, the EPA proposes that, if a unit is modified or reconstructed such t hat it is no longer an affected EGU, then starting with the next compliance period for which allowances have not yet been recor ded, the

allowances that would otherwise have been allocated to the unit***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 323 of 478

would be allocated to the renewable energy set-asid e. The EPA requests comment on this proposed approach, includi ng on the number of years for which a unit would continue to receive allocations. The agency also requests comment on an alternative of distributing such allowances to the set-aside fo r outputbased allocations, or to the remaining affected EGU s in the state in a pro-rata fashion (on the same distributi on basis as the initial allocations were made), instead of allo cating such allowances to the state’s renewable energy set-asid e. The agency requests comment on a further alternative approach, which would

be to continue allocations to the modified or recon structed

units.

E. State-determined Allowance Distribution The EPA proposes to allow any state to replace the EPAdetermined federal-plan allowance-distribution prov isions in the mass-based trading program with state-developed all owancedistribution provisions. In this way, a state could choose how to distribute initial allowance allocations among i ts affected EGUs (and other entities). The EPA believes that this option may offer signifi cant appeal, because it will allow a state to tailor its allocation approach to the characteristics and preferences of the state. A state would be able to design its allocation approa ch to address***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 324 of 478

its particular state priorities, whether they are p rotecting low-income consumers, supporting local industries, or other goals. The EPA anticipates that a state would have great flexibility in its allowance distribution approach and could take advantage of allocation options discussed in t his proposal as well as other allocation options a state might p refer. States

could auction allowances and rebate the revenue to consumers, or allocate all allowances to load-serving entities, w hile mandating that the value be passed through to vulne rable

consumers. The EPA believes that the state-determin ed allocation approach offers significant advantages and solicits comment on how to ease its application by states. This is simi lar to the approach taken in the CSAPR and the CAIR where the EPA adopted rules allowing states to submit state implementatio n plans (SIPs) with provisions replacing the allowance-dist ribution provisions in the CSAPR or CAIR FIPs, respectively, while remaining in the trading programs under those FIPs (76 FR 48208; August 8, 2011, 71 FR 25328; April 28, 2006). In bo th CSAPR and CAIR, some states have chosen to determine their ow n allocations under the FIPs. This form of SIP that can replace t he allowancedistribution provisions in CSAPR or CAIR is termed an “abbreviated SIP revision.” In this proposed mass-b ased trading federal plan, the EPA proposes that a state may cho ose to submit***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 325 of 478

a “state allowance-distribution methodology” (analo gous to an abbreviated SIP revision) to replace the federal-pl an allowancedistribution provisions with allowance-distribution provisions of its choosing. The mechanism the agency envisions is in the nature of a partial state plan or (for any future changes in a state’s allocation methodology) a partial state plan revisi on. (We request comment below on the advantages and disadva ntages of allowing a state to handle allocations via a delega tion of federal plan authority.) In general, under the prop osed approach, the procedural requirements states and th e agency must follow, including public notice requirements, for t he submission and approval of state plans, would be required here

. The EPA intends to provide the states with substant ial flexibility in choosing approaches to distribute th eir

allowances in a state allowance-distribution method ology. The EPA proposes that a state may choose any approach, including auctions or other methods the EPA is not proposing here, provided the state’s approach addresses leakage and also implements the Clean Energy Incentive Program. The EPA is also requesting comment on any other appropriate constra ints to impose on state allowance-distribution methodologie s. The Clean Power Plan EGs require mass-based state p lans to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 326 of 478

include a demonstration that they have addressed th e risk of leakage, and the EGs provide several options for do ing so (see section VIII.L of the final EGs). One of the option s provided in the EGs is to address leakage through an allowance distribution approach that provides incentive to counteract leak age. In the mass-based trading federal plan, the EPA’s proposed approach to allocate allowances would address leakage using two allowance set-asides, one for output based allocation and one for renewable energy projects, as detailed in section V .D.3 of this preamble. The EPA believes that a state allowance-d istribution methodology, which would replace the federal-plan a llocation provisions, must also address leakage. The EPA prop oses that a state allowance-distribution methodology must addre ss leakage by providing incentive to counteract leakage, e.g., by including allowance set-asides like the output-based allocati on and RE set-asides detailed in section V.D.3 of this preamb le, or other allocation approaches designed to counteract leakag e. The EPA requests comment on this proposed approach for addr essing leakage in a state allowance-distribution methodolo gy and on any other approaches for doing so. The EGs provide an a dditional option for state plans to address leakage, where a state would provide a demonstration that leakage will not occur (without implementing any of the strategies specified in the EGs) due to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 327 of 478

specified characteristics of the state (section VII I.L of the final EGs). In this federal plan proposal, the EPA requests comment on an alternative option where a state that chooses to submit a state allowance-distribution methodology c ould provide a demonstration that leakage will not occur (withou t implementing the allocation strategies specified he re) due to specific characteristics of the state. The Clean Power Plan EGs established a Clean Energy Incentive Program (section VIII of the final EGs). The EPA proposes that a state allowance-distribution method ology, which would replace the federal-plan allocation provision s, must also include a Clean Energy Incentive Program, as detail ed in section V.D.4 of this preamble. Under the proposed approach of providing for states to determine their allowance distribution approaches i n the federal plan mass-based trading program, the affected EGUs in a state

that submitted a state allowance-distribution metho dology, which the EPA approved, would participate in the federal plan massbased trading program, but with allowance distribut ion determined by the state instead of by the EPA. The EPA proposes that a state must submit to the Administrator tables specifying the unit-level allo wances in an electronic format specified by the Administrator an d by the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 328 of 478

specified deadlines applicable to each compliance p eriod (see Table 11 of this preamble for proposed submission d eadlines). The EPA proposes that a state may submit a state al location methodology for any compliance period, including th e first compliance period, which would comprise the years 2 022, 2023, and 2024. The EPA proposes that a state submitting a state allowance-distribution methodology to modify the fe deral plan allowance-distribution provisions must do so for al l years within a compliance period ( e.g., for all 3 years in a 3-year compliance period).The EPA proposes that, if the state’s allowancedistribution provisions meet certain requirements a nd the state allowance-distribution methodology does not change any other provisions in the proposed mass-based trading progr am, then the agency would likely approve the state allowance-dis tribution methodology. In the state allowance distribution me thodology,

the state could distribute allowances to affected E GUs or other entities (such as renewable energy facilities) or c ould auction some or all of the allowances. The agency proposes that for EPA approval, the state allowance-distribution methodol ogy provisions would have to meet the following require ments. The provisions would have to address leakage as discuss ed above. The provisions would have to provide that, for each yea r for which***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 329 of 478

the state allowance-distribution provisions would a pply, the

total amount of allowances distributed could not ex ceed the applicable mass goal for that state for that year. A state’s methodology under this proposed approach could prov ide that the

total amount of allowances distributed is less than the applicable mass goal. 106 The EPA proposes that a state’s allowance-distribution provisions would replace the EPA’s allocation provisions completely – a state would no t have the option of implementing only a portion of its alloca tions ( e.g., only set-asides) and having the EPA implement the r emainder of its allocations. Additionally, the EPA proposes tha t a state allowance-distribution methodology must provide for allowances

to be issued in short tons. The allocation (or auction) of allowances would be final and could not be subject to modification. Additiona lly, the state’s provisions could not change any other provi sions of the proposed mass-based trading program with regard to the allowances ( e.g., the deadlines for allocation recordation, or

106 A state allowance-distribution methodology under t his proposed approach, which is analogous to an abbreviated SIP revision, could provide that the total amount of allowances distrib uted is less than the applicable mass goal, pursuant to the rese rved authority to states to set emission standards more stringent than federal standards under CAA section 116.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 330 of 478

requirements for transfer or use of allowances) or any other aspect of such trading programs.

In order for a state allowance-distribution methodo logy’s provisions to replace the EPA’s allowance-distribut ion provisions for a given compliance period, a state w ould have to submit the state allowance-distribution methodology by a deadline that would provide the agency sufficient t ime to review and approve it, and to submit the allowance table m eeting the specified electronic format by a deadline that woul d provide sufficient time to record the unit-by-unit allowanc es in source

accounts. The EPA believes that about 12 months — s tarting from the date of receipt of a state allowance-distributi on methodology — is sufficient to complete the agency’ s review and approval process, which would have to provide an op portunity for public comment on the approval (or disapproval) act ion. Thus, the EPA proposes the following deadlines, in Table 11 of this preamble, for submission to the agency of state all owancedistribution methodologies and unit-level allowance s, and for the EPA’s recordation of allowances, for each compl iance period. The EPA would review and approve state allowance-di stribution methodologies in the 12 months between the proposed deadline for states to submit their methodologies and the propos ed deadline

for states to submit unit-level allowance tables. T he proposed***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 331 of 478

deadline for submission of allowance tables is 3 mo nths before the proposed deadline for the agency to record allo wances in source accounts. The EPA proposes to record allowan ces in source accounts by the recordation deadlines.

Table 11

. Proposed Deadlines for Submission of State Allowan ceDistribution Methodologies and Unit-Level Allowance s and for Recordation First compliance period for which allowances would be distributed Deadline for submittal ofstate allowancedistribution methodologies Deadline forsubmittal of unitlevel allowance table Deadline for the EPA to record allowances

2022, 2023, 2024 March 1, 2020 March 1, 2021 June 1 , 2021 2025, 2026, 2027 March 1, 2023 March 1, 2024 June 1 , 2024 2028, 2029 March 1, 2026 March 1, 2027 June 1, 2027 2030, 2031* March 1, 2028* March 1, 2029* June 1, 2 029* *This pattern of deadlines would hold for successiv e 2-year compliance periods.

The proposed deadlines for submission of state allo wancedistribution methodologies are later than the state plan submission deadlines promulgated in the Clean Power Plan EGs. The agency anticipates that it can complete the app roval process relatively quickly for a state allowance-distributi on methodology due to its narrow scope. The agency proposes to record the EPA-determined fe deral plan allocations only in the absence of an approved state plan or approved state allowance-distribution methodolog y. The EPA proposes to record in source accounts allowances th at are determined by any state as soon as feasible after a pproval of a***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 332 of 478

state allowance-distribution methodology and not to wait until

the allowance recordation deadline to do so. In section V.D.2 of this preamble, the EPA proposes the allowance recordation deadline 7 months prior to th e start of the compliance period ( i.e., June 1 of the prior year) and also requests comment on a recordation deadline 13 month s prior to the start of the compliance period ( i.e., December 1 of the year 2 years before the compliance period starts). If th e EPA adopted the earlier recordation deadline on which it reques ts comment or any other deadline, then we would adjust the deadli nes for

submission of state allowance-distribution methodol ogies and submission of unit-level allowance tables according ly.The EPA proposes that a state may not replace EPAdetermined allocations for a compliance period for which federal plan allocations have already been recorded, for th e same reasons that the agency proposes that a state may n ot replace a mass-based trading federal plan with a state plan f or a future compliance period for which allowances have already been recorded, as discussed below in section V.F of this preamble. The agency requests comment on the proposed approac h to

allow states to determine allocations via state all owancedistribution methodologies and replace the federal- plan allowance-distribution provisions. The EPA requests comment on***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 333 of 478

the proposed schedule for submitting state allowanc e distribution methodologies to the agency, for submi tting the resulting unit-level allowance tables to the agency , and for the agency to record allowances. The EPA requests comme nt on its proposed approach of not replacing EPA-determined a llocations for a compliance period for which allowances have a lready been recorded. The agency also requests comment on an al ternative approach where a state could notify the EPA of its intent to submit a state allowance-distribution methodology i n advance, in which case the agency would hold off on recording E PA-determined

allocations to allow more time for state-determined allowances to be recorded, similar to the alternative timing a pproach discussed in section V.F of this preamble. The EPA is also requesting comment on an alternativ e approach to provide the opportunity for a state to determine its allowance-distribution provisions in the federal pl an mass-based trading program. The alternative approach on which the agency requests comment is to provide for a partial delega tion of the federal plan – limited to the allowance-distributio n provisions

– to a state that wishes to determine its allowance -distribution provisions. The EPA requests comment on the relativ e efficiency and ease of implementation of the two approaches (t he state allowance-distribution methodology described above, or the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 334 of 478

partial delegation). The agency requests comment on whether the partial delegation approach would provide sufficien t flexibility for a state to choose any method to distribute its allowances including approaches that the EPA is not proposing here. See further discussion of delegations in section VI of this preamble.

F. Treatment of States Entering or Exiting the Trading Program If the EPA implements a mass-based trading program federal plan for any state, the agency will work with a sta te that wishes to replace the federal plan with an approved state plan to provide a smooth transition. The EPA proposes th at a massbased trading federal plan could only be replaced b y a state plan for a future compliance period for which allow ances have not yet been recorded. For example, if a 3-year com pliance period comprises 2022, 2023, and 2024, the EPA woul d record allowances in source accounts for 2022, 2023, and 2 024 prior to 2022. Once 2022, 2023, and 2024 allowances had been recorded, the first compliance period for which a state could replace the federal plan with its own plan would be for the per iod commencing in 2025. The EPA is proposing this stipu lation for the timing of replacing a federal plan with a state plan due to the need to avoid disruption to sources already sub ject to the mass-based trading federal plan. Without this stipu lation, a***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 335 of 478

state might withdraw from the mass-based trading pr ogram in the middle of a compliance period even though allowance s that authorize emissions throughout that entire complian ce period would already be in circulation. In that circumstan ce, the EPA

would then need to address whether and how to remov e those allowances from circulation to prevent inflation of the

allowable emissions at affected EGUs in the remaini ng states subject to the federal plans beyond the levels spec ified in the

Clean Power Plan EGs. The EPA believes it is more r easonable to avoid this potential disruption by requiring that t he replacement of a federal plan with a state plan be scheduled to coincide with the conclusion of the last compliance period for which allowances under the federal plan have alread y been recorded for that state. The EPA requests comment o n other approaches to provide a smooth transition from fede ral-plan implementation to implementation by state plans, an d on its proposed approach of not replacing a federal plan f or any compliance period for which allowances were already recorded. The agency requests comment on an alternative of pr oviding for a state to give notice to the EPA of its intent to submit a state plan to replace the federal plan (or a state allowancedistribution methodology to replace federal-plan al locations), and for the agency to delay recording federal-plan allocations***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 336 of 478

for sources in that state until a later date than p roposed. The EPA requests comment on whether this alternative wo uld help smooth the transition from federal-plan implementat ion to stateplan implementation, and on the trade-off between r ecording allowances in a timely way and providing this incre ased timing flexibility.

G. Allowance Tracking, Compliance Operations, and Pena lties The EPA proposes that the mass-based trading progra m use an allowance tracking and compliance system (ATCS) ope rated essentially the same way as the existing systems th at are currently in use for Cross State Air Pollution Rule (CSAPR) and the Acid Rain Program (ARP) under Title IV. Under t he proposed mass-based trading program, the CO 2 program would be a separate trading program maintained in the EPA’s existing da ta system. ATCS would be used to track the trading of CO 2 allowances held by covered affected EGUs in facility level compliance accounts, as well as such allowances held by other entities or i ndividuals. Specifically, ATCS would track the allocation of al l CO 2 allowances, holdings of CO 2 allowances in compliance accounts ( i.e., a facility level account for all affected EGUs at the facility) and general accounts ( i.e., accounts for other entities such as companies and brokers), deduction of CO 2 allowances for compliance purposes, and transfers o f allowances***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 337 of 478

between accounts. The primary role of ATCS is to pr ovide an efficient, automated means for affected EGUs to com ply, and for the EPA to determine whether affected EGUs are comp lying, with the emissions limitations and any other requirement s of the mass-based trading program. ATCS would also provide data to the allowance market and the public, including a record of ownership of allowances, dates of allowance allocations, allo wance transfers, buyer and seller information, serial num bers of allowances transferred, emissions, and compliance i nformation. This information would be publicly available on the EPA’s Web site and in annual progress reports.

1. Designated Representatives and Alternate Designated Representatives The EPA proposes to establish procedures for certi fying and authorizing the designated representative, and alte rnate designated representative, of the owners and operat ors of an affected EGU and for changing the designated repres entative and alternate designated representative. These sections would also describe the designated representative’s and altern ate designated representative’s responsibilities and th e process through which he or she could delegate to an agent the authority

to make electronic submissions to the Administrator . These provisions would be patterned after the provisions concerning***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 338 of 478

designated representatives and alternates in prior EPAadministered trading programs. The designated representative would be the individu al authorized to represent the owners and operators of each affected EGU in matters pertaining to the mass-base d trading program. One alternate designated representative co uld also be selected to act on behalf of, and legally bind, the designated representative and thus the owners and operators. B ecause the actions of the designated representative and altern ate would legally bind the owners and operators, the designat ed representative and alternate would have to submit a certificate of representation certifying that each was selected by an agreement binding on all such owners and operators and was

authorized to act on their behalf. The designated representative and alternate would b e authorized upon receipt by the Administrator of the certificate of representation. This document, in a format presc ribed by the Administrator, would include: specified identifying information for the affected EGU and for the designated represe ntative and alternate; the name of every owner and operator of the affected EGU; and certification language and signatures of t he designated representative and alternate. All submissions ( e.g., monitoring plans, monitoring system certifications, and allowa nce***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 339 of 478

transfers) for an affected EGU would have to be sub mitted, signed, and certified by the designated representat ive or alternate. Further, upon receipt of a complete cert ificate of representation, the Administrator would establish a compliance account in the ATCS for each facility with an affec ted EGU

involved. In order to change the designated representative or alternate, a new certificate of representation woul d have to be received by the Administrator. A new certificate of representation would also have to be submitted to r eflect changes in the owners and operators of the affected EGU involved. However, new owners and operators would b e bound by the existing certificate of representation even in the absence

of such a submission. In addition to the flexibility provided by allowing an alternate to act for the designated representative ( e.g., in circumstances where the designated representative m ight be unavailable), additional flexibility would be provi ded by allowing the designated representative and alternat e to delegate authority to make electronic submissions on his or her behalf. The designated representative and alternate could d esignate agents to submit electronically certain specified d ocuments. The previously-described requirements for designated re presentatives***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 340 of 478

and alternates would provide regulated entities wit h flexibility in assigning responsibilities under the mass-based trading program, while ensuring accountability by owners an d operators and simplifying the administration of the proposed mass-based trading program.

2. Allowance Tracking and Compliance System The mass-based trading program rules would establis h the procedures and requirements for using and operating the Allowance Tracking and Compliance System (which is the electronic data system through which the Administra tor would handle allowance allocation, holding, transfer, and deduction), and for determining compliance with the allowance-h olding requirements in an efficient and transparent manner . The ATCS would also provide the allowance markets with a rec ord of ownership of allowances, dates of allowance transfe rs, buyer and seller information, and the serial numbers of allow ances transferred. Consistent with the approach in prior EPAadministered trading programs, allowance price info rmation would not be included in the ATCS. The EPA’s experience i s that private parties ( e.g., brokers) are in a better position to obtain and disseminate timely, accurate allowance p rice information than is the EPA. For example, because n ot all allowance transfers are immediately reported to the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 341 of 478

Administrator for recordation, the Administrator wo uld not be able to ensure that any reported price information associated with the transfers would reflect current market pri ces. 3. Compliance and General Accounts This section describes two types of Allowance Trac king and Compliance system accounts: Compliance accounts, on e of which the Administrator would establish for each facility with an affected EGU upon receipt of the certificate of rep resentation for the facility; and general accounts, which could be established by any entity upon receipt by the Admin istrator of an application for a general account. A compliance account would be the account in which any allowances used by an a ffected EGU for compliance with the emissions limitations would have to be held. The designated representative and alternate f or the

affected EGU would also be the authorized account r epresentative and alternate for the compliance account. Using fac ility-level, rather than EGU-level accounts, would provide owner s and operators more flexibility in managing their allowa nces for compliance, without jeopardizing the environmental goals of the mass-based trading program, because the facility-le vel approach

would avoid situations where an EGU would hold insu fficient

allowances and would be in violation of allowance-h olding requirements even though EGUs at the same facility had more than***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 342 of 478

enough allowances to meet these requirements for th e entire facility. Facility-level compliance would also be c onsistent with other EPA-administered mass-based trading prog rams. General accounts could be used by any person or gr oup for holding or trading allowances. However, allowances could not be used for compliance with emissions limitations so l ong as the allowances were held in, and not properly and timel y transferred out of, a general account. To open a general accoun t, a person or group would have to submit an application for a general account, which would be similar in many ways to a c ertificate of representation. The application would include, in a format prescribed by the Administrator: the name and ident ifying

information of the individual who would be the auth orized account representative and of any individual who wo uld be the alternate authorized account representative; an ide ntifying name for the account; the names of all persons with an o wnership interest with respect to allowances held in the acc ount; and certification language and signatures of the author ized account representative and alternate. The authorized accoun t representative and alternate would be authorized up on receipt of the application by the Administrator. The provision s for changing the authorized account representative and alternate, for changing the application to take account of cha nges in the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 343 of 478

persons having an ownership interest with respect t o allowances, and for delegating authority to make electronic sub missions would be analogous to those applicable to comparabl e matters for designated representatives and alternates.

