Document ID: EPA-HQ-OAR-2016-0033-0001
Agency: epa
Document Type: Proposed Rule
Title: Clean Energy Incentive Program Design Details
Posted Date: 2016-06-30T04:00Z

[Federal Register Volume 81, Number 126 (Thursday, June 30, 2016)]
[Proposed Rules]
[Pages 42939-42982]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-15000]

[[Page 42939]]

Vol. 81

Thursday,

No. 126

June 30, 2016

Part V

Environmental Protection Agency

-----------------------------------------------------------------------

40 CFR Parts 60 and 62

 Clean Energy Incentive Program Design Details; Proposed Rule

  Federal Register / Vol. 81 , No. 126 / Thursday, June 30, 2016 / 
Proposed Rules  

[[Page 42940]]

-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 60 and 62

[EPA-HQ-OAR-2016-0033; FRL-9945-01-OAR]
RIN 2060-AS84

Clean Energy Incentive Program Design Details

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: In this action, the Environmental Protection Agency (EPA) is 
proposing design details of the Clean Energy Incentive Program (CEIP). 
The CEIP is a program that states have the option to adopt if they wish 
to incentivize certain early emission reduction projects under the 
Carbon Pollution Emission Guidelines for Existing Stationary Sources: 
Electric Utility Generating Units (also known as the Clean Power Plan 
Emission Guidelines (EGs)). The framework for the CEIP was established 
in the Clean Power Plan EGs, where the EPA also noted that the design 
details of the program would be developed in a follow-on action. This 
proposal addresses those design details. In addition, we are re-
proposing the CEIP-related aspects of the proposed rate-based and mass-
based model trading rules--referred to in this action as optional 
example regulatory text. This proposal is consistent with the Supreme 
Court's orders staying the Clean Power Plan during judicial review. The 
timing elements of the CEIP may be adjusted, if necessary, upon 
resolution of the petitions for review of the Clean Power Plan.

DATES: Comments. Comments must be received on or before August 29, 
2016.
    Public Hearing. The EPA will hold one public hearing on the CEIP 
design details proposed rule. The hearing will be held to accept oral 
comments on the proposal. The hearing will be held in Chicago, 
Illinois, on August 3, 2016. The hearing will begin at 9:00 a.m. 
Central Standard Time CST and will conclude at 8:00 p.m. (CST). 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.

ADDRESSES: Comments. Submit your comments, identified by Docket ID No. 
EPA-HQ-OAR-2016-0033, at http://www.regulations.gov. Follow the online 
instructions for submitting comments. Once submitted, comments cannot 
be edited or removed from Regulations.gov. The EPA may publish any 
comment received to its public docket. Do not submit electronically any 
information you consider to be Confidential Business Information (CBI) 
or other information whose disclosure is restricted by statute. 
Multimedia submissions (audio, video, etc.) must be accompanied by a 
written comment. The written comment is considered the official comment 
and should include discussion of all points you wish to make. The EPA 
will generally not consider comments or comment contents located 
outside of the primary submission (i.e., on the Web, cloud, or other 
file sharing system). For additional submission methods, the full EPA 
public comment policy, information about CBI or multimedia submissions 
and general guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa-dockets.
    Instructions. Direct your comments on the CEIP Design Details 
proposed rule to Docket ID No. EPA-HQ-OAR-2016-0033. The EPA's policy 
is that all comments received will be included in the public docket and 
may be made available online at http://www.regulations.gov, including 
any personal information provided, unless the comment includes 
information claimed to be CBI or other information whose disclosure is 
restricted by statute. Do not submit information that you consider to 
be CBI or otherwise protected through http://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 identity or 
contact information unless you provide it in the body of your comment. 
If you send an email comment directly to the 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 
electronic comment, the EPA recommends that you include your name and 
other contact information in the body of your comment and with any disk 
or CD-ROM you submit. If the EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, the 
EPA may not be able to consider your comment. Electronic files should 
avoid the use of special characters, any form of encryption, and be 
free of any defects or viruses.
    Docket. The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2016-0033. The EPA has previously established 
a docket for the June 18, 2014, Clean Power Plan proposal under Docket 
ID No. EPA-HQ-OAR-2013-0602. All documents in the docket are listed in 
the http://www.regulations.gov index. Although listed in the index, 
some information is not publicly available, e.g., CBI or other 
information whose disclosure is restricted by statute. Certain other 
material, such as copyrighted material, will be publicly available only 
in hard copy form. Publicly available docket materials are available 
either electronically at http://www.regulations.gov or in hard copy at 
the EPA Docket Center (EPA/DC), EPA WJC West Building, Room 3334, 1301 
Constitution Ave. NW., Washington, DC. The Public Reading Room is open 
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding holidays. 
The telephone number for the Public Reading Room is (202) 566-1744, and 
the telephone number for the EPA Docket Center is (202) 566-1742.
    Public Hearing. The hearing will be held in Chicago, Illinois, on 
August 3, 2016; in the Lake Michigan Room, Ralph Metcalfe Federal 
Building, 77 West Jackson Boulevard. The hearing will begin at 9:00 
a.m. Central Standard Time CST and will conclude at 8:00 p.m. (CST). 
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 register to speak at the hearing, please use the online 
registration form available at http://www.epa.gov/cleanpowerplan/clean-energy-incentive-program or please contact Ms. Pamela Garrett at (919) 
541-7966 or send an email to publichearing@epa.gov. The last day to 
pre-register to speak at the hearing will be Monday, August 1, 2016. 
Additionally, requests to speak will be taken the day of the hearing at 
the hearing registration desk, although preferences on speaking times 
may not be able to be fulfilled. Please note that registration requests 
received before the hearing will be confirmed by the EPA via email. We 
cannot guarantee that we can accommodate all timing requests and will 
provide requestors with the next available speaking time in the event 
that their requested time is taken. Please note that the time outlined 
in the confirmation email received will be the scheduled speaking time. 
Again, depending on the flow of the day, times may fluctuate. If you 
require the service of a translator or special accommodations such as 
audio description, we ask that you pre-register for the hearing by 
Friday, July 22, 2016, as we may not be able to arrange such 
accommodations without advance notice. Please note that any updates 
made to any aspect of the hearing will

[[Page 42941]]

be posted online at http://www.epa.gov/cleanpowerplan.www.epa.gov/cleanpowerplan. While the EPA expects the hearing to go forward as set 
forth previously, we ask that you monitor our Web site or contact Ms. 
Pamela Garrett at (919) 541-7966 or at garrett.pamela@epa.gov to 
determine if there are any updates to the information on the hearings. 
The EPA does not intend to publish a notice in the Federal Register 
announcing any such updates.
    The hearing will provide interested parties the opportunity to 
present data, views, or arguments concerning the proposed action. The 
EPA will make every effort to accommodate all speakers who wish to 
register to speak at the hearing venue on the day of the hearing. The 
EPA may ask clarifying questions during the oral presentations, but 
will not respond to the presentations at that time. Written statements 
and supporting information submitted during the comment period will be 
considered with the same weight as oral comments and supporting 
information presented at the public hearing. Verbatim transcripts of 
the hearing and written statements will be included in the docket for 
the rulemaking. The EPA plans for the hearing to run on schedule; 
however, due to on-site schedule fluctuations, actual speaking times 
may shift slightly.
    Because this hearing will be held at a U.S. government facility, 
individuals planning to attend the hearing should be prepared to show 
valid picture identification to the security staff in order to gain 
access to the meeting room. Please note that the REAL ID Act, passed by 
Congress in 2005, established new requirements for entering federal 
facilities. If your driver's license is issued by American Samoa, 
Illinois, Minnesota, Missouri, New Mexico, or the state of Washington, 
you must present an additional form of identification to enter the 
federal building. Acceptable alternative forms of identification 
include: Federal employee badges, passports, enhanced driver's 
licenses, and military identification cards. In addition, you will need 
to obtain a property pass for any personal belongings you bring with 
you. Upon leaving the building, you will be required to return this 
property pass to the security desk. No large signs will be allowed in 
the building, cameras may only be used outside of the building, and 
demonstrations will not be allowed on federal property for security 
reasons.
    Attendees will be asked to go through metal detectors. To help 
facilitate this process, please be advised that you will be asked to 
remove all items from all pockets and place them in provided bins for 
screening; remove laptops, phones, or other electronic devices from 
their carrying case and place in provided bins for screening; avoid 
shoes with metal shanks, toe guards, or supports as a part of their 
construction; remove any metal belts, metal belt buckles, large 
jewelry, watches and follow the instructions of the guard if identified 
for secondary screening. Additionally, no weapons (e.g., pocket knives) 
or drugs or drug paraphernalia (e.g., marijuana) will be allowed in the 
building. We recommend that you arrive 20 minutes in advance of your 
speaking time to allow time to go through security and to check in with 
the registration desk.