4. Recordation of Allowance Allocations and Transfers By June 1, 2021, the Administrator would record al lowance allocations for EGUs for 2022 through 2024. Then, b y June 1 of the year prior to the beginning of each compliance period, the

Administrator would record the allowance allocation s for the proposed mass-based trading program for each year w ithin that next compliance period, e.g., for 2025, 2026, and 2027 by June 1, 2024. Recording these allowance allocations in a dvance of the first year for which they could be used for complia nce would facilitate compliance planning by owners and operat ors and promote robust allowance markets, including futures markets for

allowances. The process for transferring allowances from one a ccount to another would be quite simple. A transfer would be submitted providing, in a format prescribed by the Administra tor, the account numbers of the accounts involved, the seria l numbers of the allowances involved, and the name and signature of the transferring authorized account representative or a lternate. If the transfer form containing all the required infor mation were***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 344 of 478

submitted to the Administrator and, when the Admini strator attempted to record the transfer, the transferor ac count included the allowances identified in the form, the Administrator would record the transfer by moving t he allowances

from the transferor account to the transferee accou nt within 5 business days of the receipt of the transfer form.

5. Compliance with Emissions Limitations Once the compliance period has ended ( e.g., at midnight on December 31, 2024 for the first compliance period), facilities with affected EGUs would have a window of opportuni ty following the compliance period to evaluate their reported em issions and obtain any allowances that they might need to cover their emissions during the compliance period. For example , the allowance transfer deadline for the first complianc e period would be midnight on May 1, 2025 (the EPA is also r equesting

comment on earlier or later allowance transfer dead lines). Each allowance issued in the proposed mass-based trading program would authorize emission of one ton of CO 2 and so would be usable for compliance, for the compliance period that incl udes the year

for which the allowance was allocated or a later co mpliance period. Consequently, each affected EGU would need, as of the allowance transfer deadline, to have in its facilit y compliance account, or to have a properly submitted transfer t hat would***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 345 of 478

move into its compliance account, enough allowances usable for compliance to authorize its total emissions for the compliance period. The authorized account representative could identify specific allowances to be deducted, but, in the abs ence of such identification or in the case of a partial identifi cation, the Administrator would deduct on a first-in, first-out basis. Deducting allowances may have tax and accounting im plications, so having a default deduction method provides the representatives with certainty regarding which allo wances will be deducted for compliance. Allowances that are ded ucted for compliance will remain in the system in an EPA acco unt, which ensures they will not be used again. If a facility were to fail to hold sufficient allowances for compliance b y all affected EGUs at the facility, then the owners and operators of the facility and each affected EGU at the facility would have to provide, for deduction by the Administrator, two al lowances allocated for the compliance period in the next yea r for every allowance that the owners and operators failed to h old as required to cover emissions. This submittal of two times the allowances required for the prior period is an ongo ing obligation until compliance is achieved, and there is an ongoing obligation to comply in the current period. In addi tion, these owners and operators would be subject to civil pena lties for***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 346 of 478

each violation in accordance with the CAA, with eac h ton of unauthorized emissions and each day of the complian ce period involved constituting a violation of the CAA. The EPA believes that it is important to include a requirement for an automatic deduction of allowance s. The deduction of one allowance per allowance that the o wners and operators failed to hold would offset this failure. The automatic deduction of another allowance per allowa nce that the owners and operators failed to hold that could not be avoided, regardless of any explanation provided by the owner s and operators for their failure, would provide a strong incentive for compliance with the allowance-holding requireme nt by ensuring that non-compliance would be a significant ly more expensive option than compliance. Such automatic de ductions have been successfully used in prior programs including the CAIR, achieving compliance rates close to 100 percent.

6. Other Allowance Tracking and Compliance Operations Provisions These sections also would provide that the Administ rator could, at his or her discretion and on his or her o wn motion, correct any type of error that he or she finds in a n account in the Allowance Tracking and Compliance System. In ad dition, the Administrator could review any submission under the mass-based trading program, make adjustments to the informatio n in the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 347 of 478

submission, and deduct or transfer allowances based on such adjusted information. These provisions are a standa rd part of other trading programs administered by the EPA incl uding the Acid Rain Program and Cross State Air Pollution Rul e ( see 40 CFR 72.96, 73.37, 97.427, and 97.428).

H. Emissions Monitoring and Reporting Requirements The EPA proposes that units subject to the mass-bas ed federal plan trading program would monitor and repo rt CO 2 mass emissions in accordance with 40 CFR part 75. The EPA is proposing to require affected EGUs in al l states covered by the mass-based federal plan trading prog ram to monitor and report CO 2 emissions and output data by January 1, 2022. Quarterly reporting would be required, with e ach quarterly report due to the Administrator 30 days after the l ast day in the quarter. The reporting would be in accordance w ith 40 CFR part 75.60. The use of part 75 certified monitoring methodologies would be required. Many EGUs that mig ht be covered by the proposed federal plans will generally have n o changes to their monitoring and reporting requirements and wil l continue to monitor and submit reports under part 75 as they ha ve under existing programs. The EPA anticipates fewer than 5 0 affected EGUs that would not otherwise be subject to the Aci d Rain Program will have to purchase and install additiona l CEMS and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 348 of 478

data handling systems or upgrade existing equipment in order to meet the monitoring and reporting requirements of t his program (the EPA anticipates approximately 10 coal fired un its and approximately 40 gas and oil fired units will quali fy for an excepted monitoring methodology). Several of the un its not otherwise subject to the Acid Rain Program are subj ect to the MATS program and, therefore, will have already inst alled stack flow rate and/or CO 2 monitors necessary to comply with this rule in order to comply with the MATS. The CEMS used to comply and report data for MATS will be used for this rule to generate and report CO 2 emissions data without having to install duplicativ e monitors. The same CO 2 and stack gas flow rate monitored data used in conjunction with Hg and other CEMS to calcu late a toxic pollutant emission rate may be used to calculate a CO 2 mass or

CO 2 emission rate for this program. RGGI, ARP, MATS an d this rule

all refer to CEMS installed and certified in accord ance with 40 CFR part 75. RGGI and ARP currently require the rep orting of CO 2 mass emissions on an hourly basis and cumulative to tals at the end of each calendar quarter. The same monitors and data collected may be used for multiple purposes for RGG I, ARP, MATS and this rule. Relying on the same monitors that ar e certified and quality ensured in accordance with 40 CFR part 75 ensures cost efficient, consistent, and accurate data that may be used***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 349 of 478

for different purposes for multiple regulatory prog rams. The majority of the units covered by this rule are already affected by the Acid Rain and/or Regional Greenhous e Gas Initiative programs and will have minimal additiona l monitoring and reporting requirements. The EPA also requests comment on requiring monitori ng and reporting of CO 2 mass and net generation for the year before the initial compliance period begins, i.e., to commence January 1, 2021. Only the monitoring and reporting would be re quired in 2021 — compliance with the requirement to hold allo wances would commence on the compliance period schedule that is detailed in section V.C of this preamble.

VI. Implementation of the Federal Plan and Delegation Under section 111(d) of the CAA, the EPA adopts EGs that are then implemented when the EPA approves a state or tribal 107 plan or promulgates a federal plan that implements and enforces

the EG for affected EGUS in states or areas of Indi an country 108

107 AS discussed in (citation) tribes with EGU in thei r areas of Indian country can apply for TAS for the purpose of developing and seeking EPA approval of a tribal implementation pla n (TIP) implementing the EG, but are not required to do so.

108 As discussed in detail in (citation), in adopting a federal plan implementing the EG in areas of Indian country containing***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 350 of 478

without an approved state or tribal plan. Congress has determined that the primary responsibility for air pollution prevention and control rests with state and local a gencies, while also recognizing that “Federal ... leadership i s essential for the development of cooperative Federal, State, regional, and local programs to prevent and control air pollution .” (See section 101(a)(3) and (4) of the CAA.) Congress has also provided for Indian Tribes meeting specified eligib ility criteria to implement the CAA within the exterior b oundaries of

their reservations or other areas within the tribe’ s jurisdiction. (See section 301(d)(1) and (2) of the CAA.) Even in the event that it becomes necessary for the EPA to directly regulate affected EGUS under CAA section 111(d), st ates and eligible tribes may still seek a delegation of auth ority from the EPA to implement a federal plan, similar to the ability to take delegated authority under other CAA programs. The EPA encourages states and eligible tribes that do not s ubmit approvable plans to request delegation of the feder al plan if they wish to have primary responsibility for implem enting the EG. Approved and effective state or tribal plans or delegation of the federal plan is the EPA’s preferred outcome in many

EGU, the EPA must determine that such a plan is “ne cessary or appropriate” to protect air quality. See, 40 CFR 49 .11(a).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 351 of 478

circumstances where the EPA believes that state and local, or tribal, agencies have practical knowledge and enfor cement resources critical to achieving the highest rate of compliance. Legally, delegation of a standard or requirement me ans that obligations a source may have to the EPA under a fe derally promulgated standard become obligations to a state or tribe (except for functions that the EPA retains for itse lf) upon delegation. 109 110

A. Delegation of the Federal Plan and Retained Authori ties

If a state or tribe 111 intends to take delegation of the federal plan, the state or tribe should submit to t he appropriate EPA Regional Office a written request f or delegation of authority. The state or tribe should explain how it meets the

109 If the Administrator chooses to retain certain aut horities under a standard, those authorities cannot be deleg ated, e.g., the authority to allow alternative methods of demon strating compliance.

110 We note that issuance of a title V permit is not e quivalent to the approval of a state plan or delegation of a fed eral plan. This has been discussed in prior rulemakings, see , e.g., Proposed Federal Plan for Commercial Industrial Solid Waste Incinerators (CISWI) (67 FR 70640, 70652; Nov. 25, 2002); Final Federal Plan for CISWI (68 FR 57518, 57535; Oct. 3, 2003).

111 A tribe interested in taking delegation of the fed eral plan must also apply, and be approved by the EPA, for TA S eligibility for that purpose. 40 CFR part 49.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 352 of 478

criteria for delegation. See generally “Good Practi ces Manual for Delegation of NSPS and NESHAP” (EPA, February 1 983). The letter requesting delegation of authority to implem ent the federal plan should: (1) Demonstrate that the state or tribe has adequate resources, as well as the legal and enforc ement authority to administer and enforce the program, (2 ) include an inventory of affected EGUs, which includes those th at have ceased operation but have not been dismantled, incl ude an inventory of the affected units’ air emissions and a provision for state or tribal progress reports to the EPA, (3 ) certify that a public hearing has been held on the state or tribal delegation request, and (4) include a memorandum of agreement

between the state or tribe and the EPA that sets fo rth the terms and conditions of the delegation, the effective dat e of the agreement and the mechanism to transfer authority. Upon signature of the agreement, the appropriate EPA Reg ional Office would publish an approval notice in the Federal Register , thereby incorporating the delegation of authority i nto the appropriate subpart of 40 CFR part 62. See also EPA ’s Delegations Manual, Delegation 7-139, “Implementati on and Enforcement of 111(d)(2) and 111(d)(2)/129(b)(3) fe deral plans.” (A copy of this delegation manual has been placed i n the docket for this action.)***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 353 of 478

If authority is not delegated to a state or tribe, the EPA will implement the federal plan. Also, if a state o r tribe fails to properly implement a delegated portion of the fe deral plan, the EPA will assume direct implementation and enfor cement of that portion. The EPA will continue to hold inspect ion, information gathering, enforcement, and other paral lel authorities along with the state or tribe even when a state or tribe has received delegation of the federal plan. In all cases where the federal plan is delegated, the EPA will r etain and will not transfer authority to a state or tribe to approve the following items promulgated in the 2015 CAA section 111(d) Clean

Power Plan:

(1) [&&& DO WE HAVE A LIST OF ITEMS FOR WHICH EPA PREFERS TO MAINTAIN AUTHORITY?]

This proposed federal plan also specifies that EGU owners or operators who wish to petition the agency for an y alternative requirement should submit a request to the Regional Administrator with a copy set to the appropriate st ate.

B. Mechanisms for Transferring Authority There are two mechanisms for transferring implement ation authority to state and local agencies and tribes: ( 1) The EPA approval of a state or tribal plan after the federa l plan is in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 354 of 478

effect; and (2) if a state or tribe does not submit or obtain approval of its own plan, the EPA delegation to a s tate or tribe of the authority to implement certain portions of t his federal plan to the extent appropriate and if allowed by st ate or tribal law. Both of these options are described in more de tail below.

1. Federal Plan Becomes Effective Prior to Approval of a State or

Tribal Plan After EGUs in a state or area of Indian country bec ome subject to the federal plan, the state or local age ncy or tribe may still adopt and submit a plan to the EPA. If th e EPA determines that the state or tribal plan is satisfa ctory and approvable pursuant to the EG, the EPA will approve the state or tribal plan. If the EPA, on review of the submitted state or tribal plan, determines that this is not the case, the EPA will disapprove the plan and the EGUs covered in the sta te or tribal plan would remain subject to the federal plan until a state or tribal plan covering those EGU is approved and effe ctive. Prior to disapproval, the EPA will work with states and e ligible tribes to attempt to reconcile areas of the plan th at are unapprovable. Upon the effective date of an approved state or tri bal plan, the federal plan would no longer apply to EGU s covered by***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 355 of 478

such a plan and the state or local agency, or the t ribe, would implement and enforce the state or tribal plan in l ieu of the federal plan. The timing of effectiveness of an app roved state or tribal plan in this circumstance may depend in p art on the need to ensure a smooth transition and maintain reg ulatory certainty. Thus, for example, under a mass-based fe deral plan, we propose to handle these transitions so that they coincide with the compliance periods. The approval of a stat e or tribal plan would also involve a public comment process, w hich would give interested stakeholders including any affected EGUs, the opportunity to comment. This will assist in ensurin g that compliance, program integrity, electric reliability , and other critical factors are maintained. When an EPA Region al Office approves a state or tribal plan, it will amend the appropriate subpart of 40 CFR part 62 or 40 CFR part 49, respec tively, to indicate such approval, as well as the timing of it s effectiveness. As discussed elsewhere in this document, the EPA ma y also in certain circumstances approve a partial state or tribal plan (sometimes called an “abbreviated state plan”) that may modify certain limited provisions in the federal plan trad ing program. For example, this could occur if a state or tribe w ishes to

handle the initial allocation of allowances in a ma ss-based***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 356 of 478

trading program, as discussed in section &&& of thi s preamble. The partial state or tribal plan would allow for th e state or tribe to assume direct authority for administering and implementing this aspect of the trading program, wh ile the remainder of the federal plan remains in place. The procedural and submission requirements set forth in the framew ork regulations of 40 CFR part 60, subpart B and the EG would generally apply to a partial state or tribal plan, just as they would a full state or tribal plan. The scope of the requirement, however, would be commensurate with the scope of th e partial plan. For instance, if a state or tribe seeks appro val of a partial plan solely to handle allowance allocations , then the required statement of legal authority would be limi ted to those legal authorities the state or tribe must have to i mplement and enforce this component of the trading program.

2. State or Tribe Takes Delegation of the Federal Flan The EPA, in its discretion, may delegate to state o r tribal air agencies the authority to implement this federa l plan. As discussed above, the EPA believes that it is advant ageous and the best use of resources for state or local agenci es or tribes to agree to undertake, on the EPA’s behalf, adminis trative and substantive roles in implementing the federal plan to the extent***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 357 of 478

appropriate and where authorized by state or tribal law. If a state or tribe requests delegation, the EPA will ge nerally delegate the entire federal plan to the state or tr ibal agency, thereby providing authority to the state or tribe f or things such as administration and oversight of compliance reporting and recordkeeping requirements, inspections of its affe cted EGUs, and enforcement. The EPA will continue to hold insp ection, information gathering, enforcement, and other autho rities along

with the state or tribe even when a state or tribe has received delegation of the federal plan. The delegation will not include any authorities retained by the EPA.

C. Implementing Authority The EPA Regional Administrators have been delegated the authority for implementing the federal plan. All re ports required by the federal plan should be submitted to the appropriate Regional Administrator. Section II.C. o f this preamble includes Table 2 of this preamble that lis ts names and addresses of the EPA Regional Office contacts and t he states they cover. With respect to the administration of a federal tra ding program in any final federal plan for a state or tr ibe, group of states or combined group of states and tribes, the Office of Air***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 358 of 478

and Radiation within the Headquarters of the EPA is proposed to be the primary office within the agency with delega ted CAA section 111(d)(2) authority. See Delegation 7-139, section 3(c).

D. Necessary or Appropriate Finding for Affected EGUs in Indian Country Indian Tribes may, but are not required to, submit tribal plans to implement the Emission Guidelines (EG). Se ction 301(d) of the CAA and 40 CFR part 49 authorize the Adminis trator to

treat an Indian Tribe in the same manner as a state (TAS) for purposes of developing and implementing a tribal pl an implementing the EG. See 40 CFR 49.3; see also “Indian Tribes: Air Quality Planning and Management,” hereafter “Tr ibal Authority Rule,” (63 FR 7254, February 12, 1998). W e invite tribes with EGU in their area of Indian country to comment on the level of their interest, if any, in developing their own plans. The EPA is proposing in this action to find that it is necessary or appropriate to regulate affected EGUs in each of the three areas of Indian country that have affecte d EGUs under the proposed federal plan. The EPA is authorized to directly implement the EG in Indian country when it finds, c onsistent with the authority of CAA section 301 which the EPA has exercised in 40 CFR 49.11, that it is necessary or appropriate***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 359 of 478

to do so. In the final Emission Guidelines, the EPA establishes emission performance rates for the four EGUs locate d in Indian country and mass and rate-based emission goals for each of the three affected areas of Indian country. These areas include lands of the Navajo Nation’s reservation, lands of the Ute Tribe of the Uintah and Ouray Reservation, and lands of t he Fort Mojave Tribe’s reservation. [&&&citation to final E Gs]. The EPA proposed carbon pollution emission guidelines for E GUs in these areas and U.S. Territories in a Supplemental Notice of Proposed Rulemaking. See 79 FR 65482 (Nov. 4, 2014). The four facilities with affected EGUs located in Indian country that t he EPA identified in the Supplemental Notice are: the Sout h Point Energy Center, on the Fort Mojave Reservation geogr aphically located within Arizona; the Navajo Generating Stati on, on the Navajo Indian Reservation geographically located wi thin Arizona; the Four Corners Power Plant, on the Navajo Indian Reservation geographically located within New Mexico; and the B onanza Power Plant, on the Uintah and Ouray Indian Reservation g eographically located within Utah. The emission performance targe ts for these areas were finalized along with those for EGU locat ed in the rest of the country in the final EGs. &&&citation. In this action, we are proposing to find that it is necessary or appropriate, in each of the three areas of India n country that***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 360 of 478

have affected EGUs, to establish a federal plan tha t applies to the four power plants located on the Navajo Nation, the Fort Mojave Indian Reservation, and the Uintah and Ouray Reserv ation of the Ute Tribe. The affected EGUs located on the Navajo Nation are in an area of Indian country located within the contin ental United States, are interconnected with the western electri city grid, and are owned and operated by entities that generate an d provide electricity to customers in several states. The aff ected EGU located on the Uintah and Ouray Reservation of the Ute Tribe is in an area of Indian country located within the contin ental United States, is interconnected with the western electric ity grid, and is owned and operated by an entity that generates a nd provides electricity to customers in several states. The aff ected EGU located on the Fort Mojave Indian Reservation is in an area of Indian country located within the continental Unite d States, is interconnected with the western electricity grid, a nd is owned and operated by an entity that generates and provides e lectricity to customers in several states. To date, none of the t hree tribes on whose areas of Indian country the four power plants are located have expressed a clear intent to develop and seek a pproval of a tribal implementation plan. Thus, absent a federal plan, the significant emissions from these four power plants could go unregulated by the Clean Power Plan.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 361 of 478

Because the agency has finalized emission performan ce targets for these power plants in the EGs, there is, in our view, little benefit to be had by not proposing to include them in a federal plan now and a potentially significant downside to not doing so;

the reductions the EPA has determined are achievabl e in the EGs would become more difficult and costly for these po wer plants to achieve if they are delayed in entering into the tr ading program the agency intends to establish. In order to meet t he performance targets, we are anticipating that the affected EGUs may need to secure allowances or ERCs (depending on the approac h ultimately finalized) during the compliance periods. They may also be able to generate and sell compliance instruments by partici pating in the trading program. Thus, proposing a finding that it is necessary or appropriate to establish one or more federal plans providing the ability to participate in a rate- or mass-based tra ding program is in the interest of these four power plants located in areas of Indian country. We believe that this together with the facts that, as indicated above, all four EGU are interconnected with the western electricity grid and are owned and operated by an entity that generates and provides electricity to customer s in several states thereby making it potentially disruptive and inequitable not to include them in one or more federal plans on the same schedule as other affected EGU strongly supports pr oposing to find***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 362 of 478

that it is necessary or appropriate to establish on e or more applicable federal plans at this time. We recognize that the governments of these tribes m ay still choose to seek TAS to develop a tribal plan, and th is proposed determination does not preclude the tribes from tak ing such actions. We also note that this proposed determinat ion does not preclude these tribes from seeking TAS and receivin g delegation to administer aspects of any applicable federal plan t hat is ultimately promulgated. In the event a federal plan is needed, proposing a necessary or appropriate finding at thi s time will allow the EPA to expeditiously promulgate a final f ederal plan for one or all of these power plants in the future to a llow trading to occur. We will continue to consult with the governm ents of the Navajo Nation, Fort Mojave Indian Tribe, and the Ut e Tribe of the Uintah and Ouray Reservation during the comment per iod for this proposal, and prior to taking any action to finaliz e a necessary or appropriate finding and/or a federal plan. Comme nts on the appropriateness of the proposed finding, should be submitted within the comment period specified in section of t his preamble.

VII. Amendments to Process for Submittal and Approval of State Plans and EPA Actions As indicated in the final rulemaking notice for the CAA section 111(d) guideline, “Carbon Pollution Emissio n Guidelines***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 363 of 478

for Existing Stationary Sources: Electric Utility G enerating Units,” in this action, in addition to the proposed federal plans and model trading rules, the EPA is also prop osing to amend the framework regulations and update the proc ess for acting on CAA section 111(d) state plans under 40 C FR part 60, subpart B. These changes would be applicable to any future CAA section 111(d) rules going forward, not just the Cl ean Power Plan EGs. The EPA proposes six changes to the CAA s ection 111(d) process in the framework regulations to include: (1 ) Partial approval/disapproval mechanisms similar to CAA sect ion 110(k)(3); (2) a conditional approval mechanism sim ilar to CAA section 110(k)(4); (3) a mechanism for the EPA to m ake calls for plan revisions similar to the "SIP-call" provisions of CAA section 110(k)(5); (4) an error correction mechanis m similar to CAA section 110(k)(6); (5) completeness criteria an d a process for determining completeness of state plans and sub mittals similar to CAA section 110(k)(1) and (2); and (6) u pdates to the deadlines for the EPA action. In addition, in this section, the agency is proposing an interpretation regarding the effect under section 111 if an existing facility subject to CAA section 111(d) modifies or reconstructs. We believe these c hanges will significantly streamline the state plan review and approval process, be more respectful of state processes, and generally***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 364 of 478

enhance the administration of the 111d program. Section 111(d)(1) provides that the EPA “shall esta blish a procedure similar to that provided by CAA section [ 110] of this

title under which each state shall submit to the Ad ministrator a [111(d)] plan . . ..” 42 U.S.C. 7411(d)(1). Thus, t he CAA

directs the EPA to look to the structure of the SIP program when designing the procedures the states and agency will use to develop CAA section 111(d) plans. Notably, the CAA does not require the CAA section 111(d) procedures to be ide ntical to

those the EPA uses under CAA section 110 for SIPs. 112 Therefore, the EPA interprets CAA section 111(d) to provide th e EPA flexibility in designing procedures that reflect th e structure of those used under CAA section 110 for implementat ion plans, without requiring the EPA to exactly track SIP proc edures when acting on section 111(d) plans. As a general matter these proposed changes would si mply update the CAA section 111(d) framework regulations to include several new, more flexible procedural tools that Co ngress introduced into section 110 in the 1990 CAA Amendme nts. The basic procedures in the CAA section 111(d) framewor k regulations

112 See Webster’s II New Riverside University Dictionary (R iverside 1988) (defining “similar” to mean “resembling thoug h not completely identical”).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 365 of 478

were promulgated in 1975 based on the structure of CAA section 110 as Congress designed it in the 1970 CAA Amendme nts. See 40 FR 53340-49 (Nov. 17, 1975). Over the years since 1 970, the EPA and the states learned a great deal about the proce dural limitations of the original SIP review process. The 1970 CAA only allowed the EPA to approve or disapprove SIP s ubmittals. The agency struggled to deal responsively to situat ions where the EPA wanted to work with states to get state pro grams approved to the extent possible, while maintaining consistency with CAA requirements. Congress responded in 1990 a nd enhanced the procedural mechanisms the EPA has to act on SIP s. The EPA is proposing correspondingly to update the CAA section 111(d) regulations in a similar fashion. Currently, the EP A’s framework regulations for submittal and adoption of CAA secti on 111(d) state plans do not explicitly provide for the EPA t o use some of the same procedures for approving or disapproving s tate plans Congress introduced into the SIP program in the 199 0 CAA Amendments. The EPA is proposing to amend the proce dures for approval or disapproval of CAA section 111(d) state plans to reflect the enhancements Congress included in CAA s ection 110 for agency actions on SIPs. These proposed amendmen ts are

discussed in more detail below.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 366 of 478

A. Partial Approvals/Disapprovals First, the EPA proposes to add authority similar to that under CAA section 110(k)(3) to partially approve or disapprove a plan. 113 This is a particularly useful function when much o f a state plan is approvable and the EPA and the state cannot reach resolution on only a small, severable portion of th e state plan. In this case, the EPA prefers not to be in a positi on where it must disapprove the full plan, but rather to allow the state to move forward with those portions of the plan that a re approvable. This mechanism are those situations whe re the state wishes to take over a discrete part of a federal pl an. For instance, in this proposal, states will be able to seek approval of a partial state plan that will give them the abi lity to

handle the allocation of allowances under a mass-ba sed federal plan. In cases where elements of a plan are functionally

113 We recognize that the regulations appear to alread y contemplate partial approval/disapprovals to some extent. See 40 CFR 60.27(a) (“The Administrator may ... extend the period for sub mission of any plan ... or portion thereof.”) (emphasis added). We note that this language only allows for extensions of time with re spect to portions of state plan submissions and may not suff iciently authorize a permanent partial approval. The propose d enhancement will resolve any ambiguity that partial approvals/d isapprovals are an acceptable mechanism under CAA section 111(d).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 367 of 478

severable from each other, and one element is appro vable while another is not, this provision will authorize the E PA to approve one part of a plan and disapprove the other. It wil l also authorize the EPA to accept and review a state plan that is only partial in nature, if identified by the state as su ch, so long as the other applicable submission requirements are met (such as demonstration of legal authority and completion of the public process). When the state submits what it intends to be a full state plan (rather than just a partial plan), the E PA proposes that the approvable portion of a plan must be funct ionally severable from the rest of the plan, and this will be the case when the following conditions are met. First, the a pprovable portion of the plan must not depend on the rest of the plan. In other words, the disapproval of the remaining porti on of the plan must not affect the portion that is approved. Second, approval of the approvable portion must not alter t he function of the submittal in a way that is contrary to the s tate’s

intent. The partial disapproval would be a disapproval for the purposes of CAA section 111(d)(2)(A) and would trig ger the EPA’s authority to issue a federal plan for the state, at least for that part of the plan that was disapproved. Incorpo rating this mechanism under the framework regulations for CAA s ection 111(d)***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 368 of 478

will enable the EPA to approve a state to implement as much of its program as is consistent with a CAA section 111 (d) guideline and may reduce the scope of any federal plan that w ould be

necessary.

B. Conditional Approvals The second mechanism is the authority under CAA sec tion 110(k)(4) to conditionally approve a plan. Where a state has submitted a plan that substantially meets the requi rements of a CAA section 111(d) emission guideline, but requires some specific amendments to make it fully approvable, th is provision authorizes the EPA to conditionally approve the pla n. The Governor or her designee must submit to the EPA a c ommitment that specifies the amendments to be adopted and sub mitted to the EPA by no later than 1 year from the effective date of the conditional approval. If the state fails to meet it s commitment, the conditional approval is treated as a disapprova l. Incorporating this mechanism under the framework re gulations for CAA section 111(d) will enable the EPA to approve a state to begin to administer a substantially complete progra m that requires only specific changes to be fully approvab le. This provision is designed to authorize a state with a s ubstantially complete and approvable program to begin implementi ng it, while promptly amending the program to ensure it fully co mplies with***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 369 of 478

CAA section 111(d).

C. Calls for Plan Revisions CAA section 110(k)(5) authorizes the EPA to find th at a state implementation plan does not comply with the requirements of the CAA. To date, the EPA has not considered usi ng a similar procedure pursuant to the authority under CAA secti on 111(d). We now propose to do so. The ability to call for plan revisions is fundamental to a program that will be implemented o ver many years multiple decadUnder the Clean Power Plan EGs, states have more than a decade to fully implement emissions sta ndards or

state measures in order to ensure affected EGUs ach ieve the emission goals of the EGs. Throughout this period, the EPA and the states will be monitoring their programs to ens ure they are achieving the intended results. It is possible that design assumptions about the effect of control measures th e states incorporate into their plans could prove inaccurate in retrospect and could result over time in the plan n ot meeting the emissions reductions required by the EGs. In th at case, having a procedural mechanism available under CAA s ection 111(d)

similar to the so-called “SIP call” mechanism in CA A section 110(k)(5) will allow the agency to initiate a proce ss with the state to make necessary revisions to ensure the pla n functions properly.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 370 of 478

Accordingly, the EPA is proposing to amend the fram ework regulations to include a provision similar to CAA s ection 110(k)(5) under which the EPA may find that a state ’s CAA section 111(d) plan is substantially inadequate to comply with the requirements of the CAA and require the state t o revise the plan as necessary to correct such inadequacies. Con sistent with CAA section 110(k)(5), the EPA shall notify the sta te of any inadequacies and establish a reasonable deadline fo r the state to submit required plan revisions. That deadline wi ll not exceed

18 months after the date of the notice. The EPA wil l make its finding and notice to the state available to the pu blic. 114 The effect of such a finding is that either the sta te submits the program corrections by the date the EPA sets in the notice, or pursuant to CAA section 111(d)(2)(A), th e EPA has authority to issue a federal plan for a state that misses its deadline to correct its plan. In effect, the findin g of plan inadequacy establishes a plan submittal deadline su bject to the provisions of CAA section 111(d)(2)(A). A finding o f failure to meet that new deadline triggers the EPA’s authority to issue a federal plan for the state. The EPA may promulgate a federal

114 Consistent with the agency’s practice under CAA se ction 110(k)(5), the EPA anticipates that a call for plan revisions under CAA section 111(d) will be done via notice and comm ent rulemaking.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 371 of 478

plan at any time following the state’s failure to t imely submit an adequate plan that addresses the EPA’s finding. While these authorities are important, the intentio n of having a mechanism to call for plan revisions is to have a way to initiate an orderly process to improve plans whe n they are not meeting program objectives. It is the EPA’s hop e that a call for plan revision leads to a constructive dialogue with a state or states, and ultimately, an improved and more eff ective CAA section 111(d) plan. The EPA is also proposing that the agency can call for a plan revision in circumstances where a state is not implementing its approved state plan and, therefore, the state p lan is substantially inadequate to provide for the impleme ntation of CAA section 111(d) standards of performance. As dis cussed above, the CAA directs the EPA to develop a procedure for state plans under CAA section 111(d) similar to CAA section 110 SIP procedures. Calling a plan that is substantially in adequate to provide for implementation of standards of performa nce ( i.e., there is a failure to implement a state plan) is on e area where the EPA proposes it is appropriate to adapt the pro cedural mechanisms available in the SIP program to provide a similar process that assures effective state plan implement ation under CAA section 111(d). Under CAA section 110(k)(5), th e EPA may***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 372 of 478

call for a revision of a state plan “[w]henever the Administrator finds that the . . . plan . . . is su bstantially inadequate to . . . comply with any requirement of [the Act].” If the state does not submit a plan revision in res ponse to the call to cure the failure to provide for implementat ion, the EPA would have the authority to promulgate the federal plan being proposed. One critical requirement of CAA section 111(d)(1)(B ) is that a state must submit a plan that “provides for the implementation and enforcement of such standards of performance” (emphasis added). If, after the EPA has approved a plan, a state fails to implement that plan, the plan has become s ubstantially inadequate to comply with this requirement of the C AA. Under this proposal, the EPA’s remedy would be to find th e plan is substantially inadequate, which triggers the state’ s obligation to cure, and failing that, the EPA’s authority to p romulgate the federal plan. In the alternative, the EPA proposes that this auth ority to call a plan for failure to implement is anchored in the authority provided under CAA section 110(k)(5) to c all a SIP when the agency finds that it is “substantially ina dequate to

attain or maintain the relevant national ambient ai r quality standard.” In the context of CAA section 111, this authority***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 373 of 478

translates into the EPA calling a state plan when t he agency finds that it is substantially inadequate to achiev e the emissions reductions required under the EG. If a st ate has failed to implement its plan, and that failure is p ervasive enough to render the requirements of the plan ineff ective, it is reasonable for the EPA to find that the state plan is substantially inadequate to achieve the emissions r eductions required under the EG. The state’s failure to imple ment has revised the effect of the plan so that it is no lon ger adequate to meet the CAA’s requirements.

Error Corrections

The fourth mechanism is the error correction author ity under CAA section 110(k)(6). Where the EPA conclude s that it has erroneously approved, disapproved, or promulgated a plan or plan revision (or part thereof), this section authorizes the agency to revise its action, in the same manner as the ori ginal action, without requiring any further submission from the s tate. Prior to the 1990 CAA Amendments, there was some question whether the EPA could unilaterally correct a previous action on a SIP submittal without the state having to submit a new SIP. This limitation imposed unnecessary burdens on states to fix even obvious errors, because CAA section 110(a)(2) requi res the state to provide notice and a public hearing on each new SIP***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 374 of 478

submittal. Incorporating this mechanism into the CA A section 111(d) framework regulations will allow the EPA to fix errors in its prior actions on state plans without imposing o n the states the corresponding burden of providing notice and a public hearing as required under the CAA section 111(d) fr amework regulations. 40 CFR 60.23.

D. Completeness Criteria Completeness criteria provide the agency with a mea ns to determine whether a submission by a state includes the minimum elements that must be met before the EPA is require d to act on

such submission. When submittals do not contain the necessary minimum elements, then the EPA may, without further action, find that a state has failed to submit a plan. This dete rmination is ministerial in nature and requires no exercise of d iscretion or judgment on the agency’s part, nor does it reflect a judgment on the sufficiency or adequacy of the submitted portio ns of a state plan. The task is accomplished by simply comparing the materials provided by the state as its submittal against the required criteria to determine whether the plan is complete or not. In the case of SIPs under CAA section 110(k)(1), the E PA promulgated completeness criteria in 1990 at append ix V to 40 CFR part 51 (55 FR 5830; Feb. 16, 1990). The EPA pr oposes to adopt criteria similar to the criteria set out at s ection 2.0 of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 375 of 478

Appendix V for determining the completeness of subm issions under CAA section 111(d). The completeness criteria can b e grouped into: (1) Administrative materials; and (2) technic al support. The EPA proposes that both groups would apply to al l CAA section 111(d) rules going forward. The agency notes that t he addition of completeness criteria in the framework regulatio ns does not alter any of the submission requirements states alr eady have

under the EGs. For administrative materials, the EPA is proposing completeness criteria that mirror the existing admi nistrative criteria for SIP submittals because the two program s have similar administrative processes. The EPA proposes that a complete final state plan submittal under CAA secti on 111(d) must include: (1) A formal letter of submittal from the Governor or her designee requesting EPA approval of the plan or revision thereof; (2) evidence that the state has adopted th e plan in the state code or body of regulations (That evidence sh all include the date of adoption or final issuance as well as t he effective date of the plan, if different from the adoption/is suance date.); (3) Evidence that the state has the necessa ry legal authority under state law to adopt and implement th e plan; and (4) a copy of the actual regulation, or document su bmitted for approval and incorporation by reference into the pl an. The***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 376 of 478

submittal shall be a copy of the official state regulation/document signed, stamped and dated by th e appropriate state official indicating that it is fully enforcea ble by the state. The effective date of the regulation/documen t shall, whenever possible, be indicated in the document its elf. The state’s electronic copy must be an exact duplicate of the hard copy. For revisions to the approved plan, the submi ttal shall indicate the changes made (for example, by redline/strikethrough) to the approved plan; (5) ev idence that the state followed all of the procedural requiremen ts of the state's laws and constitution in conducting and com pleting the adoption/issuance of the plan; (6) evidence that pu blic notice was given of the proposed change with procedures co nsistent with the requirements of 40 CFR 60.23, including the dat e of publication of such notice; (7) certification that public hearing(s) were held in accordance with the informa tion provided in the public notice and the state's laws and const itution, if applicable and consistent with the public hearing r equirements in 40 CFR 60.23; and (8) compilation of public comm ents and the state's response thereto. These criteria, as proposed, are intended to be gen eric to all CAA section 111(d) plans going forward, with the pr oviso that specific emission guidelines may provide otherwise. The***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 377 of 478

technical support completeness criteria that the EP A proposes will also be generic to all CAA section 111(d) rule s, with the same proviso. The EPA proposes that the technical s upport required for all plans must include each of the fol lowing: (1) Description of the plan approach and geographic sco pe;(2) identification of each designated facility, identif ication of emission standards for the designated facilties, an d monitoring, recordkeeping, and reporting requirements that will determine compliance by each designated facility; (3)identifi cation of compliance schedules and/or increments of progress; (4) demonstration that the state plan submittal is proj ected to achieve emissions performance under the applicable EGs; (5) documentation of state recordkeeping and reporting requirements to determine the performance of the plan as a whole ; and (6) demonstration that each emission standard is quanti fiable, nonduplicative, permanent, verifiable, and enforceable

. The EPA proposes a process similar, though not iden tical, to that set forth in 40 CFR 51.103 and Appendix V t o 40 CFR part 51 to make completeness determinations. Similar to CAA section 110(k)(1)(C), under this proposal, where the EPA de termines that a state submission required under CAA section 111(d ) does not meet the minimum completeness criteria we are propo sing to establish, the state will be considered to have not made the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 378 of 478

submission. The EPA further proposes that, similar to CAA section 110(k)(1)(B), within 60 days of the EPA's r eceipt of a state submission, but no later than 6 months after the date, if any, by which a state is required to submit the pla n or revision, the Administrator shall determine whether the minimum criteria have been met. Any plan or plan revision t hat a state submits to the EPA, and that has not been determine d by the EPA by the date 6 months after receipt of the submissio n to have failed to meet the minimum criteria, shall on that date be deemed by operation of law to meet such minimum cri teria. As with the completeness determination process for SIP submissions, the EPA’s determination that a submitt al is complete is not a finding that the submittal meets the substantive requirements of CAA section 111(d) or t he guideline. That must be done via the process for approval or d isapproval of a state plan, which would be done through notice an d comment rulemaking. In the completeness process, the EPA wi ll confirm that a state’s submittal appears to have addressed the criteria for a complete submittal and, therefore, the submit tal is sufficient to trigger the EPA’s obligation to act o n it. But in the completeness process the agency will not assess the content of those submissions to determine if they are appro vable. Accordingly, even when the EPA affirmatively determ ines that a***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 379 of 478

submittal is complete, it does not prevent the agen cy from later finding that the state plan does not meet the requi rements of the EGs, including finding that the submittal faile d to address a required element and must be disapproved. Similarly, when a submittal is determined to be com plete by operation of law after 6 months without the EPA’s a ffirmative determination of completeness, the only legal conse quence is that the EPA now has an obligation to act on that s ubmittal. Completeness by operation of law means that the sub mittal is deemed complete and requires the EPA’s review, whet her or not the state has actually addressed all the required e lements. Accordingly, if the agency determines that a state has failed to address a required element in its submittal once th e EPA begins review of the state plan that is complete by operat ion of law, the agency must go through the process of disapprov ing (or partially disapproving or conditionally approving, as discussed below) that plan, unless the state and the EPA work together to cure the deficiency. In other words, the EPA cannot simply find the plan incomplete and return it to the state at t hat point. But the finding of completeness by operation of law in no way prevents the EPA from subsequently concluding that the state’s submission is missing a required element of the pro gram and making that finding as part of a disapproval of the plan.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 380 of 478

As described in the final rulemaking notice for th e CAA section 111(d) EGs, a state will submit all CAA sec tion 111(d) plans electronically. If the EPA determines that an y submission fails to meet the completeness criteria, the agency may return the plan to the state and request corrections, iden tifying the components that are absent or insufficient to allow the EPA to perform a review of the plan. The state will not ha ve met its obligation to submit a final plan until it resubmit s a revised state plan or supporting materials addressing the c orrections the EPA identified in its incompleteness determinat ion. The EPA is also proposing to include an exception t o the criteria for complete administrative materials in c ases where a state and the EPA are “parallel processing” the fin al plan. Parallel processing allows a state to submit the pl an prior to final adoption by the state and provides an opportu nity for the state to consider the EPA’s comments prior to submi ssion of a final plan for final review and action. The EPA wou ld propose to take action on a state plan based on a proposed sta te regulation. The EPA would only finalize the action if the state adopts a final plan that is legally effective under state law. The EPA would only approve the plan if the state ad dressed any corrections that the EPA identified in its proposed action on the state plan without any other material change to the plan.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 381 of 478

Note that a plan submitted for parallel processing must still meet all the criteria for technical completeness so that the EPA and the public have a sufficient basis on which to evaluate and comment on the EPA’s proposed action.