FOR FURTHER INFORMATION CONTACT: Dr. Tina Ndoh, Sector Policies and 
Programs Division, Office of Air Quality Planning and Standards (D243-
04), Environmental Protection Agency, Research Triangle Park, North 
Carolina 27711; telephone number: (919) 541-2750; email address: 
ndoh.tina@epa.gov.

SUPPLEMENTARY INFORMATION: 
    Acronyms and Abbreviations. The following acronyms and 
abbreviations are used in this document.

ARP--Acid Rain Program
BSER--Best system of emission reduction
CAA--Clean Air Act
CHP--Combined heat and power
CBI--Confidential business information
CEIP--Clean Energy Incentive Program
CST--Central Standard Time
CO2--Carbon dioxide
CVR--Conservation Voltage Reduction
EE--Energy efficiency
EGs--Emission Guidelines
EGU--Electric generating unit
EJ--Environmental justice
EM&V--Evaluation, measurement, and verification
EPA--Environmental Protection Agency
ERC--Emission rate credit
FPLG--Federal Poverty Level Guidelines
HUD--Department of Housing and Urban Development
ITC--Investment Tax Credit
M&V--Monitoring and verification
MWh--Megawatt-hour
NMTC--New Market Tax Credits
NTTAA--National Technology Transfer and Advancement Act
OMB--Office of Management and Budget
PRA--Paperwork Reduction Act
PTC--Production Tax Credit
RE--Renewable energy
RFA--Regulatory Flexibility Act
TSD--Technical Support Document
TTN--Technology Transfer Network
UMRA--Unfunded Mandates Reform Act
U.S.--United States
WAP--Weatherization Assistance Program
WHP--Waste heat to power
WWW--World Wide Web

    Organization of This Document. The information in this preamble is 
organized as follows:

I. General Information
    A. What should I consider as I prepare my comments for the EPA?
II. Background
    A. What is the framework for the CEIP that was established in 
the final Clean Power Plan Emission Guidelines?
    B. What are the statutory authorities for this action, including 
legal authority and basis for the CEIP?
    C. How does this action relate to the final Clean Power Plan and 
proposed federal plan and model trading rules?
    D. What key comments were received during the informal feedback 
process?
III. Clean Energy Incentive Program Design Details
    A. Provisions for Matching Allowances and ERCs To Be Issued by 
the EPA From the 300 Million Short Ton Pool
    B. Requirements for States That Choose To Participate in the 
CEIP
    C. Requirements for CEIP-Eligible Projects
    D. CEIP Participation for States, Tribes and Territories for 
Which the EPA Has Not Established Goals
IV. Community and Environmental Justice Considerations.
V. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and 
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Paperwork Reduction Act (PRA)
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act (UMRA)
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act (NTTAA)
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations

I. General Information

A. What should I consider as I prepare my comments for the EPA?

    Do not submit information that you consider to be CBI 
electronically through http://www.regulations.gov or email. Send or 
deliver information identified as CBI to only the following address: 
OAQPS Document Control Officer (Room C404 02), U.S. EPA, Research 
Triangle Park, NC 27711, Attention Docket ID No. EPA-HQ-OAR-2016-0033. 
Clearly mark the part or all of the information that you claim to be 
CBI. For CBI on a disk or CD-ROM

[[Page 42942]]

that you mail to the EPA, mark the outside of the disk or CD-ROM as CBI 
and then identify electronically within the disk or CD-ROM the specific 
information that is claimed as CBI. In addition to one complete version 
of the comment that includes information claimed as CBI, a copy of the 
comment that does not contain the information claimed as CBI must be 
submitted for inclusion in the public docket. Information marked as CBI 
will not be disclosed except in accordance with procedures set forth in 
40 CFR part 2.
    If you have any questions about CBI or the procedures for claiming 
CBI, please consult the person identified in the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    Docket. The docket number for the proposed action is Docket ID No. 
EPA-HQ-OAR-2016-0033.
    World Wide Web (WWW). In addition to being available in the docket, 
an electronic copy of the proposed action is available on the Internet 
through the EPA's Technology Transfer Network (TTN) Web site, a forum 
for information and technology exchange in various areas of air 
pollution control. Following signature by the EPA Administrator, the 
EPA will post a copy of the proposed action at http://www2.epa.gov/cleanpowerplan/regulatory-actions#regulations. Following publication in 
the Federal Register, the EPA will post the Federal Register version of 
the proposed rule and key technical documents on the same Web site.

II. Background

A. What is the framework for the CEIP that was established in the final 
Clean Power Plan Emission Guidelines?

    The CEIP is a program that states have the option to adopt if they 
wish to incentivize certain early emission reduction projects under the 
Carbon Pollution EGs for Existing Stationary Sources: Electric Utility 
Generating Units (also known as the Clean Power Plan EGs).\1\ The EPA 
included the CEIP in the Clean Power Plan EGs in response to the many 
comments we received supporting the early action crediting concept we 
discussed in the Clean Power Plan proposed rule, see 79 FR 34918-34919 
(June 18, 2014). Many stakeholders supported including a mechanism for 
recognizing early actions for the emission reductions they provide 
prior to the start of the performance period in 2022. The inclusion of 
the CEIP was also responsive to comments from stakeholders describing 
the disproportionate burdens that some communities already bear, and 
stating that all communities should have equal access to the benefits 
of clean and affordable energy. The CEIP framework provided in the 
final EGs offers a mechanism that enables states to incentivize early 
investments in wind and solar renewable energy (RE) generation,\2\ as 
well as in demand-side energy efficiency (EE) projects in low-income 
communities that generate carbon-free megawatt hours (MWh) or reduce 
demand-side energy use during 2020 and/or 2021.\3\
---------------------------------------------------------------------------

    \1\ The Clean Power Plan establishes carbon dioxide 
(CO2) emission standards for electric utility generating 
Units (EGUs) in states and tribal areas that have such units (called 
affected EGUs). In the Clean Power Plan and in this rulemaking, the 
term ``state'' generally encompasses the 50 states and the District 
of Columbia, U.S. territories, and any Indian Tribe that has been 
approved by the EPA pursuant to 40 CFR 49.9 as eligible to develop 
and implement a Clean Air Act (CAA) section 111(d) plan. Tribes with 
affected EGUs may, but are not required to, submit tribal plans to 
implement the EGs. The EPA would not implement the EGs through a 
federal plan in a tribal area without first making a necessary or 
appropriate finding under section 301(d). In the context of the 
CEIP, the term ``state'' will usually refer only to those states or 
Indian country areas of the contiguous U.S. that have affected EGUs 
under the Clean Power Plan EGs. We discuss the role of states and 
tribes without affected EGUs in section III.D of this preamble.
    \2\ Currently, eligible RE technologies are limited to wind and 
solar resources. However, please note that the Agency is proposing a 
limited expansion of eligibility to certain other zero-emitting, 
renewable technologies. See section III.C.4 of this preamble.
    \3\ Currently, eligible low-income community projects are 
limited to demand-side EE. However, please note that the Agency is 
proposing a limited expansion of eligibility to include solar 
projects implemented to serve low-income communities that provide 
direct electricity bill benefits to low-income community ratepayers. 
See section III.C.5 of this preamble.
---------------------------------------------------------------------------