E. Update to Deadlines for EPA Actions The EPA proposes to update the deadlines for acting on state submittals and promulgating a federal plan un der 40 CFR 60.27(b), (c), and (d) to more closely track the cu rrent versions of CAA section 110(c) and 110(k) adopted i n 1990. The framework regulations for CAA section 111(d) state plans currently are parallel to the prior version of CAA section 110. They require the EPA to act on a state plan or plan revision submittal within 4 months after the date required f or submission of a plan or plan revision. 40 CFR 60.27(b). The re gulations then require the EPA to issue a proposed federal pl an in certain circumstances after consideration of any state hear ing record, 40 CFR 60.27(c), and require the EPA to promulgate the proposed federal plan within 6 months after the date require d for plan submissions, id. 60.27(d). The final carbon dioxide EGs for Electric Utility Generating Units (EGUs) have already adjusted the d eadline in 60.27(b) to require the EPA to act on a state plan under those EGs within 12 months (rather than 4 months) after t he date***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 382 of 478

required for submission of a plan. See 40 CFR 60.5715. However, the Clean Power Plan EGs did not modify the 6 month deadline for a federal plan in 60.27(d). The EPA is proposing to amend 40 CFR 60.27(b) to al low the EPA 12 months to approve or disapprove submittals o f all plans or plan revisions under CAA section 111(d), not jus t those

related to the Clean Power Plan under 60.5715. This change would provide the EPA with sufficient time for the steps required to approve or disapprove the submittal, which include proposing the EPA’s approval or disapproval of the plan or plan r evision, a public comment period on the EPA’s proposal, time f or the EPA to review and respond to public comments, and the issu ance of a final rule approving or disapproving the plan or pl an revision. The EPA is also proposing to amend 40 CFR 60.27(b) to specify that the deadline for the EPA to act on a p lan or plan revision is 12 months after receipt of a complete p lan or plan revision, rather than 12 months after the deadline for submittal of a plan or plan revision. This amendment will all ow the EPA to

have the full 12 months to act on submittals of com plete plans or plan revisions. The EPA also proposes slight modifications to the p rovision related to issuing a proposed federal plan in 60.27 (c); changing the 6 month deadline for issuing a final federal pl an in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 383 of 478

60.27(d) to 1 year 115 ; and, similar to the change in timing for 60.27(b) above, setting the deadline for promulgati on of a federal plan to run from the date of the EPA's acti on on a state submittal, rather than from the original deadline f or a state

submittal. The EPA believes it is appropriate to modify these timing requirements for several reasons. First, the EPA no tes that under CAA section 111(d)(2), Congress gave the EPA the "same" authority to prescribe a federal plan under CAA sec tion 111(d) as it would have under CAA section 110(c) in the ca se of a state

failure to submit a SIP. The term "same" stands in contrast to the term "similar" in CAA section 111(d)(1) (discus sed above). As with the use of the term “similar,” the EPA beli eves it is authorized by this language to follow the timing pr ovisions of CAA section 110(c) as currently enacted. Second, as a general

115 As under CAA section 110, the EPA believes that, s hould it fail for whatever reason to meet a deadline by which it was to take action, such as issue a federal plan, under CAA sec tion 111(d), that failure does not thereby obviate or in any way remove the EPA’s authority or obligation to take that action. See Oklahoma v. U.S. EPA , 723 F.3d 1201, 1224 (10th Cir. 2013) (“Although t he statute undoubtedly requires that the EPA promulgat e a FIP within two years, it does not stand to reason that it lose s its ability to do so after this two-year period expires. Rather , the appropriate remedy when the EPA violates the statut e is an order compelling agency action.”).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 384 of 478

matter, the timing requirements of current 60.27(c) and (d), which effectively require the EPA to propose and fi nalize a federal plan within 6 months of the deadline for st ate submittals, may be outdated and unrealistic with re spect to the timelines for review of state plans and the time pe riods for action, particularly as informed by the agency's ex perience with CAA section 110 SIPs (which led to the extension of the timelines and other changes to CAA section 110 in t he 1990 Amendments discussed above). Third, in the CPP Emis sion Guideline, the EPA has finalized a timing requireme nt that gives the agency a year to approve or disapprove a state plan or revision. The existing requirement in 60.27(d) that the EPA must promulgate a federal plan within 6 months of the in itial deadline for state plans is therefore inconsistent with this provision. Fourth, existing 60.27(c) tracks the pri or version of CAA section 110(c) with respect to the issuance of a proposed federal plan. This relatively prescriptive language is no longer present in CAA section 110(c). The procedural requi rements for rulemakings under both CAA section 110 and 111(d) a re set out in section 307(d) of the CAA, and the EPA believes tho se provisions are appropriate and adequate to guide its rulemakin g process for CAA section 111(d) federal plans. The EPA invites comment on all of these proposed ch anges to***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 385 of 478

the framework regulations. The EPA notes that the a ddition of these mechanisms to the framework regulations will make them available for all CAA section 111(d) regulations, n ot just those under the Clean Power Plan at Subpart UUUU.

F. Proposed Interpretation regarding Existing Sources that Modify

or Reconstruct In the proposed rulemaking for the CPP, the EPA pro posed the interpretation that if an existing source is su bject to a CAA section 111(d) state plan, and then undertakes a modification or reconstruction, the source remains subject to the state plan, while also becoming subject to the modification or reconstruction requirements. 79 FR 34830, 34903– 4. The EPA did not finalize a position on this issue in the fi nal EGs rule, but indicated that it would re-propose and take com ment on this issue through this federal plan rulemaking. The EPA also stated deferral of action on this issue does not impact st ates’ and affected EGUs’ pending obligations under this final rule relating to plan submission deadlines, as this issu e concerns potential obligations or impacts after an existing source has already become subject to the requirements of a sta te plan. The EPA intends to finalize its position on this issue through this rulemaking, which will be well in advance of the pl an performance period beginning in 2022, at which poin t state plan***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 386 of 478

obligations on existing sources are effectuated. We noted in the Clean Power Plan proposal that CAA section 111(d) is arguably silent as to this issue. Thus, w e took this to grant the agency the authority to provide a reas onable interpretation to fill in the gaps where the statut e is silent. In the proposal for the CPP, we proposed to disallo w existing sources to leave the CAA section 111(d) program thr ough

modification or reconstruction. We did this for two reasons. First, if a source did so, that could prove disrupt ive to the state plan. Second, allowing sources to do so could provide them an incentive to do so that would be contrary to the purposes of CAA section 111(d). We then asked for comment on “w hether this interpretation is supported by the statutory text a nd whether this interpretation is sensible policy and will fur ther the goals of the statute.” We received many comments disagreeing with this app roach. After reviewing these comments, the agency believes an alternative interpretation is more appropriate in t he particular context here. In order to give the public an opport unity to comment on this, we are proposing this interpretati on here. That is, when CAA section 111(d) emission guidelines are initially promulgated for existing stationary sources in resp onse to corresponding CAA section 111(b) standards of perfo rmance for***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 387 of 478

the same pollutant, the statute prevents new, modif ied or reconstructed sources (including under those partic ular CAA section 111(b) standards of performance and as thos e terms are applied in the relevant NSPS) from simultaneously b eing subject to state plans under those particular CAA section 1 11(d) emission guidelines. This interpretation gives mean ing to the definition of “existing source” in CAA section 111( a)(6) and is

consistent with the definition of “new source” in s ection 111(a)(2). Further, it is consistent with the histo rical

treatment of modified and reconstructed sources in the CAA section 111 program. The EPA notes the concerns it noted in the proposal supporting why the originally proposed interpretati on was reasonable are being addressed in other ways in the final EGs, and in the proposed federal plan. In other words, t here will be other ways to minimize disruption to state plans if such a modification or reconstruction were to take place. We invite comment on the agency’s proposed interpretation tha t when an existing source modifies or reconstructs in such a way that it meets the definition of a new source, for purposes of a particular NSPS and emission guideline, it becomes a new source under the statute and is no longer subject to the C AA section 111(d) program***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 388 of 478

G. Separate Finalization of these Changes The agency intends to finalize these procedural cha nges and interpretation sooner than it finalizes the rest of this proposed action. The EPA believes these changes gen erally enhance and improve the framework regulations in a way that will be of benefit to the states, the EPA, and other sta keholders, and will improve the overall efficacy of the progra m. We believe it is important to finalize these changes to the fr amework regulations relatively quickly in order to provide states and other stakeholders predictability in how the EPA in tends to process state plans and submissions under CAA secti on 111(d). If the EPA does finalize these changes sooner than the model trading rules or the federal plan, it will do so af ter the close of the comment period, and after consideration and response to any comments on these changes.

VIII. Impacts of this Action

A. Endangered Species Act Consistent with the requirements of section 7(a)(2) of the Endangered Species Act (ESA), the EPA has considere d the effects of this proposed rule and has reviewed applicable E SA regulations, case law, and guidance to determine wh at, if any, impact there may be to listed endangered or threate ned species***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 389 of 478

or designated critical habitat. Section 7(a)(2) of the ESA requires federal agencies, in consultation with the U.S. Fish and Wildlife Service (FWS) and/or the National Mari ne Fisheries Service, to ensure that actions they authorize, fun d, or carry out are not likely to jeopardize the continued exis tence of federally listed endangered or threatened species o r result in the destruction or adverse modification of designat ed critical habitat of such species. 16 U.S.C. 1536(a)(2). Unde r relevant implementing regulations, ESA section 7(a)(2) appli es only to actions where there is discretionary federal involv ement or control. 50 CFR 402.03. Further, under the regulati ons consultation is required only for actions that “may affect” listed species or designated critical habitat. 50 C FR 402.14. Consultation is not required where the action has n o effect on such species or habitat. Under this standard, it is the federal agency taking the action that evaluates the action and determines whether consultation is required. See 51 FR 19926, 19949 (June 3, 1986). Effects of an action include both the

direct and indirect effects that will be added to t he

environmental baseline. 50 CFR 402.02. Direct effec ts are the

direct or immediate effects of an action on a liste d species or***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 390 of 478

its habitat. 116 Indirect effects are those that are caused by the action, later in time, and are reasonably certain t o occur. Id. To trigger a consultation requirement, there must t hus be a causal connection between the federal action, the e ffect in question, and if the effect is indirect, it must be reasonably

certain to occur. The EPA has considered the effects of this proposed rule and has reviewed applicable ESA regulations, case l aw, and guidance to determine what, if any, impact there ma y be to listed species or designated critical habitat for p urposes of ESA section 7(a)(2) consultation. The EPA notes tha t the projected environmental effects of this proposal ar e, like the EGs that it implements, positive: reductions in ove rall GHG emissions, and reductions in PM and ozone-precursor emissions (SO X and NO X ), for EGUS that will be covered by the federal pla n. However, the EPA’s assessment that the rule will ha ve an overall net positive environmental effect by virtue of redu cing emissions of certain air pollutants does not addres s whether the

116 See Endangered Species Consultation Handbook, U.S. Fis h & Wildlife Service and National Marine Fisheries Serv ice at 4- 25(March 1998) (providing examples of direct effect s: e.g. , driving an off road vehicle through the nesting hab itat of a listed species of bird and destroying a ground nest; build ing a housing unit and destroying the habitat of a listed species ).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 391 of 478

rule may affect any listed species or designated cr itical habitat for ESA section 7(a)(2) purposes and does n ot constitute any finding of effects for that purpose. The fact t hat the rule will have overall positive effects on the national and global environment does not mean that the rule may affect any listed species in its habitat or the designated critical h abitat of such species within the meaning of ESA section 7(a) (2) or the implementing regulations or require ESA consultatio n. The EPA has considered various types of potential effects i n considering whether ESA consultation is required for this rule. With respect to the projected GHG emission reductio ns, the EPA does not believe that such reductions trigger E SA consultation requirements under ESA section 7(a)(2) . In reaching this conclusion, the EPA is mindful of significant legal and technical analysis undertaken by FWS and the U.S. D epartment of the Interior in the context of listing the polar be ar as a threatened species under the ESA. In that context, in 2008, FWS and DOI expressed the view that the best scientific data

available were insufficient to draw a causal connec tion between GHG emissions and effects on the species in its hab itat. 117 The

117 See, e.g., 73 FR 28212, 28300 (May 15, 2008); Memorandum from David Longly Bernhardt, Solicitor, U.S. Department of the Interior***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 392 of 478

DOI Solicitor concluded that where the effect at is sue is climate change, proposed actions involving GHG emis sions cannot pass the “may affect” test of the ESA section 7 reg ulations and, thus, are not subject to ESA consultation. The EPA has also previously considered issues relat ing to GHG emissions in connection with the requirements of ES A section 7(a)(2). In the final EGs, the agency noted that, a lthough the GHG emission reductions projected for the Emissions Gui delines are large (estimated reductions of about 415 million sh ort tons of CO 2 in 2030 relative to the base case), the EPA evaluat ed larger reductions in assessing this same issue in the cont ext of the light duty vehicle GHG emission standards for model years 2012-2016 and 2017-2025. There the agency projected emission redu ctions over the lifetimes of the model years in question, 118 which are roughly five to six times those projected above and, based on ai r quality modeling of potential environmental effects, conclu ded that “EPA knows of no modeling tool which can link these smal l, timeattenuated changes in global metrics to particular effects on listed species in particular areas. Extrapolating f rom global

re: “Guidance on the Applicability of the Endangere d Species Act’s Consultation Requirements to Proposed Actions Invol ving the Emission of Greenhouse Gases” (Oct. 3, 2008).

118 See 75 FR at 25438 Table I.C 2–4 (May 7, 2010); 77 FR at 62894 Table III–68 (Oct. 15, 2012).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 393 of 478

metric to local effect with such small numbers, and accounting for further links in a causative chain, remain beyond c urrent modeling capabilities.” EPA, Light Duty Vehicle Greenhouse Gas Standards and Corporate Average Fuel Economy Standards, Response to Comment Document for Joint Rulemaking at 4-102 (Docket EPA- OAR-HQ-2009- 4782). The EPA reached this conclusion after evalua ting issues relating to potential improvements from the fuel ef ficiency rule relevant to both temperature and oceanographic pH o utputs. The EPA's ultimate finding was that “any potential for a specific impact [of the specific federal action] on listed s pecies in their habitats associated with these very small changes i n average global temperature and ocean pH is too remote to trigger t he threshold for ESA section 7(a)(2).” Id. See also, e.g., Ground Zero Center

for Non-Violent Action v. U.S. Dept. of Navy, 383 F. 3d 1082, 1091- 92 (9th Cir. 2004). The EPA similarly proposes to d etermine that the likelihood of jeopardy to a species from this p roposed action is extremely remote, and ESA does not require consu ltation). The EPA’s proposed conclusion is entirely consistent wi th DOI’s analysis regarding ESA requirements in the context of federal actions involving GHG emissions. With regard to non-GHG air emissions, the EPA is al so projecting substantial reductions of SO 2 and NO x as a collateral consequence of this proposal (which will be, as sta ted above,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 394 of 478

only a subset of the total reductions from the Emis sions Guidelines). However, CAA section 111(d) cannot dir ectly control emissions of criteria pollutants. And furthermore, a federal plan under CAA section 111(d)(2) does no more than prescribe emissions standards of the same stringency as the c orresponding EGs. 40 CFR 60.27(e)(1). Consequently, CAA section 111(d) provides no discretion to set a standard in a feder al plan based on potential impacts to endangered species of reduc ed criteria pollutant emissions. ESA section 7(a)(2) consultati on is not required with respect to the projected reductions o f criteria pollutant emissions. See 50 CFR 402.03; see also WildEarth Guardians v. U.S. Envt’l Protection Agency , 759 F.3d 1196, 1207- 10 (10th Cir. 2014) (the EPA has no duty to consult under section 7 of the ESA regarding hazardous air pollut ant controls that it did not require -- and likely lacked author ity to require -- in a FIP for regional haze controls unde r section 169A of the CAA.). Finally, the EPA has also considered other potentia l effects of the rule (beyond reductions in air pollutants) a nd whether any such effects are “caused by” the rule and “reasonab ly certain to occur” within the meaning of the ESA regulatory def inition of the effects of an action. 50 CFR 402.02. The EPA recogn izes, for instance, that questions may exist whether decision s such as***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 395 of 478

increased utilization of solar or wind power could have effects on listed species. The EPA received comments on the EG s asserting that because potential increased reliance on wind o r solar power may be an element of Building Block 3, and because wind and solar facilities may in some cases have effects on listed species, the EPA must consult under the ESA on this aspect of th e rule. The EPA has carefully considered the comments and t he correspondence from Congress as well as the case la w and other

materials cited in those documents. The EPA does no t believe that the effects of potential future changes in the ener gy sector – including increased reliance on wind or solar power as a result of future potential actions by states or other impleme nting entities – or any potential alterations in the operations of any particular facility would, at the time of promulgation of a fe deral plan, be sufficiently certain to occur so as to require ESA consultation on the rule. The EPA appreciates that the ESA regulati ons call for consultation where actions authorized, funded, or c arried out by federal agencies may have indirect effects on liste d species or designated critical habitat. However, as noted abov e, indirect effects must be caused by the action at issue and m ust be reasonably certain to occur. Under a federal plan, it is the EPA that would impl ement a CAA section 111(d) plan. The EPA believes that even with this***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 396 of 478

proposed federal plan, any effects on listed specie s or designated habitat are too uncertain to require consultation u nder ESA section 7. This is so for at least two reasons: (1) The EPA cannot know with any certainty at this stage which states will actually become subject to a finally promulgated federal plan. Whic h affected EGUs, in which states, will be covered by this Plan can o nly be known after states have failed to submit a plan, or have had their plans disapproved by the EPA; and (2), the federal plan a s proposed will be implemented through some form of emissions tradi ng. Emissions trading inherently provides maximum flexibility to individual affected EGUs to choose their method of compliance, including continuing to emit the relevant pollutant at histor ical rates so long as the affected EGU holds sufficient credits o r allowances. At this point, the EPA has no meaningful informatio n to express in any more than the broadest terms how any particular affected EGU may choose to comply with the federal plan, should it be promulgated for them based on their location in an area not covered by an approved state plan. The Services have explai ned that ESA section 7(a)(2) was not intended to preclude federa l actions based on potential future speculative effects. 119 These are precisely the

119 See 51 FR at 19933 (describing effects that are “reaso nably certain to occur” in the context of consideration o f cumulative***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 397 of 478

types of speculative future activities and effects currently at issue here. The EPA requests comment on its propose d conclusion that ESA section 7 consultation is not required for this action. The EPA will continue to evaluate the scope and pot ential effects of federal planning activities for this source cate gory to the extent federal plans are needed and implemented in specific areas and over specific sources.

B. What are the Air Impacts? The EPA anticipates significant emission reductions under this proposed action for the utility power sector. Specifically, the EPA is proposing approaches in the form of mass - and ratebased trading options that provide flexibility in i mplementing

effects and distinguishing broader consideration th at may be appropriate in applying a procedural statute such a s the National Environmental Policy Act, as opposed to a substanti ve provision such as ESA section 7(a)(2) that may prohibit certa in federal actions); Endangered Species Consultation Handbook, U.S. Fish & Wildlife Service and National Marine Fisheries Serv ice at 4- 30(March 1998) (in the same context, describing ind icators that an activity is reasonably certain to occur as includin g governmental approvals of the action or indications that such ap proval is imminent, project sponsors’ assurance that the acti on will proceed, obligation of venture capital, or initiati on of contracts; and noting that the more governmental ad ministrative discretion remains to be exercised, the less there is reasonable certainty the action will proceed).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 398 of 478

emission standards for a state’s affected EGUs. Bot h proposed approaches to the federal plan would require affect ed EGUs to meet emission standards set using the CO 2 emission performance

rates in the Clean Power Plan Emission Guidelines.

However, at the time of this proposal, the EPA has no information on whether any or how many states will require a federal plan or will adopt a model rule. Because of this lack of information, in the RIA for this proposal, the EPA chose to examine a scenario where all states of the contiguo us U.S. will be regulated under a federal plan or will adopt the model rule. Additionally, we examine two alternative federal pl an approach scenarios. The first federal plan approach assumes all states in the contiguous U.S. are regulated under a rate-base d federal plan. The second federal plan approach assumes all contiguous states are regulated under a mass-based federal pla n. 120 Under the rate-based approach, when compared to 200 5, CO 2 emissions are projected to be reduced by approximat ely 22 percent in 2020, 28 percent in 2025, and 32 percent in 2030.

120 It is important to note that the differences betwe en the analytical results for the rate-based and mass-base d federal plan approaches presented may not be indicative of likely differences between the approaches. If one approach performs differently than the other on a given metric during a given time period, this does not imply this will apply in all instances.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 399 of 478

Under the mass-based approach, when compared to 200 5, CO 2 emissions are projected to be reduced by approximat ely 23 percent in 2020, 29 percent in 2025, and 32 percent in 2030. The proposal is projected to result in substantial co-b enefits through reductions of SO 2 , NO X and PM 2.5 that will have direct public health benefits by lowering ambient levels o f these pollutants and ozone. Table 12 and Table 13 of this preamble show expected CO 2 and other air pollutant emissions in the base case and reductions under the proposal for 2020, 20 25, and 2030 for both rate-based and mass-based approaches. Table 12. Summary of CO 2 and Other Air Pollutant Emission Reductions from the Base Case under Rate-Based Fede ral Plan Approach CO 2 (millions short tons) SO 2

(thousand short tons) NO X

(thousand short tons) 2020 Base Case 2,155 1,311 1,333 Rate-based Federal Plan Approach 2,085 1,297 1,282

Emissions Reductions 69 14 50 2025 Base Case 2,165 1,275 1,302 Rate-based Federal Plan Approach 1,933 1,097 1,138

Emissions Reductions 232 178 165 2030 Base Case 2,227 1,314 1,293 Rate-based Federal Plan 1,812 996 1,011***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 400 of 478

Approach Emissions Reductions 415 318 282 Source: Integrated Planning Model, 2015. Note: Emissions may not sum due to rounding.

Table 13. Summary of CO 2 and Other Air Pollutant Emission Reductions from the Base Case under Mass-Based Fede ral Plan Approach CO 2 (million short tons) SO 2

(thousand short tons) NO X

(thousand short tons) 2020 Base Case 2,155 1,311 1,333 Mass-based Federal Plan Approach 2,073 1,257 1,272

Emissions Reductions 81 54 60 2025 Base Case 2,165 1,275 1,302 Mass-based Federal Plan Approach 1,901 1,090 1,100

Emissions Reductions 265 185 203 2030 Base Case 2,227 1,314 1,293 Mass-based Federal Plan Approach 1,814 1,034 1,015

Emissions Reductions 413 280 278 Source: Integrated Planning Model, 2015. Note: Emissions may not sum due to rounding. The reductions in Tables 12 and 13 of this preamble do not account for reductions in hazardous air pollutants (HAPs) that may occur as a result of this rule. For instance, t he fine***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 401 of 478

particulate reductions presented above do not refle ct all of the reductions in many heavy metal particulates.