    In the final Clean Power Plan, the EPA finalized a requirement that 
states wishing to participate in the CEIP must indicate by September 6, 
2016, at a minimum, their intention to participate in the CEIP. On 
February 9, 2016, the Supreme Court stayed the Clean Power Plan during 
the pendency of the litigation. As a result of the stay, states are not 
required to provide such notice by September 6, 2016. The EPA will 
provide further direction on submittal timing requirements, as well as 
any other adjustments in timing that may be needed, upon the resolution 
of the judicial petitions for review of the Clean Power Plan. We 
discuss in more detail the relationship of this action to the Supreme 
Court's stay in section II.C of this preamble. For purposes of this 
proposal, however, we will use the original dates in the Clean Power 
Plan and the CEIP, with the expectation that all timing issues will be 
dealt with upon the resolution of the litigation.
    In the event that the EPA finalizes a federal plan for a state, it 
continues to be the EPA's intention that the CEIP will be available in 
that state. The EPA believes the optional example regulatory provisions 
we are proposing, as presumptively approvable for state use or 
adoption, could suitably function as the CEIP provisions in a potential 
federal plan. We solicit comments on this aspect of the proposal. 
However, the EPA will not promulgate a federal plan until some period 
of time after the petitions for review of the Clean Power Plan are 
resolved and the stay is lifted. The EPA lacks authority to promulgate 
a federal plan for a state in the absence of a finding by the Agency 
that a state has failed to submit a plan by a legal deadline or a final 
action disapproving a required state plan. During the pendency of the 
Supreme Court's stay, states are not obliged to submit plans and 
therefore the EPA could not take either such action or promulgate any 
final federal plan for any state under the Clean Power Plan EGs. As 
explained later in this action, there are also pathways whereby a state 
could implement the CEIP under a duly promulgated federal plan.
    While the legal effectiveness of the Clean Power Plan is currently 
stayed, the EPA has determined that it is appropriate to move forward 
with the design details of the CEIP component of the Clean Power Plan 
at this time. States have the authority to continue moving forward on 
their own volition with the design of state plans, and the EPA retains 
the authority to continue working with states as they do so. For states 
that, at their own discretion, wish to continue plan development, this 
action will help them understand what must be included in a state plan 
if they wish to opt into the CEIP. In addition, the proposal is 
responsive to the states that requested EPA provide additional detail 
on the design details of the CEIP as soon as possible. The EPA 
acknowledged to the public in the October 23, 2015, notice of final 
rulemaking that it would need to take a future action on the CEIP 
because there are aspects of the CEIP that need to be completed in 
order for the program to be able to be implemented (80 FR 64830). 
Indeed, commenters on the model rules and federal plan proposal, 
including states, requested that the Agency expeditiously complete the 
design details of the CEIP. See, e.g., Comment of Minnesota Public 
Utilities Commission (EPA-HQ-OAR-2015-0199-0363); Comment of Kyra L. 
Moore, Dir., State of Missouri Dep't of Natural Resources (EPA-HQ-OAR-
2015-0199-0457); Hearing Testimony of Jeff Cappella, Western Clean 
Energy

[[Page 42943]]

Campaign (November 16, 2015) (EPA-HQ-OAR-2015-0199-0233-A1-06). It is 
prudent to propose this action now in order to assist those states that 
have decided to move forward and who are contemplating participation in 
the CEIP, so that they have the requisite tools and information for 
doing so. While this proposal generally will be helpful to those who 
are interested in participating in the CEIP, because the CEIP is an 
optional program, relies on voluntary measures, and will not become 
available to the states until the stay is lifted, this proposal will 
not disadvantage any party (including those who have decided to await 
the resolution of the litigation prior to acting to develop their state 
plans). Finally, we heard from many stakeholders that they would like 
an opportunity to comment on a more developed proposal regarding CEIP 
topics; the EPA is responding to those requests by issuing this 
proposal, which provides a new opportunity to submit comments on the 
CEIP topics addressed here and to review actual proposed rule language. 
In order to ensure that the EPA considers and responds to your comments 
on these CEIP topics, you must submit your comments on this proposal, 
following the process explained in section I.B of this preamble.
    The CEIP is an incentive program in which both the states, should 
they elect to participate, and the EPA play a role. The program 
operates by means of states allocating or issuing early action 
compliance instruments--called early action allowances or early action 
emission rate credits (ERCs)--which are then matched by EPA with 
additional compliance instruments--called matching allowances or 
matching ERCs. States in turn provide these awarded matching compliance 
instruments to the providers of eligible CEIP RE and low-income 
community projects that received the early action allowances or early 
action ERCs from the state.
    The EPA designed the CEIP to be an implementable option for states 
using mass-based plans and states using rate-based plans. The final 
Clean Power Plan specified the number of early action ERCs that a state 
may award to CEIP-eligible project providers per MWh of generation or 
savings achieved in 2020 and/or 2021 under a rate-based plan, but 
stated that the EPA would speak to the award of early action allowances 
under a mass-based plan in a future action. Awards of early action 
ERCs, and the EPA's proposed approach for the award of early action 
allowances, are discussed in section III.A of this preamble.
    In the final Clean Power Plan, the EPA stated that, in the case of 
eligible CEIP solar and wind projects,\4\ for every two MWh of energy 
generation, the state will provide an award of one early action ERC for 
a state adopting a rate-based plan (or an appropriate commensurate 
number of early action allowances for states adopting a mass-based 
plan), and the EPA will provide an award of one matching ERC (or an 
appropriate commensurate number of matching allowances). Thus, the 
total award to each eligible wind and solar project is made on a one-
to-one basis for every one MWh of clean generation (either one ERC or 
an appropriate commensurate number of allowances for every one MWh of 
clean generation). In the case of eligible CEIP demand-side EE projects 
in low-income communities,\5\ for every two MWh of energy savings, the 
state will provide an award of two early action ERCs (or an appropriate 
commensurate number of early action allowances), and the EPA will 
provide an award of two matching ERCs (or an appropriate commensurate 
number of matching allowances). Thus, the total award for low-income EE 
projects is made on a two-to-one basis for every one MWh of energy 
savings (either two ERCs or an appropriate commensurate number of 
allowances for every one MWh of energy savings). See 80 FR 64831, 
October 23, 2015.
---------------------------------------------------------------------------

    \4\ In this action, we are proposing a limited expansion of 
eligible RE resources to include geothermal and hydropower. See 
section III.C. of this action for additional discussion of the 
proposed limited RE expansion.
    \5\ In this action, we are proposing a limited expansion of 
eligible low-income community projects to include solar projects 
implemented to serve low-income communities in addition to demand-
side EE projects. See section III.C. of this action for additional 
discussion of the expansion of eligible low-income community 
projects.
---------------------------------------------------------------------------

    The overall size of the EPA matching pool available to all CEIP-
participating states has been set at 300 million short tons of 
CO2, and the EPA will award matching allowances or matching 
ERCs from this pool in an amount not to exceed in the aggregate this 
limit (80 FR 64829). The 300 million ton matching pool, referred to in 
this preamble as the ``matching pool,'' will be apportioned among CEIP-
participating states pro rata based on the amount of reductions from 
2012 CO2 emission levels the affected EGUs in each state are 
required to achieve relative to those in other CEIP-participating 
states.\6\
---------------------------------------------------------------------------

    \6\ See discussion of proposed apportionment method in section 
III.A of this preamble.
---------------------------------------------------------------------------

    Eligible CEIP projects must be located in or benefit a state that 
has one or more affected EGUs with an approved final plan that includes 
requirements establishing its participation in the CEIP. For purposes 
of the CEIP, we propose that ``benefit'' a state means that the 
electricity is generated or saved with the intention to meet or reduce 
electricity demand in the CEIP-participating state.
    Additionally, in the final Clean Power Plan, we stated that 
eligible projects must commence construction (in the case of solar and 
wind projects) or commence operations (in the case of low-income EE 
projects) following the submission of a final state plan, or September 
6, 2018, for a state that chooses not to submit a final plan by that 
date. As discussed later in this preamble, we are proposing to adjust 
this timing requirement to remove final state plan submittal as a 
triggering event for eligibility.\7\ In addition, the EPA did not 
define the terms ``commence construction'' or ``commence operation'' in 
regards to the CEIP in the final Clean Power Plan. In preparation for 
this action, we solicited public input on the appropriate definitions 
for these terms,\8\ and we speak to those definitions in section III.C 
of this preamble.
---------------------------------------------------------------------------

    \7\ We will continue to use September 6, 2018, as the putative 
eligibility start date under the CEIP for ``commence operation'' of 
low-income EE projects, while recognizing that in light of the 
Supreme Court's stay, this date, as well as the deadline for final 
state plan submittals, may need to be adjusted. The applicable 
eligibility date for ``commence commercial operation,'' which the 
EPA is proposing would replace the term ``commence construction'' 
with regard to RE projects, is discussed in section III.C of this 
preamble.
    \8\ See Clean Energy Incentive Program Next Steps (October 21, 
2015) at http://www.epa.gov/sites/production/files/2015-10/documents/ceip_next_steps_10_21_15.pdf.
---------------------------------------------------------------------------

    A CEIP-participating state must include requirements in its plan 
for determining CEIP project eligibility and quantifying and verifying 
the MWh of generation or savings from an eligible project. These 
requirements must be consistent with the requirements included in the 
final Clean Power Plan EGs for the issuance of ERCs.\9\ This includes 
requirements for demonstration of eligibility; evaluation, measurement, 
and verification (EM&V) plans; monitoring and verification (M&V) 
reports; and independent verification of project submittals. In 
addition, the state's plan must include a mechanism that ensures that 
the award of early action allowances or early action ERCs to CEIP-
eligible parties will not impact the CO2 emission 
performance of affected EGUs required to meet mass-based or rate-based 
CO2 emission standards during the plan performance periods. 
This mechanism is not required to account for matching

[[Page 42944]]

allowances or ERCs that may be issued to the state by the EPA.\10\
---------------------------------------------------------------------------

    \9\ See 40 CFR 60.5805 through 60.5835.
    \10\ See 40 CFR 60.5737.
---------------------------------------------------------------------------

B. What are the statutory authorities for this action, including legal 
authority and basis for the CEIP?

    The CEIP is an optional component of the Clean Power Plan, and the 
Clean Power Plan is an exercise of the EPA's authority under section 
111(d) of the CAA, 42 U.S.C. 7411(d). The legal authority and rationale 
supporting the Clean Power Plan are discussed in the final rulemaking 
and accompanying Legal Memorandum. See, e.g., 80 FR 64662, 64707-64710 
(October 23, 2015). The rationale and legal authority for the CEIP in 
particular are also set forth in the final Clean Power Plan. Id. 64831-
64832. Nothing in this action reopens the legal determinations or 
rationale set forth in the final Clean Power Plan.\11\
---------------------------------------------------------------------------

    \11\ The EPA intends for the CEIP to be considered severable 
from the remainder of the Clean Power Plan. As an optional program 
that is not required for achievability of the emission performance 
rates or equivalent state goals, the CEIP is in fact severable. 
Although the Agency believes, as explained in the preamble to the 
final EGs, that the CEIP provides a number of benefits, 80 FR 64829-
64831, nonetheless, all other aspects of the Clean Power Plan would 
still be implementable in the absence of the CEIP.
---------------------------------------------------------------------------

    The EPA established the CEIP in the final Clean Power Plan EGs, and 
took final action with respect to certain key design parameters for the 
program while identifying other details of the program that would be 
determined through a future action. See 80 FR 64829-64832 (October 23, 
2015). The Agency discussed mechanisms for recognizing and providing 
incentives for early action in the Clean Power Plan proposal and 
requested comment on design elements of different approaches, see 79 FR 
34830, 34918-34919 (June 18, 2014). The Agency identified additional 
considerations regarding approaches to incentivize early action in a 
notice of data availability on which the public also had an opportunity 
to comment, see 79 FR 64543, 64545-64546 (October 30, 2014). The EPA 
established the CEIP in the final Clean Power Plan in response to 
overwhelmingly supportive comments from the public that the EGs should 
provide a mechanism for incentivizing and recognizing early action. In 
this action, the EPA is not reopening its decision to establish the 
CEIP, the maximum size of the matching pool, the requirement for states 
to include a mechanism in their plans that ensures that the award of 
early action allowances or early action ERCs will not impact the 
CO2 emission performance of affected EGUs required to meet 
CO2 emission standards under the Clean Power Plan EGs, any 
other design parameters not expressly opened for comment or proposal in 
this document, or its determination of legal authority and rationale 
for the CEIP provided in the preamble to the final Clean Power Plan 
EGs, see 80 FR 64831-64832. Additional information on the relationship 
between this action and the EGs, as well as the proposed federal plan 
and model trading rules, is provided in section II.C of this preamble.
    The CEIP is optional for states; states are not required to 
implement this incentive program for early action. However, if a state 
does choose to participate in the CEIP, it must follow the requirements 
specified in the final Clean Power Plan EGs as well as any additional 
requirements that may be finalized through this rulemaking action. 
Additionally, as discussed in section II.C of this preamble, in 
instances of federal plan promulgation, the EPA's intent is that the 
CEIP would also be available. Even in the case of a federal plan, 
states would have an ability to implement the CEIP, but if they chose 
not to, the EPA would implement the CEIP in those states. Thus, we 
invite comment on the CEIP provisions we are proposing as optional 
example CEIP regulatory text, including to the extent that text may be 
applied by the EPA through a federal plan.
    This action is undertaken pursuant to the authority in section 
111(d) of the CAA, as well as the Agency's general rulemaking authority 
as necessary to carry out the functions of the CAA, 42 U.S.C. 7411(d), 
7601(a). This rulemaking action is subject to the rulemaking provisions 
of the CAA set forth in section 307(d), 42 U.S.C. 7607(d). This action 
is nationally applicable because it would establish additional 
requirements for states that choose to opt into the CEIP.
    The EPA's action in this proposal is consistent with, and the EPA's 
authority to proceed with this action is unaffected by, the Supreme 
Court's orders in West Virginia, et al. v. EPA, et al., No. 15A773 
(February 9, 2016). The Court granted applications for a stay of the 
Clean Power Plan EGs pending disposition of the Stay Applicants' 
petitions for review of the EGs in the U.S. Court of Appeals for the 
District of Columbia Circuit, including any subsequent review by the 
Supreme Court. That litigation is currently pending, and the Supreme 
Court's stay is in effect.
    A stay has the effect of ``halting or postponing some portion of 
[a] proceeding, or [ ] temporarily divesting an order of 
enforceability.'' Nken v. Holder, 556 U.S. 418, 428 (2009). A stay is 
distinct from an injunction, which ``direct[s] the conduct of a 
particular actor.'' Id.
    The EPA has not been enjoined by any court from continuing to work 
with state partners in the development of frameworks to reduce 
CO2 emissions from affected EGUs.
    This action proposes several changes and additions to the CEIP, 
which is an optional program, and proposes optional example regulatory 
text for use by states in the design of their plans. This is wholly 
consistent with the EPA's statutory authorities and the precedents 
discussed later in this preamble, and is consistent with and unaffected 
by the February 9, 2016 stay orders. A state may participate in the 
CEIP only after the EPA approves a required state plan or the EPA 
promulgates a federal plan for that state that includes the CEIP. These 
actions will not occur until sometime after the judicial stay has been 
lifted. Thus, this action is consistent with, and the EPA's authority 
to proceed with this action is unaffected by, the stay.
    Furthermore, we note that in addition to its CAA section 111 and 
CAA section 301 authority to engage in this rulemaking, the EPA 
possesses multiple other authorities under the CAA that direct it to 
engage in capacity building and provide technical and financial 
assistance to states in order to effectuate the air pollution reduction 
objectives of the CAA.\12\ These authorities typically support, but 
operate independently of, the CAA's regulatory mandates. Under section 
102 of the CAA, for example, the EPA shall ``encourage cooperative 
activities by the States and local governments for the prevention and 
control of air pollution; encourage the enactment of improved and . . . 
uniform State and local laws relating to the prevention and control of 
air pollution; and encourage the making of agreements and compacts 
between States for the prevention and control of air pollution.'' 42 
U.S.C. 7402(a). The EPA is also authorized under section 103 of the CAA 
to conduct a variety of research and development activities, render 
technical services, provide financial assistance to air pollution 
control agencies and other entities, and conduct and promote 
coordination of training for individuals--all for the purpose of the 
``prevention and control of air pollution.'' 42 U.S.C. 7403(a).
---------------------------------------------------------------------------

    \12\ It is undisputed that CO2, as a greenhouse gas, 
is an air pollutant under the CAA. See Massachusetts v. EPA, 549 
U.S. 497, 528-532 (2007).