C. What are the Energy Impacts? The proposed action may have important energy marke t implications. Table 14 of this preamble presents a variety of important energy market impacts for 2020, 2025, and 2030 under both the rate-based and mass-based federal plan app roaches described in section VIII.B of this preamble and pr esented in the RIA for this proposal. Table 14. Summary Table of Important Energy Market Impacts for Rate-Based and Mass-Based Federal Plan Approaches ( Percent Change from Base Case) Rate-Based Mass-Based 2020 2025 2030 2020 2025 2030 Retail electricity prices 3% 1% 1% 3% 2% 0% Average electricity bills 3% -4% -7% 2% -3% -8%

Price of coal at minemouth -1% -5% -4% -1% -5% -3% Coal production for power sector use -5% -14% -25% -7% -17% -24%

Price of natural gas delivered to power sector 5% -8% 2% 4% -3% -2%

Natural gas use for electricity generation 3% -1% -1% 5% 0% -4%***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 402 of 478

These figures reflect the EPA’s modeling that presu mes policies that lead to generation shifts and growing use of DS-EE and renewable electricity generation out to 2029. I f different implementation choices are made than those modelled , impacts

could be different.

D. What are the Compliance Costs? The compliance costs of this proposed action are represented in this analysis as the change in elect ric power generation costs between the base case and modeled federal plan approaches described in section VIII.B in this prea mble and presented in the RIA for this proposal. The increme ntal cost is the projected additional cost of complying with the proposed action in the year analyzed and includes the amorti zed cost of capital investment, needed new capacity, shifts bet ween or amongst various fuels, deployment of DS-EE programs , and other actions associated with compliance. These important dynamics are

discussed in more detail in the RIA in the rulemaki ng docket. The EPA estimates the annual incremental compliance cost for the rate-based federal plan approach to be $2.5 billion in 2020, $1.0 billion in 2025 and $8.4 billion in 2030 . The EPA estimates the annual incremental compliance cost fo r the massbased federal plan approach to be $1.4 billion in 2 020, $3.0***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 403 of 478

billion in 2025 and $5.1 billion in 2030. More deta iled cost

estimates are available in the RIA included in the rulemaking

docket.

E. What are the Economic and Employment Impacts? Based on the analysis presented in the RIA, the pro posed action is projected to result in certain changes to power system operation as a compliance with the standards. See T able 14 of this preamble for a variety of important energy mar ket impacts for 2020, 2025, and 2030 under both the rate-based and massbased federal plan approaches described in Section VIII.B in this preamble and presented in the RIA. Changes in price or demand for electricity, natural gas, and coal can impact markets for goods and services produced by sectors that use these energy inputs in the product ion process or supply those sectors. Changes in the cost of pro duction may result in changes in prices, quantities produced, a nd profitability of affected firms. The EPA recognizes that these guidelines provide significant flexibilities and st ates implementing the guidelines may choose to mitigate impacts to some markets outside the utility power sector. Simi larly, demand for new generation or DS-EE as a result of states i mplementing the guidelines can result in shifts in production a nd profitability for firms that supply those goods and services.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 404 of 478

Executive Order 13563 directs federal agencies to c onsider the effect of regulations on job creation and emplo yment. According to the Executive Order, “our regulatory s ystem must protect public health, welfare, safety, and our env ironment while promoting economic growth, innovation, compet itiveness, and job creation. It must be based on the best avai lable science.” (Executive Order 13563, 2011) Although st andard benefit-cost analyses have not typically included a separate analysis of regulation-induced employment impacts, we typically conduct employment analyses. While the economy cont inues to move toward full employment, employment impacts are of p articular concern and questions may arise about their existen ce and magnitude. The EPA’s employment analysis includes projected e mployment impacts associated with modeled federal plan approa ches for the electric power industry, coal and natural gas produ ction, and DS-EE activities. These projections are derived, in part, from a detailed model of the utility power sector used for this regulatory analysis, and U.S government data on emp loyment and labor productivity. In the electricity, coal, and n atural gas sectors, the EPA estimates that the proposed action could result in a net decrease of approximately 25,000 job-years in 2025 under the rate-based federal plan approach and appr oximately***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 405 of 478

26,000 job-years in 2025 under the mass-based appro ach. For 2030, the estimates of the net decrease in job-year s are 31,000 under the rate-based approach and 34,000 under the mass-based approach. The agency is also offering an illustrati ve calculation of potential employment effects due to DS-EE programs. Employment impacts from DS-EE programs in 2030 could range from approximately 52,000 to 83,000 jobs unde r the proposal. By its nature, DS-EE reduces overall demand for el ectric power. The EPA recognizes as more efficiency is bui lt into the U.S. power system over time, lower fuel requirement s may lead to fewer jobs in the coal and natural gas extraction s ectors, as

well as in fossil-fuel fired EGU construction and o peration than would otherwise have been expected. The EPA also re cognizes the fact that, in many cases, employment gains and loss es that might be attributable to this rule would be expected to a ffect different sets of people. Moreover, workers who los e jobs in these sectors may find employment elsewhere just as workers employed in new jobs in these sectors may have been previously employed elsewhere. Therefore, the employment estim ates reported in these sectors may include workers previously emp loyed elsewhere. This analysis also does not capture pote ntial economy-wide impacts due to changes in prices (of f uel,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 406 of 478

electricity, labor, for example) or other factors s uch as improved labor productivity and reduced health care expenditures resulting from cleaner air. For these reasons, the numbers reported here should not be interpreted as a net na tional employment impact.

F. What are the Benefits of the Proposed Action? Implementing the proposed action will generate bene fits by reducing emissions of CO 2 and criteria pollutant precursors, including SO 2 , NO X , and directly emitted particles. SO 2 and NO X are precursors to PM 2.5 (particles smaller than 2.5 microns), and

NO X is a precursor to ozone. The estimated benefits as sociated with these emission reductions are beyond those ach ieved by previous EPA rulemakings including the Mercury and Air Toxics

Standards rule. The health and welfare benefits fro m reducing air pollution are considered co-benefits for this p roposal. For this rulemaking, we were only able to quantify the climate

benefits from reduced emissions of CO 2 and the health co-benefits associated with reduced exposure to PM 2.5 and ozone. There are many additional benefits which we are not able to q uantify, leading to an underestimate of monetized benefits. In summary,

we estimate the total combined climate benefits and health cobenefits for the rate-based federal plan approach t o be $3.5 to $4.6 billion in 2020, $18 to $28 billion in 2025, a nd $34 to $54***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 407 of 478

billion in 2030 (3 percent discount rate, 2011$). T otal combined

climate benefits and health co-benefits for the mas s-based federal plan approach are estimated to be $5.3 to $ 8.1 billion in 2020, $19 to $29 billion in 2025, and $32 to $48 billion in 2030 (3 percent discount rate, 2011$). A summary of the emission

reductions and monetized benefits estimated for thi s rule at all discount rates is provided in Tables 15 through 17 of this preamble. Table 15. Summary of the Monetized Global Climate B enefits for the Proposal (Billions of 2011$) a Discount Rate (Statistic) Monetized Climate Benefits

YEAR 2020 2025 2030 Rate-based Federal Plan Approach

CO 2 Reductions (million short tons) 69 232 415

5 percent (average SC-CO 2 ) $0.80 $3.1 $6.4 3 percent (average SC-CO 2 ) $2.8 $10 $20 2.5 percent (average SC

- CO 2 ) $4.1 $15 $29 3 percent (95 th percentile SC-CO 2 ) $8.2 $31 $61 Mass-based Federal Plan Approach***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 408 of 478

CO 2 Reductions (million short tons) 81 265 413

5 percent (average SC-CO 2 ) $0.94 $3.6 $6.4 3 percent (average SC-CO 2 ) $3.3 $12 $20 2.5 percent (average SC-CO 2 ) $4.9 $17 $29 3 percent (95 th percentile SC-CO 2 ) $9.7 $35 $60

a Climate benefit estimates reflect impacts from CO 2 emission changes in the analysis years presented in the tabl e and do not account for changes in non-CO 2 GHG emissions. These estimates are based on the global social cost of carbon (SC-CO 2 ) estimates for the analysis years and are rounded to two significa nt figures.

Table 16. Summary of the Monetized Health Co-Benefi ts in the U.S. for the Proposal, Rate-based Federal Plan Appr oach (Billions of 2011$) a

Pollutant National Emission Reductions (thousands of short tons) Monetized

Health Cobenefits Monetized

Health Cobenefits (3 percent discount) (7 percent

discount) Rate-based Federal Plan Approach, 2020 PM 2.5 precursors b

SO 2 14 $0.44 to $0.99 $0.39 to

$0.89***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 409 of 478

NO X 50 $0.14 to $0.33 $0.13 to

$0.30 Ozone precursor c

NO X (ozone season only) 19 $0.12 to $0.52 $0.12 to

$0.52

Total Monetized Health Co-benefits $0.70 to $1.8 $0.64 to

$1.7 Total Monetized Health Co-benefits combined with Monetized Climate Benefits d $3.5 to $4.6 $3.5 to $4.5

Rate-based Federal Plan Approach, 2025 PM 2.5 precursors b SO 2 178 $6.4 to $14 $5.7 to $13

NO X 165 $0.56 to $1.3 $0.50 to

$1.1 Ozone precursor c

NO X (ozone season only) 70 $0.49 to $2.1 $0.49 to

$2.1 Total Monetized Health Co-benefits $7.4 to $18 $6.7 to $16 Total Monetized Health Co-benefits combined with Monetized Climate Benefits d $18 to $28 $17 to $26

Rate-based Federal Plan Approach, 2030 PM 2.5 precursors b SO 2 318 $12 to $28 $11 to $25

NO X 282 $1.0 to $2.3 $0.93 to $2.1 Ozone precursor c NO X (ozone season only) 118 $0.86 to $3.7 $0.86 to

$3.7 Total Monetized Health Co-benefits $14 to $34 $13 to $31***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 410 of 478

Total Monetized Health Co-benefits combined with Monetized Climate Benefits d $34 to $54 $33 to $51

a All estimates are rounded to two significant figur es, so estimates may not sum. It is important to note that the monetized co-benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosystem effects or visibility impairment . Air pollution health co-benefits are estimated using re gional benefit-per-ton estimates for the contiguous U.S.

b The monetized PM 2.5 co-benefits reflect the human health benefits associated with reducing exposure to PM 2.5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The cobenefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses con ducted for the proposed Clean Power Plan EGs. PM co-benefits a re shown as a range reflecting the use of two concentration-respo nse functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). These models assume tha t all fine particles, regardless of their chemical composition , are equally potent in causing premature mortality because the s cientific evidence is not yet sufficient to allow differentia tion of effect estimates by particle type.

c The monetized ozone co-benefits reflect the human health benefits associated with reducing exposure to ozone through reductions of NO X during the ozone season. Ozone co-benefits are shown as a range reflecting the use of several diff erent concentration-response functions, with the lower en d of the range based on a function from Bell, et al. (2004) and the upper end based on a function from Levy, et al. (2005). O zone cobenefits occur in the analysis year, so they are th e same for***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 411 of 478

all discount rates.

d We estimate climate benefits associated with four different values of a one ton CO 2 reduction (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). Referred to as the social cost of carbon, each value increases over time. For the purposes of this table , we show the benefits associated with the model average at 3 per cent discount rate, however we emphasize the importance and value of considering the full range of social cost of carbon values. We provide combined climate and health estimates based on additional discount rates in the RIA.

Table 17. Summary of the Monetized Health Co-Benefi ts in the U.S. for the Proposal, Mass-based Federal Plan Appr oach (Billions of 2011$) a

Pollutant National Emission Reductions (thousands of short tons) Monetized

Health Cobenefits Monetized

Health Cobenefits (3 percent discount) (7 percent

discount) Mass-based Federal Plan Approach, 2020 PM 2.5 precursors b SO 2 54 $1.7 to $3.8 $1.5 to $3.4

NO X 60 $0.17 to $0.39 $0.16 to

$0.36 Ozone precursor c

NO X (ozone season only) 23 $0.14 to $0.61 $0.14 to

$0.61 Total Monetized Health Co-benefits $2.0 to $4.8 $1.8 to $4.4 Total Monetized Health Co-benefits combined with Monetized Climate Benefits d $5.3 to $8.1 $5.1 to $7.7***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 412 of 478

Mass-based Federal Plan Approach, 2025 PM 2.5 precursors b SO 2 185 $6.0 to $13 $5.4 to $12

NO X 203 $0.58 to $1.3 $0.52 to

$1.2 Ozone precursor c

NO X (ozone season only) 88 $0.56 to $2.4 $0.56 to

$2.4 Total Monetized Health Co-benefits $7.1 to $17 $6.5 to $16 Total Monetized Health Co-benefits combined with Monetized Climate Benefits d $19 to $29 $18 to $27

Mass-based Federal Plan Approach, 2030 PM 2.5 precursors b SO 2 280 $10 to $23 $9.0 to $20

NO X 278 $0.87 to $2.0 $0.79 to

$1.8 Ozone precursor c NO X (ozone season only) 121 $0.82 to $3.5 $0.82 to

$3.5 Total Monetized Health Co-benefits $12 to $28 $11 to $26 Total Monetized Health Co-benefits combined with Monetized Climate Benefits d $32 to $48 $31 to $46

a All estimates are rounded to two significant figur es, so estimates may not sum. It is important to note that the monetized co-benefits do not include reduced health effects from direct exposure to SO 2 , direct exposure to NO 2 , exposure to mercury, ecosystem effects or visibility impairment . Air pollution health co-benefits are estimated using re gional benefit-per-ton estimates for the contiguous U.S.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 413 of 478

b The monetized PM 2.5 co-benefits reflect the human health benefits associated with reducing exposure to PM 2.5 through reductions of PM 2.5 precursors, such as SO 2 and NO X . The cobenefits do not include the benefits of reductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses con ducted for the proposed Clean Power Plan EGs. PM co-benefits a re shown as a range reflecting the use of two concentration-respo nse functions, with the lower end of the range based on a function from Krewski et al. (2009) and the upper end based on a function from Lepeule et al. (2012). These models assume tha t all fine particles, regardless of their chemical composition , are equally potent in causing premature mortality because the s cientific evidence is not yet sufficient to allow differentia tion of effect estimates by particle type.

c The monetized ozone co-benefits reflect the human health benefits associated with reducing exposure to ozone through reductions of NO X during the ozone season. Ozone co-benefits are shown as a range reflecting the use of several diff erent concentration-response functions, with the lower en d of the range based on a function from Bell, et al. (2004) and the upper end based on a function from Levy, et al. (2005). O zone cobenefits occur in the analysis year, so they are th e same for all discount rates.

d We estimate climate benefits associated with four different values of a one ton CO 2 reduction (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent). Referred to as the social cost of carbon, each value increases over time. For the purposes of this table , we show the benefits associated with the model average at 3 per cent discount rate, however we emphasize the importance and value of considering the full range of social cost of carbon values. We provide combined climate and health estimates based on additional discount rates in the RIA.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 414 of 478

The EPA has used the social cost of carbon (SC-CO 2 ) estimates presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Rev ised July 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. 121 We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 estimates.” The SC-CO 2 is a metric that estimates the monetary value of impacts associated with marginal changes in CO 2 emissions in a given year. It includes a wide range of anticipated climate impact s, such as net changes in agricultural productivity and human health, property damage from increased flood risk, and chan ges in energy

121 Docket ID EPA-HQ-OAR-2013-0495, Technical Support Document: Technical Update of the Social Cost of Carbon for R egulatory Impact Analysis Under Executive Order 12866, Intera gency Working Group on Social Cost of Carbon, with participation by Council of Economic Advisers, Council on Environmental Quality , Department of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Domestic Policy Counc il, Environmental Protection Agency, National Economic Council, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (May 2013, Revised July 2015). Available at: http://www.whitehouse.gov/sites/default/files/omb/i nforeg/scctsd-final-july-2015.pdf

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 415 of 478

system costs, such as reduced costs for heating and increased costs for air conditioning. It is typically used to assess the avoided damages as a result of regulatory actions ( i.e., benefits of rulemakings that lead to an incremental reduction in cumulative global CO 2 emissions).

The SC-CO 2 estimates used in this analysis were developed over many years, using the best science available, and with input from the public. Specifically, an interagency working group (IWG) that included the EPA and other executi ve branch agencies and offices used three integrated assessme nt models (IAMs) to develop the SC-CO 2 estimates and recommended four global values for use in regulatory analyses. The S C-CO 2 estimates were first released in February 2010 and updated in 2013 using new versions of each IAM. The 2010 SC-CO 2 Technical Support Document (2010 TSD) 122 provides a complete discussion of

122 Docket ID EPA-HQ-OAR-2009-0472-114577, Technical Support Document: Social Cost of Carbon for Regulatory Impa ct Analysis Under Executive Order 12866, Interagency Working Gr oup on Social Cost of Carbon , with participation by the Council of Economic Advisers, Council on Environmental Quality, Departm ent of Agriculture, Department of Commerce, Department of Energy, Department of Transportation, Environmental Protect ion Agency, National Economic Council, Office of Energy and Cli mate Change, Office of Management and Budget, Office of Science and Technology Policy, and Department of Treasury (Febr uary 2010).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 416 of 478

the methods used to develop these estimates and the current TSD presents and discusses the 2013 update (including t wo recent minor corrections to the estimates). 123 OMB’s Office of Information and Regulatory Affairs received comments in response to a request for public commen t on the approach used to develop the estimates. After caref ul evaluation of the full range of comments submitted to OMB, the IWG

continues to recommend the use of the SC-CO 2 estimates in regulatory impact analysis. 124 With the release of the response

Also available at: http://www.whitehouse.gov/sites/default/files/omb/i nforeg/foragencies/Social-Cost-of-Carbon-for-RIA.pdf

. 123 The current version of the TSD is available at: https://www .whitehouse.gov/sites/default/files/omb/inforeg/scc

response-to-comments-final-july-2015.pdf, Docket ID EPA-HQ-OAR2013-0495, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysi s Under Executive Order 12866 , Interagency Working Group on Social Cost of Carbon, with participation by Council of Economi c Advisers, Council on Environmental Quality, Department of Agr iculture, Department of Commerce, Department of Energy, Depar tment of Transportation, Domestic Policy Council, Environmen tal Protection Agency, National Economic Council, Offic e of Management and Budget, Office of Science and Techno logy Policy, and Department of Treasury (May 2013, Revised July 2015).

124 See https://www.whitehouse.gov/omb/oira/social-cost-of- carbon for additional details, including the OMB Response to Comments and the SC-CO 2 TSDs.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 417 of 478

to comments, the IWG announced plans to obtain expe rt independent advice from the National Academies of S ciences, Engineering, and Medicine (Academies) to ensure tha t the SC-CO 2 estimates continue to reflect the best available sc ientific and economic information on climate change. The Academi es review will be informed by the public comments received an d focus on the technical merits and challenges of potential ap proaches to improving the SC-CO 2 estimates in future updates. See the EPA Response to Comments document for the complete resp onse to

comments received on SC-CO 2 as part of this rulemaking. Concurrent with OMB’s publication of the response t o

comments on SC-CO 2 and announcement of the Academies process, OMB posted a revised TSD that includes two minor techni cal

corrections to the current estimates. One technical correction addressed an inadvertent omission of climate change damages in the last year of analysis (2300) in one model and t he second addressed a minor indexing error in another model. On average

the revised SC-CO 2 estimates are one dollar less than the mean

SC-CO 2 estimates reported in the November 2013 revision t o the May 2013 TSD. The change in the estimates associate d with the 95th percentile estimates when using a 3 percent di scount rate is slightly larger, as those estimates are heavily influenced by the results from the model that was affected by the indexing***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 418 of 478

error. The EPA, as a member of the IWG on the SC-CO 2 , has carefully

examined and evaluated the minor technical correcti ons in the revised TSD and the public comments submitted to OM B’s SC-CO 2 comment process. The EPA concurs with the IWG’s con clusion that it is reasonable, and scientifically appropriate, t o use the

current SC-CO 2 estimates for purposes of regulatory impact analysis, including for this proceeding.

The four SC-CO 2 estimates are as follows: $12, $40, $60, and $120 per short ton of CO 2 emissions in the year 2020 (2011$). 125 The first three values are based on the average SC- CO 2 from the three IAMs, at discount rates of 5, 3, and 2.5 perc ent, respectively. The SC-CO 2 value at several discount rates are

included because the literature shows that the SC-C O 2 is quite sensitive to assumptions about the discount rate, a nd because no consensus exists on the appropriate rate to use in an intergenerational context (where costs and benefits are incurred

125 The current version of the TSD is available at: https://www.whitehouse.gov/sites/default/files/omb/ inforeg/scctsd-final-july-2015.pdf . The 2010 and 2013 TSDs present SC-CO 2 in 2007$ per metric ton. The estimates were adjusted t o (1) Short tons for using conversion factor 0.90718474 and (2) 2011$ using GDP Implicit Price Deflator, http://www.gpo.gov/fdsys/pkg/ECONI2013-02/pdf/ECONI-2013-02-Pg3.pdf

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 419 of 478

by different generations). The fourth value is the 95 th percentile of the SC-CO 2 from all three models at a 3 percent discount rate. It is included to represent higher-t han-expected impacts from temperature change further out in the tails of the

SC-CO 2 distribution (representing less likely, but potent ially catastrophic, outcomes).

There are limitations in the estimates of the benef its from this proposal, including the omission of climate an d other CO 2 related benefits that could not be monetized. The 2 010 TSD

discusses a number of limitations to the SC-CO 2 analysis, including the incomplete way in which the IAMs capt ure catastrophic and non-catastrophic impacts, their in complete treatment of adaptation and technological change, u ncertainty in the extrapolation of damages to high temperatures, and assumptions regarding risk aversion. Currently, IAM s do not assign value to all of the important impacts of CO 2 recognized in the literature, such as ocean acidification or pote ntial tipping points, for various reasons, including the inherent difficulties in valuing non-market impacts and the fact that the science incorporated into these models understandably lags behind the most recent research. Nonetheless, these estimates and the discussion of their limitations represent the best available

information about the social benefits of CO 2 emission reductions***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 420 of 478

to inform the benefit-cost analysis. As previously noted, the IWG plans to seek independent expert advice on tech nical opportunities to improve the SC-CO 2 estimates from the Academies. The Academies process will help to ensure that the SC-CO 2 estimates used by the federal government continue t o reflect the best available science and methodologies. Additiona l details are provided in the TSDs. The health co-benefits estimates represent the tota l monetized human health benefits for populations exp osed to

reduced PM 2.5 and ozone resulting from emission reductions from the federal plan approaches examined in the RIA for this proposal. Unlike the global SC-CO 2 estimates, the air pollution health co-benefits are estimated for the contiguous U.S. only. We used a “benefit-per-ton” approach to estimate th e benefits of this rulemaking. To create the PM 2.5 benefit-per-ton estimates, we conducted air quality modeling for an illustrative scenario reflecting the proposed Clean Power Plan EGs to con vert precursor emissions into changes in ambient PM 2.5 and ozone concentrations. We then used these air quality mode ling results

in BenMAP 126 to calculate average regional benefit-per-ton estimates using the health impact assumptions used in the PM

126 http://www.epa.gov/airquality/benmap/index.html***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 421 of 478

NAAQS RIA 127 and Ozone NAAQS RIAs. 128,129 The three regions were the Eastern U.S., Western U.S., and California. To calc ulate the cobenefits for this proposal, we multiplied the regio nal benefitper-ton estimates generated from modeling of the pr oposed Clean Power Plan EGs standards by the corresponding regio nal emission reductions for this proposal. 130 All benefit-per-ton estimates

127 U.S. Environmental Protection Agency (U.S. EPA). 2 012. Regulatory Impact Analysis for the Final Revisions to the National Ambient Air Quality Standards for Particul ate Matter

. Research Triangle Park, NC: Office of Air Quality P lanning and Standards, Health and Environmental Impacts Divisio n. (EPA document number EPA-452/R-12-003, December). Availa ble at: http://www.epa.gov/pm/2012/finalria.pdf

. 128 U.S. Environmental Protection Agency (U.S. EPA). 20 08b. Final Ozone NAAQS Regulatory Impact Analysis. Research Tr iangle Park, NC: Office of Air Quality Planning and Standards, H ealth and Environmental Impacts Division, Air Benefit and Cos t Group Research. (EPA document number EPA-452/R-08-003, Ma rch). Available at: <http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?dei d=194645>.

129 U.S. Environmental Protection Agency (U.S. EPA). 20 10. Section 3: Re-analysis of the Benefits of Attaining Alterna tive Ozone Standards to Incorporate Current Methods. Available at: http://www.epa.gov/ttnecas1/regdata/RIAs/s3- supplemental_analysis-updated_benefits11-5.09.pdf

. 130 U.S. Environmental Protection Agency. 2013. Technical support document: Estimating the benefit per ton of reducin g PM 2.5 precursors from 17 sectors. Research Triangle Park, NC: Office of Air and Radiation, Office of Air Quality Plannin g and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 422 of 478

reflect the geographic distribution of the modeled emissions for the proposed Clean Power Plan EGs, which may not ex actly match the emission reductions in this proposed rulemaking , and thus they may not reflect the local variability in popul ation density, meteorology, exposure, baseline health inc idence rates, or other local factors for any specific location. M ore information regarding the derivation of the benefit -per-ton

estimates is available in the Clean Power Plan Fina l Rule RIA. PM benefit-per-ton values are generated using two concentration-response functions, Krewski et al. (2 009) 131 and Lepeule et al. (2012) 132 . These models assume that all fine particles, regardless of their chemical composition , are equally potent in causing premature mortality because the s cientific evidence is not yet sufficient to allow differentia tion of effect estimates by particle type. Even though we a ssume that

Standards, January. Available at: http://www.epa.gov/airquality/benmap/models/Source_ Apportionment _BPT_TSD_1_31_13.pdf

. 131 Krewski D.; M. Jerrett; R. T. Burnett; R. Ma; E. H ughes; Y. Shi, et al. 2009. Extended Follow-up and Spatial Analysis of the American Cancer Society Study Linking Particulate A ir Pollution and Mortality. Health Effects Institute. (HEI Research Report number 140). Boston, MA: Health Effects Institute. 132 Lepeule, J.; F. Laden; D. Dockery; J. Schwartz. 20 12. “Chronic Exposure to Fine Particles and Mortality: An Extended Follow-Up of the Harvard Six Cities Study from 1974 to 2009.” Environmental Health Perspective, 120(7), July, pp. 965-970.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 423 of 478

all fine particles have equivalent health effects, the benefitper-ton estimates vary between PM 2.5 precursors depending on the location and magnitude of their impact on PM 2.5 concentrations, which drive population exposure. It is important to note that the magnitude of the P M 2.5 and ozone co-benefits is largely driven by the concentr ation response functions for premature mortality and the value of a statistical life used to value reductions in premat ure mortality. For PM 2.5 , we use two key empirical studies, one based on the American Cancer Society cohort study (Krewsk i et al, 2009) and one based on the extended Six Cities coho rt study (Lepuele et al, 2012). We present the PM 2.5 co-benefits results as a range based on benefit-per-ton estimates calculat ed using the concentration-response functions from these two epi demiology studies, but this range does not capture the full r ange of uncertainty inherent in the co-benefits estimates. In the RIA for this rule, which is available in the docket, we also include

PM 2.5 co-benefits estimates using benefit-per-ton estimat es based on expert judgments of the effect of PM 2.5 on premature mortality (Roman et al., 2008) 133 as a characterization of uncertainty

133 Roman, H., et al. 2008. “Expert Judgment Assessmen t of the Mortality Impact of Changes in Ambient Fine Particu late Matter in the U.S.” Environmental Science & Technology , Vol. 42, No. 7, February, pp. 2268 – 2274.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 424 of 478

regarding the PM 2.5 -mortality relationship.

For the ozone co-benefits, we present the results as a range reflecting benefit-per-ton estimates which use seve ral different concentration-response functions for mortality, wit h the lower end of the range based on a benefit-per-ton estimat e using the function from Bell et al. (2004) 134 and the upper end based on a benefit-per-ton estimate using the function from Le vy et al. (2005). 135 Similar to PM 2.5 , the range of ozone co-benefits does not capture the full range of inherent uncertainty. In this analysis, in estimating the benefits-per-to n for

PM 2.5 precursors, the EPA assumes that the health impact function for fine particles is without a threshold. This is based on the

conclusions of the EPA’s Integrated Science Assessment for Particulate Matter, 136 which evaluated the substantial body of

134 Bell, M.L., et al. 2004. “Ozone and Short-Term Mor tality in 95 U.S. Urban Communities, 1987-2000.” Journal of the American Medical Association, 292(19), pp. 2372-8.

135 Levy, J.I., S.M. Chemerynski, and J.A. Sarnat. 200 5. “Ozone exposure and mortality: an empiric Bayes metaregres sion analysis.” Epidemiology . 16(4): p. 458-68.

136 U.S. Environmental Protection Agency. 2009. Integrated Science Assessment for Particulate Matter (Final Re port)

. Research Triangle Park, NC: National Center for Env ironmental Assessment, RTP Division. (EPA document number EPA- 600-R-08- 139F, December). Available at: http://cfpub.epa.gov/ncea/cfm/recordisplay.cfm?deid =216546

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 425 of 478

published scientific literature, reflecting thousan ds of epidemiology, toxicology, and clinical studies that documents

the association between elevated PM 2.5 concentrations and adverse health effects, including increased premature morta lity. This assessment, which was twice reviewed by the EPA’s i ndependent Science Advisory Board, concluded that the scientif ic literature consistently finds that a no-threshold model most a dequately portrays the PM-mortality concentration-response re lationship. In general, we are more confident in the magnitude of the

risks we estimate from simulated PM 2.5 concentrations that

coincide with the bulk of the observed PM concentra tions in the epidemiological studies that are used to estimate t he benefits. Likewise, we are less confident in the risk we esti mate from

simulated PM 2.5 concentrations that fall below the bulk of the

observed data in these studies. For this analysis, policy-specific air quality data are not available, 137 and thus, we are unable to estimate the percentage of premature mortality associated with this specifi c rule that

is above the lowest measured PM 2.5 levels (LML) for the two PM 2.5 mortality epidemiology studies that form the basis for our analysis. As a surrogate measure of mortality impac ts above the

137 In addition, site-specific emission reductions wil l depend upon how states implement the guidelines.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 426 of 478

LML, we provide the percentage of the population ex posed above

the lowest measured PM 2.5 level (LML) in each of the two studies, using the estimates of baseline projected PM 2.5 from the air quality modeling for the proposed guidelines used t o calculate the benefit-per-ton estimates for the EGU sector. U sing the Krewski et al. (2009) study, 88 percent of the popu lation is exposed to annual mean PM 2.5 levels at or above the LML of 5.8 micrograms per cubic meter (μg/m 3 ). Using the Lepeule et al. (2012) study, 46 percent of the population is expos ed above the LML of 8 μg/m 3 . It is important to note that baseline exposure is only one parameter in the health impact function, a long with baseline incidence rates, population, and change in air quality. Every benefit analysis examining the potential effe cts of a change in environmental protection requirements is limited, to some extent, by data gaps, model capabilities (such as geographic coverage) and uncertainties in the under lying scientific and economic studies used to configure t he benefit and cost models. Despite these uncertainties, we be lieve the air quality co-benefit analysis for this rule provides a reasonable indication of the expected health benefits of the a ir pollution emission reductions for the illustrative analysis o f this proposed action under a set of reasonable assumptio ns. This analysis does not include the type of detailed unce rtainty***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 427 of 478

assessment found in the 2012 PM 2.5 National Ambient Air Quality Standard (NAAQS) RIA (U.S. EPA, 2012) because we la ck the necessary air quality input and monitoring data to conduct a complete benefits assessment. In addition, using a benefit-perton approach adds another important source of uncer tainty to the

benefits estimates. The 2012 PM 2.5 NAAQS benefits analysis provides an indication of the sensitivity of our re sults to various assumptions.

We note that the monetized co-benefits estimates sh own here do not include several important benefit categories , including exposure to SO 2 , NO X , and HAP ( e.g ., mercury and hydrogen chloride), as well as ecosystem effects and visibil ity impairment. Although we do not have sufficient info rmation or modeling available to provide monetized estimates f or this rule, we include a qualitative assessment of these unquan tified benefits in the RIA for this proposal. In addition, in the RIA for this proposal, we did not estimate changes in e missions of directly emitted particles. As a result, quantified PM 2.5 related benefits are underestimated by a relatively small a mount. In the RIA for the proposed Clean Power Plan EGs, the bene fits from reductions in directly emitted PM 2.5 were less than 10 percent of

total monetized health co-benefits across all scena rios and

years.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 428 of 478

For more information on the benefits analysis, plea se refer to the RIA for this rule, which is available in the rulemaking

docket.

IX. Community and Environmental Justice Considerations In this section we provide an overview of the actio ns that the agency is taking to help ensure that vulnerable communities are not disproportionately impacted by this rulemak ing. As described in the Executive Summary, climate chan ge is an environmental justice issue. Low-income communities and communities of color already overburdened with poll ution are likely to be disproportionately affected by, and le ss resilient to, the impacts of climate change. This rulemaking will provide broad benefit to communities across the nation, as its purpose is to reduce greenhouse gases, the most significant driver of climate change. While addressing climate change wil l provide broad benefits, it is particularly beneficial to lo w-income populations and some communities of color (in parti cular, populations defined jointly by ethnic/racial charac teristics and geographic location) where people are most vulnerab le to the impacts of climate change (a more robust discussion of the impacts of climate change on vulnerable communities is provided

in the Executive Order 12898 section XII.J of this preamble).***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 429 of 478

While climate change is a global phenomenon, the ad verse effects of climate change can be very localized, as impacts such as storms, flooding, droughts, and the like are experi enced in

individual communities.

Vulnerable communities also often receive more than their fair share of conventional air pollution, with the attendant adverse health impacts. The changes in electricity generation that will res ult from this rule will further benefit communities by reduc ing existing air pollution that directly contributes to adverse localized health effects. These air quality improvements will be achieved through this rule because the EGUs that emit the mo st greenhouse gases also have the highest emissions of convention al pollutants, such as SO 2 , NO x , fine particles, and HAP. These pollutants are known to contribute to adverse healt h outcomes, including the development of heart or lung diseases , such as asthma and bronchitis, increased susceptibility to respiratory and cardiac symptoms, greater numbers of emergency room visits and hospital admissions, and premature deaths. 138 The EPA expects that the reductions in utilization of higher-emitti ng units likely to occur during the implementation of federa l plans will

138 Six Common Air Pollutants. http://www.epa.gov/oaqps001/urbanair/***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 430 of 478

produce significant reductions in emissions of conv entional pollutants, particularly in those communities alrea dy overburdened by pollution, which are often low-inco me communities, communities of color, and indigenous c ommunities.

These reductions will have beneficial effects on ai r quality and public health both locally and regionally. Further, this rulemaking complements other actions already taken by the EPA to reduce conventional pollutant emissions and improve health

outcomes for overburdened communities. By reducing millions of tons of CO 2 emissions that are contributing to global greenhouse gas levels and pr oviding strong leadership to encourage meaningful reduction s by countries across the globe, this rule is a signific ant step to address health and economic impacts of climate chan ge that will fall disproportionately on vulnerable communities. By reducing millions of tons of conventional air pollutants, th is proposed rule will lead to better air quality and improved h ealth in those communities. In the comment period for the CP P, we heard from many commenters who recognize and welcome thos e benefits. There are other ways in which the actions that resu lt from this rulemaking may affect overburdened communities in positive or potentially adverse ways and we also heard about these from

commenters.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 431 of 478

While the agency expects overall emission decreases as a result of this rulemaking, we recognize that some E GUs may operate more frequently. To the extent that we proj ect increases in utilization as a result of this rulemaking, we e xpect these increases to occur generally in lower-emitting NGCC units, which

have minimal or no emissions of SO 2 and HAP, lower emissions of particulate matter, and much lower emissions of NO x compared to higher-emitting steam units. We acknowledge the con cerns that have been raised on this point, but also the diffic ulty in anticipating prior to plan implementation where tho se impacts might occur. As described below, the EPA intends to conduct an

assessment of whether and where emission increases may result from plan implementation and mitigate adverse impac ts, if any,

in overburdened communities. In addition to the many positive anticipated health benefits of this rulemaking, it also will increase the use of clean energy and will encourage EE. These changes i n the electricity generation system, which are already oc curring, but may be accelerated by this program, are expected to have other positive benefits for communities. The electricity sector is, and will continue to be, investing more in RE and E E. The construction of renewable generation and the implem entation of EE programs such as residential weatherization will bring***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 432 of 478

investment and employment opportunities to the comm unities where they take place. It is important to ensure that all communities

share in these benefits. And while we estimate that the benefits of this program will greatly exceed its costs (as n oted in the RIA for this rulemaking), it is also important to e nsure that to the extent there are increases in electricity costs , that those do not fall disproportionately on those least able to afford

them. The EPA has engaged with community groups throughou t this rulemaking and we received many comments on the iss ues outlined above from community groups, environmental justice organizations, faith-based organizations, public he alth organizations, and others. This input has informed this final rulemaking and prompted the EPA to consider other s teps that the agency can take in the short and long term to assis t states and stakeholders to consider environmental justice and impacts to communities in plan development and implementation. It has also prompted us to work with our federal pa rtners

to make sure that communities have information on f ederal

resources available to assist them. We describe the se resources below, as well as resources that the EPA will be pr oviding to assist communities in accessing EE/RE and financial assistance

programs.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 433 of 478

Finally, and importantly, we recognize that communi ties must be able to participate meaningfully in the dev elopment of this rulemaking. In this section, we discuss the st eps that the EPA is going to be taking to assist communities in engaging with the agency throughout the comment period of this ru lemaking.

A. Proximity Analysis The EPA is committed to ensuring that there is no disproportionate, adverse impact on overburdened co mmunities as a result of this proposed rulemaking. To provide in formation fundamental to beginning that process, the EPA has conducted a proximity analysis for this proposed rulemaking tha t summarizes demographic data on the communities located near po wer plants. 139 The EPA understands that, in order to prevent dispr oportionately high and adverse human health or environmental effe cts on these communities, both the agency and communities must h ave information on the communities living near faciliti es, including demographic data, and that accessing and using cens us data files requires expertise that some community groups may l ack. Therefore, the EPA used census data from the Americ an Community Survey (ACS) 2008-2012 to conduct a proximity analy sis that can be used by communities as they engage with the agen cy throughout

139 The proximity analysis was conducted using the EPA’ s environmental justice mapping and screening tool, E JSCREEN.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 434 of 478

the comment period of this rulemaking. The analysis and its results are presented in the EJ Screening Report fo r the Clean Power Plan, which is located in the docket for this rulemaking at EPA-HQ-OAR-2015-0199. The proximity analysis provides detailed demographi c information on the communities located within a 3-m ile radius of each affected power plant in the United States. Inc luded in the analysis is the breakdown by percentage of communit y characteristics such as income and minority status. The analysis shows a higher percentage of communities of color a nd low-income communities living near power plants than national averages. It is important to note that the impacts of power plan t emissions are not limited to a 3-mile radius and the impacts of both potential increases and decreases in power plant em issions can be felt many miles away. Still, being aware of the characteristics of communities closest to power pla nts is a starting point in understanding how changes in the plant’s air emissions may affect the air quality experienced by some of those already experiencing environmental burdens. Although overall there is a higher fraction of comm unities of color and low-income populations living near pow er plants than national averages, there are differences betwe en rural and urban power plants. There are many rural power plan ts that are***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 435 of 478

located near small communities with high percentage s of lowincome populations and lower percentages of communi ties of color. In urban areas, nearby communities tend to b e both lowincome communities and communities of color. In lig ht of this difference between rural and urban communities prox imate to power plants and in order to adequately capture bot h the lowincome and minority aspects central to environmenta l justice considerations, we use the terms “vulnerable” or “o verburdened” when referring to these communities. Our intent is for these terms to be understood in an expansive sense, in or der to capture the full scope of communities, including in digenous communities most often located in rural areas, that are central to our environmental justice and community consider ations.

As stated in the Executive Order 12898 discussion l ocated in section XII.J of this preamble, the EPA believes that all communities will benefit from this proposed rulemak ing because this action directly addresses the impacts of clima te change by limiting GHG emissions through the establishment of CO 2 emission standards for existing affected fossil fuel-fired p ower plants. The EPA also believes that the information provided in the proximity analysis will promote engagement between vulnerable communities and the agency throughout the rulemakin g process. In addition to providing the proximity analysis in the docket of***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 436 of 478

this rulemaking, the EPA will make it publicly avai lable on its Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s Web site ( http://www.epa.gov/cleanpowerplan ). Furthermore, the EPA has also created an interactiv e mapping tool that illustrates where power plants are locate d and provides information on a state level. This tool is available

at: http://www.cleanpowerplanmaps.epa.gov/CleanPowerPla n/

. B. Community Engagement in This Rulemaking Process

The EPA has heard from vulnerable communities throu ghout the outreach process for the Clean Power Plan that it is imperative for communities to have an understanding of how rulemakings that target climate change work. They e xpressed a desire to know how these programs may benefit their communities and what the potential adverse impacts of the rules may be on their communities. We intend to provide communities with the information that they need to engage with the agenc y throughout the comment period. We have received feedback from communities that pub lic hearings, webinars and in-person meetings are the m ost effective ways to engage with them and to provide them with t he information that they need to understand the rulema king process. Therefore, for this rulemaking, in addition to cond ucting public hearings for all members of the American public (pl ease see the***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 437 of 478

dates section for information on the upcoming publi c hearings), the agency will hold a national webinar for communi ties in the early stages of the comment period. The goal of thi s webinar will be to walk communities through the highlights of the preamble, so they have an understanding of how the rulemaking may potentially affect their communities and they w ill have the contextual information they need to actively engage with the agency throughout the comment period. Additionally, because we received positive feedback on the effectiveness of the face-to-face meetings conducte d on the regional level, each region will be offering an out reach meeting(s) for communities. The goal of these meeti ngs is to build a level of understanding on this rulemaking t o enable vulnerable communities to actively engage with the agency throughout the comment period. Furthermore, we will follow up on common issues raised during the outreach meetings w ith national conference calls, specifically targeted for vulnera ble

communities.