---------------------------------------------------------------------------

[[Page 42945]]

    The EPA may, among other things, ``collect and disseminate, in 
cooperation with other Federal departments and agencies, and with other 
public and private agencies, institutions, and organizations having 
related responsibilities . . . information pertaining to air pollution 
and the prevention and control thereof.'' Id. Sec.  7403(b). The CAA 
expressly authorizes the Agency to develop ``nonregulatory strategies . 
. . for preventing or reducing multiple air pollutants, including . . . 
carbon dioxide, from stationary sources, including fossil fuel power 
plants.'' Id. Sec.  7403(g).
    Taken together, these provisions both establish that the EPA has 
the authority, and illustrate why the EPA would have good reason, to 
continue coordinating and assisting in the development of 
CO2 pollution prevention and control efforts of the states 
and local governments, even in light of the stay of the Clean Power 
Plan.
    The EPA has proceeded under a similar understanding of its 
authority when CAA rules have been judicially stayed pending review in 
the past. When the D.C. Circuit Court stayed the Cross-State Air 
Pollution Rule (CSAPR), EME Homer City Generation, L.P. v. EPA, No. 11-
1302 (D.C. Cir. December 30, 2011), the EPA proceeded to issue two 
rules making a number of revisions to the stayed rule. The EPA noted 
that its actions in revising the rule were ``consistent with and 
unaffected by the Court's Order staying the final [CSAPR]. Finalizing 
this action in and of itself does not impose any requirements on 
regulated units or states.'' 77 FR 10324, 10326 (February 21, 2012). 
Indeed, one of the changes the EPA undertook while the stay was in 
effect was a delay of the effective date of certain ``assurance 
provisions'' ``in order to neutralize a key uncertainty facing 
successful and potentially rapid program implementation following the 
current stay, such that sources can rely on immediate activation of a 
[CSAPR] allowance market.'' Id. at 10331 (emphasis added). In another 
set of revisions finalized in June of 2012, the EPA again took action 
making a number of important changes, including state budget 
adjustments and revision of set-aside accounts for new sources, while 
the stay of the rule was in effect. See 77 FR 34830 (June 12, 2012). 
Among other things, the EPA rejected a comment to revise the set-aside 
accounts for years for which the EPA had already recorded allowances in 
compliance accounts prior to the stay being issued. Id. at 34838-34839. 
The EPA explained that because the allowances were already recorded, 
they were freely available to their owners to be transferred or sold 
and may no longer be in the original owners' accounts. The Agency 
rejected the commenter's expansive interpretation that the judicial 
stay meant ``these allocations are no longer distributed for use.'' Id. 
Rather, in the EPA's view, the stay meant that ``sources are not 
required to hold allowances for compliance at this time,'' but that did 
not mean the allowances themselves did not remain in circulation. Id.
    Similarly, when the D.C. Circuit Court stayed the nitrogen oxide 
(NOX) state implementation (SIP) Call, issued under 
authority of CAA section 110(k)(5), Michigan v. EPA, No. 98-1497 (D.C. 
Cir. May 25, 1999), the Agency proceeded to institute direct federal 
regulation of the sources to achieve functionally the same result under 
CAA section 126(c). See Findings of Significant Contribution and 
Rulemaking on CAA section 126 Petitions for Purposes of Reducing 
Interstate Ozone Transport, 65 FR 2674, 2680 (January 18, 2000). In 
reviewing and upholding the EPA's direct federal regulation under CAA 
section 126, the D.C. Circuit Court addressed the issue of whether the 
EPA could proceed under CAA section 126 in light of the stayed 
NOX SIP Call under CAA section 110. Noting that the 
``congruence'' between the EPA's schedules for action under the 
separate provisions had been disrupted by its stay order, and that the 
conditions under which the EPA had originally deferred action under CAA 
section 126 were no longer present, the Court upheld the Agency's 
authority to proceed under CAA section 126 and deferred to the Agency's 
interpretation that the two provisions ``operate independently'' such 
that proceeding with regulation under CAA section 126 was not unlawful. 
Appalachian Power Co. et al. v. EPA, 249 F.3d 1032, 1045-48 (D.C. Cir. 
2000). To be clear, the EPA is not proposing to institute direct 
regulation of the affected EGUs in this action nor is the Agency 
proposing to implement the CEIP while the stay is in effect. Rather, 
the court's analysis in Appalachian Power supports the Agency's view 
that a stay does not affect its ability to conduct activities that are 
not in themselves dependent for their authority on the effectiveness of 
the stayed action.\13\
---------------------------------------------------------------------------

    \13\ See also Air Transp. Ass'n of Am. v. U.S. Dep't of Transp. 
et al., 613 F.3d 206, 209 (D.C. Cir. 2010) (upholding Federal 
Aviation Administration's institution of airport congestion pricing 
while ``slot auctions'' regulation to solve the same congestion 
problem was judicially stayed pending review).
---------------------------------------------------------------------------

    While none of the Clean Power Plan's deadlines can be enforced 
while the stay remains in effect, at this point it is not clear whether 
and to what extent those deadlines will necessarily be tolled once the 
stay is lifted. Some of the stay applicants expressly requested that 
all of the Clean Power Plan's deadlines be tolled for the period 
between the Clean Power Plan's publication and the final disposition of 
their lawsuits. See, e.g., Appl. of Util. & Allied Parties for 
Immediate Stay of Final Agency Action Pending Appellate Review 22. In 
its brief, the government interpreted that form of relief to be 
requested (either explicitly or implicitly) by all of the applicants, 
and it opposed the stay in part on the grounds that such relief would 
be ``extraordinary and unprecedented.'' Mem. for Fed. Resps. in Opp. 3; 
see id. 70-71. In their reply brief, the 29 State Applicants clarified 
that they were only seeking a ``straightforward'' Administrative 
Procedure Act stay that would merely ``temporarily divest[ ] [the Clean 
Power Plan] of enforceability,'' such that ``the States need not comply 
with any of the [Clean Power Plan's] deadlines that will occur during 
this litigation.'' Reply of 29 States and State Agencies in Support of 
Appl. for Immediate Stay 29 (emphasis added). The States disagreed that 
granting the stay would necessarily require day-for-day tolling of 
every Clean Power Plan deadline for the period between the Clean Power 
Plan's publication and the conclusion of the lawsuit. Id. at 30. They 
stated that although such tolling ``would be appropriate as a matter of 
basic fairness,'' ``the exact shape of such an equitable disposition 
need not be decided today.'' Id. at 30 (emphasis added) (citing 
Michigan v. EPA, no. 98-1497, Dkt. 524995 (D.C. Cir. 1999), for an 
example of a case in which the Court of appeals decided whether and how 
to toll relevant deadlines after the challenged rule was upheld). The 
Supreme Court's orders granting the stay did not discuss the parties' 
differing views of whether and how the stay would affect the Clean 
Power Plan's deadlines, and did not expressly resolve that issue. In 
this context, the legal effect of the stay on the Clean Power Plan's 
deadlines is ambiguous, and the question of whether and to what extent 
tolling is appropriate will need to be resolved once the validity of 
the Clean Power Plan is finally adjudicated. At that point, the effect 
of the stay will be able to be assessed in light of all relevant 
circumstances.
    Because it is currently unclear what adjustments, if any, will need 
to be made to implementation timing, the EPA is in general in this 
action maintaining the timing elements of the

[[Page 42946]]

CEIP that have already been finalized, recognizing that they may need 
to be adjusted in concert with other timing elements of the Clean Power 
Plan. In particular, we continue to refer to the period during which 
generation and savings may be eligible to earn early action allowances 
or ERCs as 2020 and 2021. We propose to retain the start date for 
project eligibility as September 6, 2018, for demand-side EE projects 
implemented in low-income communities, but are proposing a start date 
of January 1, 2020, for eligible CEIP RE projects, including those 
implemented in low-income communities. However, we propose to remove 
the alternative earlier date related to the date of final state plan 
submittal. These proposed changes are discussed in section III.C of 
this preamble. The decision not to propose further changes to the key 
timing elements of the CEIP in this action should not be taken to 
indicate any particular view or intention by the Agency regarding how 
the timelines for the Clean Power Plan overall may be impacted by the 
Supreme Court's stay.