C. Providing Communities with Access to Additional Res ources In section V.D of this preamble, we outline that we are seeking comment on whether a portion of this set-as ide should be targeted to RE projects that benefit low-income com munities. Furthermore, the EPA is seeking comment on how an l ow-income***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 438 of 478

community should be defined as eligible under this set-aside. We

also seek comment on how much of the set-aside shou ld be designated as targeted at over-burdened communities . We also request comment on whether the methods of approval and distribution of allowances to projects that benefit low-income communities should differ, and if so, in what manne r, from the methods that are proposed to apply to other RE proj ects. As discussed below, there are also many federal pro grams that can help low-income populations access the ben efits of renewable energy, EE, and the economic benefits of a cleaner

energy economy. In the coming months, the EPA will continue to prov ide

information and resources for low-income communitie s on existing federal, state, local, and other financial assistan ce programs to encourage EE/RE opportunities that are already a vailable to communities. For example the EPA will provide a cat alog of current or recent state and local programs that hav e successfully helped communities adopt EE/RE measure s. The goal of these resources is to help vulnerable communitie s gain the benefits of this rulemaking. The use of these RE/EE tools can also help low-income households reduce their electr icity consumption and bills. Additionally, as part of the resources that we will be***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 439 of 478

providing low-income communities, the EPA will prov ide information on the Adminstration’s Partnerships for Opportunity and Workforce and Economic Revitalization (POWER) I nitative and other programs that specifically target economic de velopment assistance to communities affected by changes in th e coal industry and the utility power sector. 140

D. Federal Programs and Resources Available to Communi ties

A. Federal Programs and Resources Available to Communi ties

Federal agencies have a history of bringing EE and renewable energy to low-income communities. Earlier this summer,

the Administration announced a new initiative to sc ale up access to solar energy and cut energy bills for all Americ ans, in particular low- and moderate-income communities, an d to create a more inclusive solar workforce. As part of this new initiative, the U.S. Department of Energy (DOE), the U.S. Depar tment of Housing and Urban Development (HUD), U.S. Departmen t of Agriculture (USDA), and the EPA launched a National Community Solar Partnership to unlock access to solar energy for the nearly 50 percent of households and businesses that are renters or do not have adequate roof space to install solar systems,

with a focus on low- and moderate- income communiti es. The

140 http://www.epa.gov/power/.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 440 of 478

Administration also set a goal to install 300 megaw atts (MW) of renewable energy in federally subsidized housing by 2020 and plants to provide technical assistance to make it e asier to install solar energy on affordable housing, includi ng clarifying how to use federal funding for EE and renewable ene rgy. To continue enhancing employment opportunities in the solar industry for all Americans, AmeriCorps is providing funding to deploy solar energy and create jobs in underserved communities, and DOE is working to expand solar energy education and opportunities for job training.

These recent announcements build on the many existi ng federal programs and resources available to improve EE and accelerate the deployment of renewable energy in vulnerable commun ities. Some examples of these resources include: the Department of Energy’s Weatherization Assistance Program, Health and Human Service’s Low Income Home Energy Assistance Program, the Departme nt of Agriculture’s Energy Efficiency and Conservation Lo an Program, High Cost Energy Grant Program, and the Rural Housi ng Service’s Multi-Family Housing Program. HUD supports EE improvements and the deployment of renewable energy on affordable housing through its Energy Efficient Mortgage Program, Multifamily Property As sessed Clean***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 441 of 478

Energy Pilot with the State of California, PowerSav er Program, and the use of Section 108 Community Development Bl ock Grants. The Department of Treasury provides several tax credits to support renewable energy development and EE in l ow-income communities, including the New Markets Tax Credit P rogram and the Low-Income Housing Tax Credit. The EPA’s RE-Pow ering America’s Land Initiative promotes the reuse of pot entially contaminated lands, landfills and mine sites – many of which are in low-income communities – for renewable energy th rough a combination of tailored redevelopment tools for com munities and developers, as well as site-specific technical supp ort. The EPA’s Green Power Partnership is increasing communi ty use of renewable electricity across the country and in low -income communities. The EPA partners with EE programs thro ughout the country that leverage ENERGY STAR to deliver broad consumer energy-saving benefits, of particular value to low- income households who can least afford high energy bills. ENERGY STAR also works with houses of worship to reduce energy costs – savings that can then be repurposed to their commun ity mission, including programs and assistance to residents in l ow-income communities. The EPA will be working with these fed eral partners

and others to ensure that states and vulnerable com munities have access to information on these programs and their r esources.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 442 of 478

The federal government also has a number of program s to expand employment opportunities in the energy secto r, including for underserved populations. Examples of these incl ude HUD, DOE, and the Department of Education’s “STEM, Energy, an d Economic Development” program; DOE’s Diversity in Science an d Technology Advances National Clean Energy in Solar (DISTANCE-S olar) Program; Grid Engineering for Accelerated Renewable Energy Deployment (GEARED); the Department of Labor’s Trad e Adjustment Assistance Community College and Career Training (T AACCCT), Apprenticeship USA Advancing Apprenticeships in the Energy Field, Job Corps Green Training and Greening of Cen ters, and YouthBuild; and the EPA’s Environmental Workforce D evelopment and Job Training (EWDJT) program.

E. Co-Pollutants Air quality in a given area is affected by emission s from nearby sources and may be influenced by emissions t hat travel

hundreds of miles and mix with emissions from other sources. 141 In the CSAPR the EPA used its authority to reduce e missions that significantly contribute to downwind exposures. The RIA for the final CSAPR anticipates substantial health benefits for the population across a wide region. Similarly, the EPA believes

141 76 FR 48348.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 443 of 478

that, like the CSAPR, this rulemaking will result i n significant health benefits because it will reduce co-pollutant emissions of

SO 2 and NO x on a regional and national basis. 142 Thus, localized

increases in NO x emissions may well be more than offset by NO x decreases elsewhere in the region that produce a ne t improvement in ozone and particulate concentrations across the area. Another effect of the final CO 2 emission standards for affected existing fossil fuel-fired EGUs may be inc reased utilization of other, unmodified EGUs - in particul ar, high efficiency gas-fired EGUs - with relatively low GHG emissions per unit of electrical output. These plants may ope rate more hours during the year and could emit pollutants, in cluding pollutants whose environmental effects would be loc alized and regional rather than global as is the case with GHG emissions. Changes in utilization already occur in response to energy demands and evolving energy sources, but the final CO 2 emission standards for affected existing fossil fuel-fired E GUs can be expected to cause more such changes. Increased util ization of solid fossil fuel-fired units generally would not i ncrease peak

concentrations of PM 2.5, NO x , or ozone around such EGUs to levels higher than those that are already occurring becaus e peak hourly

142 76 FR 48347.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 444 of 478

or daily emissions generally would not change; howe ver, increased utilization may make periods of relativel y high concentrations more frequent. It should be noted th at the gasfired sources likely to be dispatched more frequent ly have very low emissions of primary PM, SO 2, and HAP per unit of electrical output and that they must continue to comply with o ther CAA requirements that directly address the conventional pollutants, including federal emission standards, rules include d in state implementation plans, and conditions in title V ope rating permits, in addition to the guidelines in this fina l rulemaking. Therefore, local (or regional) air quality for thes e pollutants is not likely to be significantly affected. For nat ural gasfired EGUs, the EPA found that regulation of HAP em issions “is not appropriate or necessary because the impacts du e to HAP emissions from such units are negligible based on t he results of the study documented in the utility RTC.” 143 Because gas-fired EGUs emit essentially no mercury, increased utiliza tion will not increase methyl mercury concentrations in water bod ies near these affected EGUs. In studies done by DOE/NETL co mparing cost and performance of coal-and NGCC-fired generation, they assumed

SO 2 , NO x , PM (and Hg) emissions to be “negligible.” Their s tudies

143 65 FR 79831.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 445 of 478

predict NO x emissions from a NGCC unit to be approximately 10 times lower than a subcritical or supercritical coa l-fired

boiler. 144 Many, although not all, NGCC units are also very w ell

controlled for emissions of NO x through the application of after combustion controls such as selective catalytic red uction.

F. Assessing Impacts of Federal Plan Implementation It is important to the EPA that the implementation of federal plans be assessed in order to identify whet her they cause any adverse impacts on communities already ov erburdened by disproportionate environmental harms and risks. The EPA will conduct its own assessment during the implementatio n phase of this rulemaking to determine whether the implementa tion of federal plans and other air quality rules are, in f act, reducing emissions and improving air quality in all areas an d, or whether there are localized air quality impacts that need t o be

addressed under the Clean other CAA authorities. The EPA will provide trainings for communities on r esources that they can use to assess localized impacts, espe cially effects of co-pollutants, of plans on their communi ties. This

144 “Cost and Performance Baseline for Fossil Energy P lants Volume 1: Bituminous Coal and Natural Gas to Electricity” Rev 2a, September 2013 Revision 2, November 2010 DOE/NETL-2 010/1397.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 446 of 478

training will include guidance in accessing the pub licly

available information that sources and states curre ntly report that can help with ongoing assessments of federal p lan impacts. For example, unit-specific emissions data and air q uality monitoring data are readily available. This informa tion, together with the assessment that the EPA will cond uct in the implementation phase of this rulemaking will enable the agency and communities to monitor any disproportionate emi ssions that may result in adverse impacts and address them.

G. The EPA’s Continued Engagement The EPA is committed to helping ensure that this ac tion will not have disproportionate adverse human health or environmental effects on vulnerable communities. Th roughout the implementation phase of this rulemaking, the agency will continue to provide trainings and resources to assi st communities and as they engage with the agency. The EPA, through its outreach efforts during the comment period, wil l continue to solicit feedback from communities on what they woul d like additional trainings and resources on. As described above, the EPA will assess the impacts of this rulemaking during its implementation. The EPA will house this assessment, along with the proximity analysis and o ther information generated throughout the implementation process, on***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 447 of 478

its Clean Power Plan (CPP) Communities Portal that will be linked to this rulemaking’s Web site ( http://www.epa.gov/cleanpowerplan ). In addition, the EPA has expanded its set of resources that are being develo ped to help communities understand the breadth of policy option s and programs that have successfully brought EE/RE to lo w-income communities. The EPA is committed to continuing its engagement with communities from the comment period of this ru lemaking through federal plan implementation. The EPA consulted its May 2015, Guidance on Considering Environmental Justice During the Development of Reg ulatory

Actions , when crafting this rulemaking. 145 A more detailed discussion concerning the application of Executive Order 12898 in this rulemaking can be found in section XI.J of this preamble. A summary of the EPA’s interactions with communities is in the EJ Screening Report for the Clean Power P lan, available in the docket of this rulemaking. Further more, the EPA’s responses to public comments, including comme nts received from communities, are provided in the response to c omments

145 Guidance on Considering Environmental Justice Duri ng the Development of Regulatory Actions. http:// www.epa.gov/environmentaljustice/resources/policy/c onsidering-ej-inrulemaking-guide-final.pdf . May 2015.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 448 of 478

documents located in the docket for this rulemaking

. In summary, the EPA in this proposed rulemaking ha s designed an integrative approach that helps to ensure that v ulnerable communities are not disproportionately impacted by this rule. The proximity analysis that the agency has conducted is a central component of this approach. Not only is the proximi ty analysis a useful tool to help identify communities that may b e impacted by this rulemaking; it will also help communities as t hey engage with the EPA throughout the comment period. It will help the EPA as we help low-income communities access EE/RE and financ ial assistance programs. Finally, in order to continue to ensure t hat overburdened communities are not disproportionately impacted by this rule, the EPA will be conducting an assessment during the imp lementation phase of the effects of this and other rules on air quality.

X. Statutory and Executive Order Reviews Additional information about these statutes and Exe cutiveOrders can be found at http://www2.epa.gov/lawsregulations/laws-and-executive-orders.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 449 of 478

A. Executive Order 12866: Regulatory Planning and Revi ew and Executive Order 13563: Improving Regulation and Reg ulatory

Review This proposed action is an economically significant regulatory action that was submitted to the OMB for review. Any changes made in response to OMB recommendations hav e been documented in the docket. The EPA prepared an analy sis of the potential costs and benefits associated with this a ction. This analysis, which is contained in the “Regulatory Imp act Analysis for the Proposed Federal Plan Requirements for Gree nhouse Gas Emissions from Electric Utility Generating Units Co nstructed on or Before January 8, 2014; Model Trading Rules; Ame ndments to Framework Regulations” (EPA-452/R-15-006, July 2015 ), is available in the docket and is briefly summarized i n section VIII of this preamble.

Consistent with Executive Order 12866 and Executiv e Order 13563, the EPA estimated the costs and benefits for two alternative federal plan approaches to implementing the proposed federal plan and model trading rules. The proposed action will achieve the same levels of emissions performance as required of state plans under the CAA section 111(d) emission g uidelines for

the control of CO 2 . Actions taken to comply with the guidelines will also reduce the emissions of directly-emitted PM 2.5 , SO 2 and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 450 of 478

NO X . The benefits associated with these PM 2.5 , SO 2 and NO X reductions are referred to as co-benefits, as these reductions are not the primary objective of this rule. The Regulatory Impact Analysis (RIA) for this propo sal analyzed two implementation scenarios, which we ter m the “ratebased federal plan approach” and the “mass-based fe deral plan approach”. It is very important to note that the di fferences between the analytical results for the rate-based a nd mass-based federal plan approaches presented in the RIA may no t be indicative of likely differences between the approa ches if implemented by states and affected EGUs in response to the proposed rule. In other words, if one approach perf orms differently than the other on a given metric during a given time period, this does not imply this will apply in all instances. It is important to note that the potential regulato ry impacts presented in the Clean Power Plan Final Rul e RIA and the RIA for this proposed rule are not additive. Both R IAs present estimates of the benefits and costs of achieving th e emission performance rates of the Clean Power Plan EGs. In t he case of the Clean Power Plan Final Rule RIA, the illustrati ve analysis assumes the performance rates are met under state p lans. In the case of this RIA for the proposed federal plan and model trading rules, the same performance rates are accomplished but are***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 451 of 478

assumed to be achieved under the federal plan or mo del trading

rules.

The EPA has used the social cost of carbon estimate s presented in the Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised July 2015) (“current TSD”) to analyze CO 2 climate impacts of this rulemaking. We refer to these estimates, which were developed by the U.S. government, as “SC-CO 2 estimates.” The

SC-CO 2 is an estimate of the monetary value of impacts associated with a marginal change in CO 2 emissions in a given year. The four SC-CO 2 estimates are associated with different discount rates (model average at 2.5 perc ent discount rate, 3 percent, and 5 percent; 95 th percentile at 3 percent), and each increases over time. In this s ummary, the EPA provides the estimate of climate benefits

associated with the SC-CO 2 value deemed to be central in the current TSD: the model average at 3 percent discoun t rate. The EPA estimates that, in 2020, the proposal will yield monetized climate benefits (in 2011$) of approximately $2.8 billion for the rate-based appro ach and $3.3 billion for the mass-based approach (3 percent model average). For the rate-based approach, the air poll ution***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 452 of 478

health co-benefits in 2020 are estimated to be $0.7 billion to $1.8 billion (2011$) for a 3 percent discount ra te and $0.64 billion to $1.7 billion (2011$) for a 7 perce nt

discount rate. For the mass-based approach, the air pollution health co-benefits in 2020 are estimated to be $2.0 billion to $4.8 billion (2011$) for a 3 percen t discount rate and $1.8 billion to $4.4 billion (201 1$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR costs in 2020, are approx imately $2.5 billion for the rate-based approach and $1.4 b illion for the mass-based approach (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2020 are estimated to range fr om $1.0 billion to $2.1 billion (2011$) for the rate-based approach and from $3.9 billion to 6.7 billion (2011$) for th e massbased approach, using a 3 percent discount rate (mo del average). The EPA estimates that, in 2025, the proposal will yield monetized climate benefits (in 2011$) of approximat ely $10 billion for the rate-based approach and $12 billion for the mass-based approach (3 percent model average). For the ratebased approach, the air pollution health co-benefit s in 2025 are***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 453 of 478

estimated to be $7.4 billion to $18 billion (2011$) for a 3 percent discount rate and $6.7 billion to $16 billi on (2011$) for a 7 percent discount rate. For the mass-based a pproach, the air pollution health co-benefits in 2025 are estima ted to be $7.1 billion to $17 billion (2011$) for a 3 percent discount rate and $6.5 billion to $16 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimate d by IPM and inclusive of DS-EE program and participant costs an d MRR costs in 2025, are approximately $1.0 billion for the rat e-based approach and $3.0 billion for the mass-based approa ch (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2025 are estimate d to range from $17 billion to $27 billion (2011$) for the rat e-based approach and $16 billion to $26 billion (2011$) for the massbased approach, using a 3 percent discount rate (mo del average). The EPA estimates that, in 2030, the proposal will yield monetized climate benefits (in 2011$) of approximat ely $20 billion for the rate-based approach and $20 billion for the mass-based approach (3 percent model average). For the ratebased approach, the air pollution health co-benefit s in 2030 are estimated to be $14 billion to $34 billion (2011$) for a 3 percent discount rate and $13 billion to $31 billio n (2011$) for a 7 percent discount rate. For the mass-based appro ach, the air***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 454 of 478

pollution health co-benefits in 2030 are estimated to be $12 billion to $28 billion (2011$) for a 3 percent disc ount rate and $11 billion to $26 billion (2011$) for a 7 percent discount rate. The annual compliance costs estimated by IPM and inclusive of DS-EE program and participant costs and MRR cost s in 2030, are approximately $8.4 billion for the rate-based a pproach and $5.1 billion for the mass-based approach (2011$). T he quantified net benefits (the difference between monetized bene fits and compliance costs) in 2030 are estimated to range fr om $26 billion to $45 billion (2011$) for the rate-based a pproach and from $26 billion to $43 billion (2011$) for the mas s-based approach, using a 3 percent discount rate (model av erage). Table 18 and Table 19 of this preamble provide the estimates of the climate benefits, health co-benefi ts, compliance costs and net benefits of the proposal f or rate-based and mass-based federal plan approaches, respectivel y. Table 18. Summary of the Monetized Benefits, Compli ance Costs, and Net Benefits for the Proposal in 2020, 2025 and 2030 Under the Rate-Based Federal Plan Approach [Billion s of 2011$] a Rate-Based Approach 2020 2025 2030 Climate Benefits b***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 455 of 478

5% discount rate $0.80 $3.1 $6.4

3% discount rate $2.8 $10 $20

2.5% discount rate $4.1 $15 $29

95th percentile at 3% discount rate $8.2 $31 $61

Air Quality Co-benefits Discount Rate

3% 7% 3% 7% 3% 7% Air QualityHealth Cobenefits c $0.70

to $1.8 $0.64

to $1.7 $7.4

to $18 $6.7 to

$16 $14 to

$34 $13 to

$31 Compliance Costs d $2.5 $1.0 $8.4

Net Benefits e $1.0 to

$2.1 $1.0 to

$2.0 $17 to

$27 $16 to

$25 $26 to

$45 $25 to

$43

NonMonetized Benefits Non-monetized climate benefits

Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in emissions of NO X , SO 2 , PM, and mercury Visibility impairment

a All are rounded to two significant figures, so fig ures may not sum.

b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 456 of 478

changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occ ur over many years. The benefit estimates in this table are base d on the average SC-CO 2 estimated for a 3 percent discount rate. However, we emphasize the importance and value of considerin g the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, an d 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are yearspecific and increase over time.

c The air pollution health co-benefits reflect reduce d exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The range reflects the use of concentration-respo nse functions from different epidemiology studies. The co-benefits do not include the benefits of reductions in direct ly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the analyses conducted fo r the Clean Power Plan proposed rule. The reduction in prematur e fatalities each year accounts for over 98 percent of total mon etized cobenefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemical composition , are equally potent in causing premature mortality because the s cientific evidence is not yet sufficient to allow differentia tion of effect estimates by particle type.

d Costs are approximated by the compliance costs esti mated using the Integrated Planning Model for this proposal and a discount rate of approximately 5 percent. This estimate incl udes monitoring, recordkeeping, and reporting costs and DS-EE program and participant costs.

e The estimates of net benefits in this summary tabl e are calculated using the global SC-CO 2 at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on additional discount rates.