C. How does this action relate to the final Clean Power Plan and 
proposed federal plan and model trading rules?

    As noted previously, the EPA took final action in the Clean Power 
Plan to establish the CEIP, and finalized certain aspects of the CEIP 
at 40 CFR 60.5737, while identifying other details that it would 
address in a future action. See 80 FR 64829-64832, 64943. In the 
proposed federal plan and model trading rules for the Clean Power Plan, 
the EPA requested comment on a number of details for the CEIP that had 
been identified in the final EGs, and also proposed provisions to 
implement the CEIP under the federal plan and model trading rules. See 
80 FR 65025-65026. In this action, we are proposing the design details 
we identified as needing to be addressed. We are also proposing several 
adjustments to the CEIP as finalized in the Clean Power Plan EGs, 
reflecting new information and feedback from stakeholders after the EGs 
were finalized. This action does not re-open those aspects of the CEIP 
as finalized that the EPA is not expressly proposing to change or 
requesting comment on. We are also re-proposing the CEIP-related 
aspects of the mass-based and rate-based model trading rules, which we 
characterize in this proposal as optional example regulatory text.\14\ 
We are not re-proposing federal plan CEIP provisions, but request 
comment on the limited issue of the suitability of these more detailed, 
re-proposed optional example CEIP provisions for possible use in a 
federal plan.\15\
---------------------------------------------------------------------------

    \14\ We are not re-proposing any aspects of the model rules that 
are un-related to the CEIP.
    \15\ In the fall of 2015, during the federal plan and model 
trading rules proposal comment period, the EPA, through informal 
outreach efforts, received feedback from stakeholders that a 
separate regulatory action on the design details of the CEIP was 
appropriate.
---------------------------------------------------------------------------

    In the proposed federal plan and model trading rules for the Clean 
Power Plan, the EPA expressed its intent to implement the CEIP in 
states that may become subject to a federal plan; see 80 FR 64978 
(October 23, 2015). The Agency proposed a mass-based and a rate-based 
approach to implementing the CEIP as part of the federal plan.\16\ See 
80 FR 65066-65067 (proposing a CEIP set-aside as part of a mass-based 
plan at 40 CFR 62.16235(e)); id. at 65092-65093 (proposing a rate-based 
CEIP program at 40 CFR 62.16431). As was generally the case for the 
federal plan and model trading rules, these proposed federal plan 
provisions also served as proposed model rule provisions that would be 
presumptively approvable if adopted in state plans. See generally 80 FR 
64973.
---------------------------------------------------------------------------

    \16\ For the purposes of a rate-based federal plan, the EPA 
notes that as currently proposed, demand-side energy-efficiency 
measures may only be awarded ERCs in the context of the CEIP.
---------------------------------------------------------------------------

    The EPA has determined to remove these CEIP provisions from the 
larger model trading rules rulemaking, and to re-propose optional 
example regulatory text for the CEIP as part of this proposal. With 
regard to the proposed federal plans, the EPA is not re-proposing CEIP 
federal plan provisions in this action, but invites comment on the 
presumptively approvable example approach, including to the extent it 
provides additional detail on the approach that EPA could take in a 
federal plan. As proposed in this action, this example text provides 
greater specificity than the October 23, 2015 proposal on the 
requirements that may be included in any potential future federal plan 
CEIP.\17\ The Agency believes it is administratively simpler and more 
convenient for the public to be able to review and comment on any 
optional example regulatory text related to the CEIP in conjunction 
with all of the other CEIP design details being proposed in this 
action. Thus, this action constitutes, in part, a re-proposal of 
optional example CEIP provisions, replacing and superseding the 
proposed CEIP provisions that were included in the model trading rules 
published in the Federal Register on October 23, 2015. The EPA invites 
comments on this re-proposed optional example regulatory text as an 
approach states or the EPA could take in state or federal plans, 
respectively.
---------------------------------------------------------------------------

    \17\ The EPA does not intend to finalize any provisions related 
to implementation of the CEIP as part of a federal plan until the 
actual promulgation of a federal plan, which would not occur until 
lifting of the stay and an EPA determination of a subsequent failure 
of a state to timely submit a plan or EPA disapproval of a state 
plan.
---------------------------------------------------------------------------

    In some instances, those proposed provisions are being re-proposed 
without significant changes; in others, proposed CEIP revisions to the 
EGs presented in this action necessitated corresponding changes to the 
mass- and rate-based optional example regulatory text. However, the 
October 2015 proposal did not contain specific proposals for certain 
design details that are now being proposed here. The EPA intends to 
finalize the CEIP optional example rule text included in this action in 
conjunction with the finalization of the other CEIP design details 
proposed in this action. We do not intend to include the CEIP optional 
example rule text as part of the finalized model trading rules. 
Nonetheless, the finalized CEIP optional example rule provisions could 
be integrated with the finalized mass-based or rate-based model trading 
rules when EPA finalizes this CEIP rulemaking, where a state chooses to 
implement the CEIP. Thus, the CEIP optional example rule text is being 
proposed in the same subpart of the Code of Federal Regulations as the 
full model trading rules, in order to facilitate states wishing to 
adopt a model rule that includes the CEIP.
    Since the CEIP is an optional program, should the Agency not be 
able to approve a state's CEIP, the Agency believes that the provisions 
would be severable and not impact the Agency's ability to approve the 
remainder of a state's final plan submission. In addition, because the 
CEIP is an optional program, the Agency does not anticipate that it 
would promulgate a partial federal plan addressing the CEIP in the 
circumstance where a state plan is approvable but its CEIP provisions 
are not. However, consistent with what we stated in the October 2015 
federal plan and model trading rules proposal, the EPA continues to 
intend to implement the CEIP if it were to promulgate a full federal 
plan for a particular state, see 80 FR 64978.
    In addition, in the event that the EPA promulgates CEIP provisions 
as part of a federal plan for a particular state, the state may 
subsequently be able to take over the implementation of the CEIP 
through one of two separate mechanisms. The state may either take a 
delegation of the federal plan (or a partial delegation covering just 
the CEIP), or the state may submit a partial

[[Page 42947]]