Table 19. Summary of the Monetized Benefits, Compli ance Costs, and Net Benefits for the Proposal in 2020, 2025 and 2030***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 457 of 478

Under the Mass-Based Federal Plan Approach [Billion s of 2011$] a Mass-Based Approach 2020 2025 2030 Climate Benefits b 5% discount rate $0.9 $3.6 $6.4

3% discount rate $3.3 $12 $20

2.5% discount rate $4.9 $17 $29

95th percentile at 3% discount rate $9.7 $35 $60

Air Quality Co-benefits Discount Rate

3% 7% 3% 7% 3% 7% Air QualityHealth Cobenefits c $2.0 to

$4.8 $1.8 to

$4.4 $7.1

to $17 $6.5 to

$16 $12 to

$28 $11 to

$26 Compliance Costs d $1.4 $3.0 $5.1

Net Benefits e $3.9 to

$6.7 $3.7 to

$6.3 $16 to

$26 $15 to

$24 $26 to

$43 $25 to

$40

NonMonetized Benefits Non-monetized climate benefits

Reductions in exposure to ambient NO 2 and SO 2 Reductions in mercury deposition Ecosystem benefits associated with reductions in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 458 of 478

emissions of NO X , SO 2 , PM, and mercury Visibility improvement

a All are rounded to two significant figures, so fig ures may not sum.

b The climate benefit estimate in this summary table reflects global impacts from CO 2 emission changes and does not account for changes in non-CO 2 GHG emissions. Also, different discount rates are applied to SC-CO 2 than to the other estimates because CO 2 emissions are long-lived and subsequent damages occ ur over many years. The benefit estimates in this table are base d on the average SC-CO 2 estimated for a 3 percent discount rate. However, we emphasize the importance and value of considerin g the full range of SC-CO 2 values. As shown in the RIA, climate benefits are also estimated using the other three SC-CO 2 estimates (model average at 2.5 percent discount rate, 3 percent, an d 5 percent; 95 th percentile at 3 percent). The SC-CO 2 estimates are yearspecific and increase over time.

c The air pollution health co-benefits reflect reduce d exposure to PM 2.5 and ozone associated with emission reductions of SO 2 and NO X . The co-benefits do not include the benefits of re ductions in directly emitted PM 2.5 . These additional benefits would increase overall benefits by a few percent based on the anal yses conducted for the Clean Power Plan proposed rule. T he range reflects the use of concentration-response function s from different epidemiology studies. The reduction in pr emature fatalities each year accounts for over 98 percent o f total monetized co-benefits from PM 2.5 and ozone. These models assume that all fine particles, regardless of their chemic al composition, are equally potent in causing prematur e mortality because the scientific evidence is not yet sufficie nt to allow differentiation of effect estimates by particle typ e.

d Costs are approximated by the compliance costs esti mated using the Integrated Planning Model for this proposal and a discount rate of approximately 5 percent. This estimate incl udes monitoring, recordkeeping, and reporting costs and DS-EE program and participant costs.

e The estimates of net benefits in this summary tabl e are calculated using the global SC-CO 2 at a 3 percent discount rate***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 459 of 478

(model average). The RIA includes combined climate and health estimates based on additional discount rates. There are additional important benefits that the EP A could not monetize. Due to current data and modeling limi tations, our estimates of the benefits from reducing CO 2 emissions do not include important impacts like ocean acidification or potential tipping points in natural or managed ecosystems. Un quantified

benefits also include climate benefits from reducin g emissions

of non-CO 2 greenhouse gases ( e.g ., nitrous oxide and methane) and co-benefits from reducing direct exposure to SO 2 , NO X , and HAP ( e.g ., mercury), as well as from reducing ecosystem eff ects and visibility impairment. Based upon the foregoing dis cussion, it remains clear that the benefits of this proposed ac tion are substantial, and far exceed the costs. Additional d etails on benefits, costs, and net benefits estimates are pro vided in the RIA for this proposal.

B. Paperwork Reduction Act (PRA) The information collection requirements in this rul e have been submitted for approval to OMB under the PRA. T he Information Collection Request (ICR) document prepa red by the EPA has been assigned EPA ICR number 2526.01 . You can find a copy of the ICR in the docket for this rule, and it is briefly summarized here. The information collection require ments are not***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 460 of 478

enforceable until approved by OMB.

This rule does not directly impose specific require ments on state and U.S. territory governments with affected EGUs. The rule also does not impose specific requirements on tribal governments that have affected EGUs located in thei r area of Indian country. This rule does impose specific requ irements on EGUs located in states, U.S. territories or areas o f Indian country. The information collection activities in this propo sed rule

are consistent with those activities defined under the Carbon Pollution Emission Guidelines for Existing Stationa ry Sources: Electric Utility Generating Units (79&&&XX FR 34830 XXX; the Clean Power Plan) finalized on &&&July 31, 2015. Th e information collection requirements in this proposed rule have been submitted for approval to the Office of Management and Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. The Information Collection Request (ICR) document p repared by the EPA has been assigned EPA ICR number 2526.01. Y ou can find a copy of the ICR in the docket for this rule, and it is briefly

summarized here. Aside from reading and understanding the rule, this proposed action would impose minimal new informatio n collection burden on affected EGUs beyond what those affected EGUs would***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 461 of 478

already be subject to under the authorities of CAA parts 75 and 98. OMB has previously approved the information col lection requirements contained in the existing part 75 and 98 regulations (40 CFR part 75 and 40 CFR part 98) und er the provisions of the Paperwork Reduction Act, 44 U.S.C . 3501 et seq. and has assigned OMB control numbers 2060–0626 and 2060– 0629, respectively. Apart from certain reporting co sts based on requirements in the NSPS General Provisions (40 CFR part 60, subpart A), which are mandatory for all owners/oper ators subject to CAA section 111 national emission standards, the re are no new information collection costs, as the information re quired by this proposed rule is already collected and reporte d by other regulatory programs. The recordkeeping and reportin g requirements are specifically authorized by CAA sec tion 114 (42 U.S.C. 7414). All information submitted to the EPA pursuant to the recordkeeping and reporting requirements for wh ich a claim of confidentiality is made is safeguarded according to agency policies set forth in 40 CFR part 2, subpart B. Although EPA cannot determine at this time how many affected EGU respondents will submit information un der the federal plan, EPA has estimated an “upper bound” bu rden estimate for this ICR that estimates burden should every aff ected EGU read and understand the rule. This is the only pote ntial***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 462 of 478

respondent activity that would be required under th e 3-year period following publication of the final federal p lan, so there are no obligations to respond in this period. The r esults of this “upper bound” estimate of federal plan burden are presented

below: Respondents/affected entities: 1,028 Respondents’s obligation to respond: Not applicable , no responses are required during the period covered by the ICR. Estimated number of respondents: Unknown at this ti me, but have assumed all affected entities are respondents for an upper

bound estimate. Frequency of response: None, no responses are requi red during the period covered by the ICR. Total estimated burden: 17,133 hours (per year). Bu rden is defined at 5 CFR 1320.3(b). Total estimated cost: $1,706,501 (per year) An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA’s regulations in 40 CFR are lis ted in 40 CFR part 9. Submit your comments on the agency’s need for this information, the accuracy of the provided burden es timates and***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 463 of 478

any suggested methods for minimizing respondent bur den to the EPA using the docket identified at the beginning of this rule. You may also send your ICR-related comments to OMB’ s Office of Information and Regulatory Affairs via email to oria_submissions@omb.eop.gov , Attention: Desk Officer for the EPA. Since OMB is required to make a decision conce rning the ICR between 30 and 60 days after receipt, OMB must rece ive comments

no later than [insert date 30 days after date of publication in the Federal Register] . The EPA will respond to any ICR-related

comments in the final rule.

C. Regulatory Flexibility Act (RFA) Pursuant to section 603 of the RFA, the EPA prepare d an initial regulatory flexibility analysis (IRFA) that examines the impact of the proposed rule on small entities along with regulatory alternatives that could minimize that im pact. The complete IRFA is available for review in the docket and is

summarized here. [&&&Insert summary of IRFA here] As required by section 609(b) of the RFA, the EPA a lso convened a Small Business Advocacy Review (SBAR) Pa nel to obtain advice and recommendations from small entity repres entatives that potentially would be subject to the rule's req uirements.

The SBAR Panel evaluated the assembled materials an d small-***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 464 of 478

entity comments on issues related to elements of an IRFA. A copy of the full SBAR Panel Report is available in the r ulemaking

docket. The EPA also considered whether the separate change s that we are proposing to make, as explained in section V II of this preamble above, to the framework regulations in sub part B of part 60 of the CAA regulations would have any impac ts on small entities. Since these changes only modify and enhan ce the procedures that the Administrator will follow in pr ocessing state plans and promulgating a federal plan, and do not alter the rules or requirements that states or regulated entities must follow, the agency does not believe that there will be economic impacts on small entities from this portion of this proposal. After considering the economic impacts of the propo sed changes to 40 CFR 60.27, I certify those changes will not h ave a significant economic impact on a substantial number of small

entities.

D. Unfunded Mandates Reform Act (UMRA) [&&&based on preliminary analysis] This action contains a federal mandate under UMRA, 2 U.S.C. 1531–1538, that may result in expenditures of $100 million or more for state, local and tribal governments, in th e aggregate, or the private sector in any 1 year. Accordingly, t he EPA has***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 465 of 478

prepared the written statement required under secti on 202 of

UMRA that is included in the docket for this action and briefly summarized here. [&&&Insert a concise summary of th e written statement including a brief description of the inte rgovernmental consultation.] This action may significantly or uniquely affect sm all governments. The EPA consulted with small governmen ts concerning the regulatory requirements that might significantl y or uniquely

affect them

. E. Executive Order 13132: Federalism [&&&based on preliminary analysis] Under Executive Order 13132, the EPA may not issue an action that has federalism implications, that impos es substantial direct compliance costs, and that is no t required by statute, unless the federal government provides the funds necessary to pay the direct compliance costs incurr ed by state and local governments, or the EPA consults with sta te and local officials early in the process of developing the pr oposed action. The EPA has concluded that this action may have federalism implications, because it may impose subs tantial direct compliance costs on state or local governmen ts, and the federal government will not provide the funds neces sary to pay those costs. As discussed in the supporting stateme nt found in***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 466 of 478

the docket for this rulemaking, [&&& Insert text co nsistent with PRA analysis].

The EPA consulted with state and local officials ea rly in the process of developing the Clean Power Plan EGs to permit them to have meaningful and timely input into its d evelopment. As described in the Federalism discussion in the pr eamble to the proposed standards of performance for GHG emissions from new EGUs (79 FR 1501, January 8, 2014), the EPA consult ed with state and local officials in the process of developing th e proposed standards for newly constructed EGUs. A detailed Fe deralism Summary Impact Statement (FSIS) describing the most pressing issues raised in pre-proposal and post-proposal com ments will be forthcoming with the final rule, as required by sec tion 6(b) of Executive Order 13132. In the spirit of Executive O rder 13132, and consistent with the EPA’s policy to promote com munications between the EPA and state and local governments, th e EPA specifically solicits comment on this proposed acti on from state

and local officials.

F. Executive Order 13175: Consultation and Coordinatio n with

Indian Tribal Governments This proposed action has tribal implications. Howev er, it will neither impose substantial direct compliance costs on federally***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 467 of 478

recognized tribal governments, nor preempt tribal l aw. The EGU potentially impacted by this proposed rulemaking lo cated on Indian reservations are primarily owned by private entities, and in one case, partially owned by an agency of th e United States government. As a result, the tribes on whose areas of Indian country those units are located will not be directly impacted by any costs of complying with this propos ed rulemaking incurred by the owners/operators of those units. Th ere would only be tribal implications in regards to complianc e costs associated with this proposed rulemaking in the cas e where a tribal government has an ownership interest in a po tentially affected EGU. A tribal government could also incur costs in the event that it seeks and is given delegated authorit y to enforce the federal plan proposed in this rulemaking. The E PA has, nevertheless, offered consultation to the tribes on whose areas of Indian country the units are located. As part of its general outreach to tribes regarding this proposed rulemaki ng, the EPA received feedback from a number of tribes regarding the potential overall economic impact that both the pro posed Clean Power Plan and a proposed federal plan rulemaking m ay have on them. In these instances, the EPA has reached out t o these tribes and as part of the consultation on the Clean Power Plan engaged with them on their concerns regarding a pot ential***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 468 of 478

federal plan.

The EPA has conducted consultation with tribes on t he Clean Power Plan and the Supplemental Proposal for the Cl ean Power

Plan and will offer all tribes consultation on this proposed

action. The EPA held consultations with tribes on t he Clean Power Plan in the fall of 2014 before the agency is sued its Supplemental Proposal for Indian Country and U.S. T erritories. Additionally, the EPA held consultations for tribes shortly following the release of the supplemental proposal. The agency also held a public hearing on the supplemental prop osal on November 19, 2014, in Phoenix, Arizonia. At the pub lic hearing the agency received oral comments from community me mbers representing a number of tribes and a number of tri bal officals. The agency also conducted consultation with tribes in the spring

and summer of 2015. An overview of the consultation s provided as part of the Clean Power Plan is available in sectio n XII.F of

the final EGs. Additionally, the EPA engaged in meaningful dialogu e with

tribal stakeholders to obtain their feedback in the pre-proposal stages of this rulemaking. We provided an update on this proposed rulemaking on the May 28, 2015, National T ribal Air Association (NTAA) and the EPA Air Policy call. Add itionally,

staff attended the National Tribal Forum conference on May 20,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 469 of 478

2015 and provided an overview of the Clean Power Pl an and explained that the agency would be proposing a fede ral plan.

certification is included in the docket for this ac tion. Consistent with previous rulemakings impacting the power sector, there is significant tribal interest in the se rulemakings because of the potential indirect impac ts that rules such as the Clean Power Plan and this proposed fede ral plan may have on tribes. The EPA specifically solicits addit ional feedback from tribal officials on all aspects of th is proposed rulemaking, including whether tribes whose areas of Indian country contain affected EGU(s) are interested in d eveloping their own plan implementing the final emission guid elines. Additionally, tribal stakeholders will be included in the outreach that the agency will be conducting with th ose communities already overburdened by pollution, whic h are often low-income communties, communities of color, , and indigenous communities. The actions that the agency will be ta king are outlined in section IX of this preamble.

G. Executive Order 13045: Protection of Children from Environmental Health Risks and Safety Risks The EPA interprets EO 13045 (62 FR 19885, April 23, 1997) as applying to those regulatory actions that concer n health or safety risks, such that the analysis required under section 5–***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 470 of 478

501 of the Order has the potential to influence the regulation. This action is not subject to EO 13045 because it d oes not involve decisions on environmental health or safety risks that may disproportionately affect children. The EPA bel ieves that

the CO 2 emission reductions resulting from implementation of the proposed guidelines, as well as substantial ozone a nd PM2.5 emission reductions as a cobenefit, would further i mprove children’s health.

H. Executive Order 13211: Actions That Significantly A ffect Energy Supply, Distribution, or Use This action, which is a significant regulatory acti on under EO 12866, is likely to have a significant effect on the supply, distribution, or use of energy. The EPA has prepare d a Statement of Energy Effects for this action as follows. We es timate a 1 to 2 percent change in retail electricity prices on av erage across the contiguous U.S. in 2025, and a 22 to 23 percent reduction in coal-fired electricity generation as a result of th is rule. The EPA projects that utility power sector delivered na tural gas prices will increase by up to 2.5 percent in 2030. For more information on the estimated energy effects, please refer to the economic impact analysis for this proposal. The ana lysis is available in the RIA, which is in the public docket

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 471 of 478

I. National Technology Transfer and Advancement Act (N TTAA) This proposed action does not involve technical sta ndards.

J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and L ow-Income Populations Executive Order 12898 (59 FR 7629; February 16, 199 4) establishes federal executive policy on environment al justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make en vironmental justice part of their mission by identifying and ad dressing, as appropriate, disproportionately high and adverse hu man health or environmental effects of their programs, policies, and activities on minority populations and low-income p opulations in the U.S. The EPA defines environmental justice as t he fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respec t to the development, implementation, and enforcement of env ironmental laws, regulations, and policies. The EPA has this g oal for all communities and persons across this Nation. It will be achieved when everyone enjoys the same degree of protection from environmental and health hazards and equal access t o the decision-making process to have a healthy environme nt in which***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 472 of 478

to live, learn, and work. Leading up to this rulemaking the EPA summarized th e public

health and welfare effects of GHG emissions in its 2009 Endangerment Finding. As part of the Endangerment F inding, the Administrator considered climate change risks to mi nority populations and low-income populations, finding tha t certain parts of the population may be especially vulnerabl e based on their characteristics or circumstances. Populations that were found to be particularly vulnerable to climate chan ge risks include the poor, the elderly, the very young, thos e already in poor health, the disabled, those living alone, and/ or indigenous populations dependent on one or a few resources. Se e sections X.F and X.G of this preamble, above, where the EPA discusses

Consultation and Coordination with Tribal Governmen ts and Protection of Children. The Administrator placed we ight on the fact that certain groups, including children, the e lderly, and the poor, are most vulnerable to climate-related he alth effects. The record for the 2009 Endangerment Finding summar izes the strong scientific evidence in the major assessment reports by the U.S. Global Change Research Program (USGCRP), t he Intergovernmental Panel on Climate Change (IPCC), a nd the National Research Council (NRC) of the National Aca demies that the potential impacts of climate change raise envir onmental***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 473 of 478

justice issues. These reports concluded that poor c ommunities can be especially vulnerable to climate change impa cts because they tend to have more limited adaptive capacities and are more dependent on climate-sensitive resources such as lo cal water and food supplies. In addition, Native American tribal communities possess unique vulnerabilities to climate change, p articularly those impacted by degradation of natural and cultur al resources

within established reservation boundaries and threa ts to traditional subsistence lifestyles. Tribal communit ies whose health, economic well-being, and cultural tradition s that depend upon the natural environment will likely be affecte d by the degradation of ecosystem goods and services associa ted with climate change. The 2009 Endangerment Finding recor d also specifically noted that Southwest native cultures a re especially vulnerable to water quality and availability impact s. Native Alaskan communities are already experiencing disrup tive impacts, including coastal erosion and shifts in the range o r abundance of wild species crucial to their livelihoods and we ll-being. The most recent assessments continue to strengthen scientific understanding of climate change risks to minority populations and low-income populations in the Unite d States. 146

146 Melillo, Jerry M., Terese (T.C.) Richmond, and Gar y W. Yohe,***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 474 of 478

The new assessment literature provides more detaile d findings regarding these populations’ vulnerabilities and pr ojected impacts they may experience. In addition, the most recent assessment reports provide new information on how s ome communities of color may be uniquely vulnerable to climate change health impacts in the United States. These r eports find that certain climate change related impacts—includi ng heat

Eds., 2014: Climate Change Impacts in the United States: The Th ird National Climate Assessment. U.S. Global Change Research Program, 841 pp.

IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Field, C .B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. Mastrandrea, T .E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.)]. Cambridge University Press, 1132 pp.

IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects . Contribution of Working Group II to the Fifth Assessment Report of the Inte rgovernmental Panel on Climate Change [Barros, V.R., C.B. Field, D.J. Dokken, M.D. Mastrandrea, K.J. Mach, T.E. Bilir, M. Chatter jee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A .N. Levy, S. MacCracken, P.R. Mastrandrea, and L.L. White (eds.) ]. Cambridge University Press, 688 pp.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 475 of 478

waves, degraded air quality, and extreme weather ev ents—have disproportionate effects on low-income populations and some communities of color (in particular, populations de fined jointly by ethnic/racial characteristics and geographic loc ation), raising environmental justice concerns. Existing he alth disparities and other inequities in these communiti es increase their vulnerability to the health effects of climat e change. In addition, assessment reports also find that climate change poses particular threats to health, well-being, and ways of life of indigenous peoples in the United States. As the scientific literature presented above and as the 2009 Endangerment Finding illustrates, low income p opulations and some communities of color are especially vulner able to the health and other adverse impacts of climate change. The EPA believes that communities will benefit from this pr oposed federal plan because this action directly addresses the impacts of climate change by limiting GHG emissions through the

establishment of CO 2 emission standards for existing affected

fossil fuel-fired EGUs. In addition to reducing CO 2 emissions, the guidelines finalized in this rulemaking would reduce other emi ssions from affected EGUs that reduce generation due to higher adoption of EE and renewable energy. These emission reductions will include***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 476 of 478

SO 2 and NO x , which form ambient PM 2.5 and ozone in the atmosphere, and HAP, such as mercury and hydrochloric acid. In the final rule revising the annual PM 2.5 NAAQS, 147 the EPA identified lowincome populations as being a vulnerable population for experiencing adverse health effects related to PM e xposures. Low-income populations have been generally found to have a higher prevalence of pre-existing diseases, limited access to medical treatment, and increased nutritional defici encies, which can increase this population’s susceptibility to PM -related

effects. 148 In areas where this rulemaking reduces exposure to

PM 2.5 , ozone, and methylmercury, low-income populations will also

benefit from such emissions reductions. The RIA for this rulemaking, included in the docket for this rulemak ing, provides additional information regarding the health and eco system

effects associated with these emission reductions. Additionally, as outlined in the community and envi ronmental justice considerations section IX of this preamble, the EPA has

147 “National Ambient Air Quality Standards for Partic ulate Matter, Final Rule,” 78 FR 3086 (Jan. 15, 2013).

148 U.S. Environmental Protection Agency (U.S. EPA). 20 09. Integrated Science Assessment for Particulate Matte r (Final Report) . EPA-600-R-08-139F. National Center for Environmen tal Assessment – RTP Division. December. Available on t he Internet at http://www.cfpub.epa.gov/ncea/cfm/recordisplay.cfm? deid=216546

.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 477 of 478

taken a number of actions to help ensure that this action will not have potential disproportionately high and adverse human health or

environmental effects on vulnerable communities. Th e EPA consulted its May 2015, Guidance on Considering Environmental Justice Durin g the Development of Regulatory Actions , when determining what

actions to take. 149 As described in the community and environmental justice considerations section of this preamble the EPA also conducted a proximity analysis, which is available in the docket of this rulemaking and is discussed in section IX o f this preamble. Additionally, as outlined in sections I and IX of t his preamble the EPA has engaged meaningfully with communities t hroughout the development of the CPP and has devised a robust out reach strategy for continual engagement throughout this rulemaking

.

149 Guidance on Considering Environmental Justice Duri ng the Development of Regulatory Actions. http://epa.gov/environmentaljustice/resources/polic y/considering -ej-in-rulemaking-guide-final.pdf. May 2015.***E.O. 12866 Review–Draft–Do Not Cite, Quote or Re lease During Review*** Page 478 of 478

List of Subject in 40 CFR Part 62 Environmental protection, Administrative practice a nd procedure, Air pollution control, Intergovernmental relations, Reporting and recordkeeping requirements

.

Dated: _________________.

________________________ Gina McCarthy, Administrator.