state plan for implementation of the CEIP upon EPA's approval.
    The general process for delegation of federal plans under section 
111(d) was explained in the October 2015 proposal, see 80 FR 65032-33. 
The EPA is not proposing any changes to this existing process, and we 
recognize the ability of states with a federal plan in place to take a 
delegation of the CEIP, similar to other section 111 federal 
regulations. A delegation of the CEIP would generally mean that a state 
with adequate resources and legal authority would operate the CEIP, 
subject to the EPA's oversight and except for any functions that the 
EPA may retain for itself upon delegation. Eligible project providers 
would come to the state agency with the delegated EPA authority in 
order to present applications and submittals under the CEIP, and the 
state would review these applications and submittals and issue early 
action ERCs or allocate early action allowances. In delegating the 
CEIP, the EPA would follow its existing New Source Performance 
Standards (NSPS) delegations guidance and the EPA Delegations Manual, 
Delegation 7-139, ``Implementation and Enforcement of 111(d)(2) and 
111(d)(2)/129(b)(3) federal plans,'' which, among other things, call 
for the state to enter into a memorandum of agreement with the relevant 
EPA Regional Administrator, in order to take delegation of the program. 
See 80 FR 65032-33.
    States may also be in a position to take over direct implementation 
of the CEIP in their own right through a partial state plan. As we 
proposed in the October 2015 federal plan and model trading rules 
proposal, the EPA may approve partial state plans to implement a 
portion of the EGs under section 111(d). The EPA specifically 
recognized that certain aspects of the Clean Power Plan implementation 
may be appropriate for states to handle through a partial state plan, 
for instance, decisions as to the method of allocation of allowances 
under a mass-based federal plan. See id. at 65027-65029. We believe the 
CEIP is similarly a program under the Clean Power Plan that could be 
appropriately submitted and administered by a state operating under an 
otherwise-federal plan. Unlike a delegation, a partial state plan 
requires a submission process for EPA approval as for a full state 
plan, including a demonstration of adequate legal authority and that 
procedural requirements, such as public notice and opportunity to 
comment on the partial state plan, are satisfied.
    Finally, we note that in the October 23, 2015, model trading rules 
and federal plan proposal the EPA requested comment on a number of 
details regarding CEIP program design that were not limited to the 
federal plan and model trading rules, but pertained to general design 
parameters or details not addressed in the final EGs. See 80 FR 65025-
65026. These topics related to CEIP requirements that would be 
applicable to all states opting to participate in the program (i.e., 
these issues would not be limited to model trading rules or federal 
plans). The bulk of this proposal is dedicated to addressing these 
topics through a set of additional provisions in the EGs at 40 CFR 
60.5737.
    The EPA values the comments related to the topics that have been 
submitted to date, both on the October 23, 2015, proposal as well as to 
the CEIP non-regulatory docket that closed on December 15, 2015. We 
have reviewed and considered the comments submitted through the federal 
plan and model trading rules rulemaking docket that closed on January 
21, 2016, as well as the non-regulatory docket. These comments have 
informed various aspects of this proposal. We encourage those who have 
submitted comments already on the CEIP to re-submit those comments and/
or any updated or additional comments through the comment submittal 
process for this rulemaking proposal. We heard from many stakeholders 
that they would like an opportunity to comment on a more developed 
proposal regarding these CEIP topics; the EPA is responding to those 
requests by issuing this proposal, which provides a new opportunity to 
submit comments on the CEIP topics addressed here. In order to ensure 
that the EPA considers and responds to your comments on these CEIP 
topics, you must submit your comments on this proposal, following the 
process explained in the section titled ADDRESSES.

D. What key comments were received during the informal feedback 
process?

    In an effort to obtain stakeholder feedback on the CEIP, the EPA 
engaged in broad outreach activities. Approximately 750 stakeholders 
(potential project providers, environmental justice (EJ) groups, 
community groups, state and local governments, tribes and environmental 
non-governmental organizations) participated in at least one of four 
listening sessions on the CEIP. These listening sessions were part of 
an overall outreach effort that also included two workshops focused on 
community concerns, dozens of stakeholder meetings, conference 
appearances and one-on-one discussions since August 2015 that helped to 
inform this proposal.
    Additionally, the EPA opened a non-regulatory docket (EPA-HQ-OAR-
2015-0734) requesting pre-proposal input on the design details of the 
CEIP covered in this package. Specifically, the EPA requested input on 
the following: (1) What the EPA should consider when defining criteria, 
terms and requirements under the CEIP; (2) what the EPA should consider 
regarding the timing and distribution of EPA matching allowances or 
ERCs under the CEIP; and (3) what the EPA should consider when 
designing the mechanics of the CEIP. The non-regulatory docket received 
more than 5,000 comments.
    While not within the scope of our requests, many commenters 
supported the inclusion of the CEIP in the Clean Power Plan. These 
commenters stated, however, that the CEIP project eligibility start 
date tied to submission of a final state plan, and the limitation of 
CEIP matching awards for eligible energy savings or generation to the 
years 2020 and 2021 only, were too restrictive. With regard to the 
project eligibility start date, commenters asserted that RE and EE 
projects take time to design, implement and begin generating/saving 
MWh, especially those that are developed with, by, and for low-income 
households and communities. Again, while not all of these topics are 
within the scope of this action, in response to some of these concerns, 
the EPA is proposing a modification to make clear when eligibility may 
begin for projects, as discussed further in section III.C of this 
preamble.
    With regard to apportionment of the EPA matching pool of allowances 
and ERCs among the states, the majority of commenters felt that the 
pro-rata distribution method identified in the final Clean Power Plan 
EGs, whereby each state's share is based on the amount of reductions 
from 2012 levels the affected EGUs in the state are required to achieve 
relative to those in the other CEIP-participating states (80 FR 64830; 
October 23, 2015), was the appropriate apportionment method. Some 
commenters suggested that, rather than apportioning the matching pool 
among the states, the pool should instead be available on a first-come, 
first served basis to eligible CEIP project developers, regardless of 
where such projects take place. The EPA agrees with the majority of 
commenters that supported a state-by-state apportionment, as the Agency 
believes this is consistent with the state plan structure of the Clean 
Power Plan, and it ensures that all states that choose to

[[Page 42948]]

participate in the CEIP have access to the additional allowances and 
ERCs supplied by the matching pool. Therefore, the EPA is proposing in 
this action the size of the matching pool for each state, in line with 
the pro-rata distribution methodology previously described (see tables 
1 and 2 in section III.A of this preamble). The EPA has provided the 
calculations supporting these numbers in a technical support document 
(TSD) in the docket for this proposal.\18\
---------------------------------------------------------------------------

    \18\ See TSD titled ``Apportionment of the Matching Pool among 
the States''.
---------------------------------------------------------------------------

    Some commenters stated that the EPA matching pool of 300 million 
short tons of CO2 should be divided evenly into two 
reserves: one reserve for wind and solar projects, and another reserve 
for low-income EE projects. Others supported a different division, 
largely commenting that a greater share of the matching pool should be 
reserved for low-income EE projects. There was also strong support for 
allowing flexibility for states to decide the size of the two reserves. 
The EPA has considered those comments and proposes that the matching 
pool should be divided evenly into two reserves, but seeks comment on 
several other approaches for distributing the pool as discussed further 
in section III.A.
    With regard to the definition of low-income community, many 
commenters suggested each state should have flexibility to choose the 
definition(s) that may be employed by project providers seeking early 
action awards from the state. Commenters supported the use of 
definitions of low-income currently used by other federal incentive 
programs, such as 80 percent of the area median income,\19\ Department 
of Housing and Urban Development (HUD) criteria,\20\ Empowerment Zones 
criteria,\21\ or an annual income at or below 200 percent of the 
federal poverty level.\22\ However, other commenters suggested that 
states should not be allowed this flexibility, and rather that the EPA 
should provide a definition that all states must use. Many of the 
definitions referenced by commenters address ``low-income'' at the 
individual household level. By contrast, some commenters stated that a 
geographically based definition (i.e., Census tract- or neighborhood-
level, or zip codes with above-average concentrations of low-income 
individuals) is most appropriate, and allows for the most comprehensive 
approach to program delivery; other commenters stated CEIP plans should 
not geographically restrict or allow the exclusion of low-income 
households within a state, as such an exclusion would create a 
disparate impact and unduly harm low-income households. Some commenters 
stated that a hybrid approach that would include both geographically 
based definitions as well as household level definitions would be most 
appropriate to ensure that low-income communities, as well as low-
income residents that are not within low-income communities are both 
eligible to receive CEIP matching awards for EE projects. A few 
commenters stated that the double-match for energy-efficiency projects 
should be extended beyond low-income communities, and also be made 
available for minority populations and in Indian Country. The EPA 
further discusses the definition of ``low-income,'' for purposes of 
implementing the CEIP in section III.B.
---------------------------------------------------------------------------

    \19\ HUD.GOV, FY 2015 Income Limits, https://www.huduser.gov/portal/datasets/il/il15/index.html.
    \20\ et seq.
    \21\ Programs of HUD, http://portalhud.gov/hudportal/HUD%3Fsrc%3D/hudprograms/empowerment_zones.
    \22\ Federal Poverty Guidelines, February 2015, http://familiesusa.org/product/federal-poverty-guidelines.
---------------------------------------------------------------------------

    With regard to the criteria for eligible EE projects in low-income 
communities, commenters suggested that eligibility go beyond single 
family residential projects and that states should consider additional 
factors such as economic development and job creation when prioritizing 
EE and RE projects. Requirements for CEIP-eligible projects are 
discussed in section III.C of this preamble.
    Although the EPA did not request comment on the types of RE 
projects that should be eligible for consideration, several commenters 
requested that, in addition to wind and solar resources, the EPA 
consider including geothermal, biomass and hydropower, as well as other 
generating technologies such as combined heat and power (CHP) and waste 
heat to power (WHP). One commenter requested that nuclear generation be 
considered as an eligible RE technology, however, several other 
commenters explicitly stated that the EPA should not consider nuclear 
as an eligible RE technology. The Agency also received several 
petitions for reconsideration on the final Clean Power Plan requesting 
that the scope of CEIP eligibility be expanded.\23\ In this action, we 
are proposing a limited expansion of the list of CEIP-eligible RE 
technologies beyond wind and solar, to two other renewable, zero-
emitting technologies: Geothermal and hydropower (We note these 
technologies were also considered in the formulation of building block 
3 of the BSER. See 80 FR 64807, October 23, 2015). Commenters also 
suggested expanding eligibility of low-income projects to include 
certain RE technologies, such as solar, that could benefit low-income 
communities in the same way that energy efficiency projects can. We 
agree that low-income communities can benefit from additional 
incentives for solar resources, similar to the benefits that would be 
realized for EE. We also recognize that deployment of RE projects in 
low-income communities face barriers similar to those faced by low-
income EE projects. Accordingly, we are proposing that solar projects 
implemented to serve low-income communities that provide direct 
electricity bill benefits to low-income community ratepayers would be 
eligible for CEIP awards from the low-income community reserve, and 
that such projects would be eligible for the same (two-for-one) CEIP 
incentive available to low-income EE projects. Discussions on these 
proposed provisions are located in sections III.C.4 and III.C.5 of this 
preamble.
---------------------------------------------------------------------------

    \23\ While there is some overlap in this action on this and 
several other issues relating to the CEIP raised by the petitions 
for reconsideration, the Agency continues to review, and is not 
acting on, these or any other aspects of the petitions for 
reconsideration of the Clean Power Plan at this time.
---------------------------------------------------------------------------

    Commenters requested that the EPA provide early guidance on a 
methodology for representing the 300 million short tons of 
CO2 EPA matching pool in the form of ERCs, which are 
denominated in MWh. Such guidance is provided in section III.A of this 
preamble. Commenters also supported flexibility for states to identify 
the mechanism used for tracking MWh generated or avoided by eligible 
CEIP projects.
    The majority of commenters asserted that EM&V requirements used to 
quantify CEIP-eligible MWh generated or saved should be flexible and 
transparent, should not be overly burdensome (i.e., the cost of the 
EM&V should be balanced with the accuracy and reliability of the 
results), should not present a significant disincentive to 
participation in the CEIP, and that states that already have robust 
quantification and verification processes in place should be allowed to 
rely on these processes. Additionally, there was some support for 
independent verification of the EM&V methods, procedures, and 
assumptions used to quantify MWh for eligible CEIP projects (i.e., 
independent verification of EM&V plans as well as subsequent M&V 
reports). These commenters suggested that the EPA should be responsible 
for developing

[[Page 42949]]

and maintaining a list of approved independent verifiers, and some 
suggested that EPA should provide template EM&V plans and M&V reports. 
Section III.B discusses state plan requirements for distribution of 
early action allowances or ERCs, including considerations for EM&V of 
CEIP-eligible MWh.
    The EPA also received comments on what, if any, reapportionment 
process should take place for EPA matching allowances or ERCs that a 
state is eligible to receive, but that the state does not ultimately 
access because it chooses not to opt in to the CEIP, or the CEIP 
provisions of its otherwise approved state plan are disapproved by the 
EPA. Commenters were nearly evenly divided on whether these ``extra'' 
matching allowances or ERCs should be reapportioned to CEIP-
participating states on a pro-rata basis, or whether they should be 
made available to CEIP-participating states on a first-come, first-
served basis, based on state awards of early action allowances or ERCs 
to eligible CEIP projects. Other commenters stated that EPA matching 
allowances or ERCs that are apportioned to a state, but ultimately are 
not used by that state because it chooses not to opt in to the CEIP, 
should not be reapportioned among CEIP-participating states. Based on 
some stakeholder concerns and further consideration by the Agency, the 
EPA is not including provisions for reapportionment among states in 
this proposal. See section III.A of this preamble for a discussion on 
the reasons for excluding reapportionment provisions for any remaining 
CEIP credits, and a request for comment on whether reapportionment 
should be included in the CEIP.
    Many commenters supported broad geographic eligibility for 
participation in the CEIP, including supporting the inclusion of 
projects located in states, tribal lands and territories without 
affected EGUs, or for whom the EPA has not yet established goals under 
the Clean Power Plan EGs. Please see section III.D for a discussion on 
CEIP participation for states, tribes and territories for which the EPA 
has not established goals.

III. Clean Energy Incentive Program Design Details

    In this section, we discuss the proposed design details for several 
elements of the CEIP. Section III.A presents the proposed provisions 
for matching allowances and ERCs to be issued by the EPA from the 
matching pool of 300 million short tons of CO2 emissions. 
This includes a discussion of how EPA proposes to translate the pool 
into matching allowances and matching ERCs; the number of allowances or 
ERCs that may be allocated or issued by a state to a CEIP-eligible 
project provider per MWh generated or saved; the division of the EPA 
matching pool into a reserve for RE projects and a reserve for low-
income community projects; the apportionment of the EPA matching pool 
among the states; and whether to include reapportioning EPA matching 
allowances and ERCs among CEIP-participating states.
    Section III.B of this preamble discusses requirements for states 
that choose to participate in the CEIP. It includes requirements for 
allocation of early action allowances or issuance of early action ERCs 
by a state; requirements for a proposed process by which EPA matching 
allowances or matching ERCs would be awarded; options for meeting the 
requirement finalized in the Clean Power Plan EGs to maintain the 
stringency of mass-based or rate-based CO2 emission 
performance by affected EGUs when implementing the CEIP; the 
requirement for a state to select one or more existing definitions of 
``low-income community'' for purposes of implementing the CEIP; and 
requirements addressing the potential improper allocation or issuance 
of early action allowances or early action ERCs by a state.
    Section III.C of this preamble discusses requirements for CEIP-
eligible projects, including eligible RE projects and eligible low-
income community projects. This includes a proposal to clarify the term 
``project'' to also include programs that deploy eligible RE 
technologies and implement demand-side EE. It also includes a proposal 
to clarify the definition of ``commence construction'' as applied to RE 
projects, as well as a discussion of the option for a state to use an 
Agent for reviewing CEIP project applications, allocating early action 
allowances, and issuing early action ERCs. In addition, this section 
proposes the expansion of eligible CEIP RE projects to include, in 
addition to wind and solar, two other RE technologies: Geothermal and 
hydropower. The section also proposes an expansion of technologies 
implemented in low-income communities that would be eligible to receive 
a two-for-one CEIP award. Specifically, we propose that solar projects 
implemented to serve low-income communities that provide direct 
electricity bill benefits to low-income community ratepayers also be 
eligible for a two-for-one award in addition to the demand-side EE 
technologies that are already included. For this reason, we now refer 
to this reserve as the `low-income community' reserve instead of the 
former `demand-side EE' reserve. Finally, this section proposes that 
states have flexibility to determine the types of demand-side EE 
projects they may deem eligible for CEIP awards (such as projects for 
residences and non-profit commercial buildings, or transmission and 
distribution projects that reduce electricity use on the customer side 
of the meter), so long as they are implemented in communities that meet 
the state's approved definition(s) for ``low-income community.''
    Section III.D of this preamble discusses CEIP participation for 
states, tribes and territories for which the EPA has not established 
goals in the Clean Power Plan EGs. This includes a proposal that may 
further enhance the ability of project providers located in Indian 
country without affected EGUs to participate in the CEIP, a request for 
comment on how to determine the appropriate portion of the matching 
pool that should be apportioned to the non-contiguous states and 
territories, if they choose to participate in the CEIP, and a 
discussion of how eligible CEIP projects developed in states without 
affected EGUs may receive early action allowances or ERCs from another 
state that has chosen to participate in the CEIP.

A. Provisions for Matching Allowances and ERCs To be Issued by the EPA 
From the 300 Million Short Ton Pool

    As discussed in section II.A of this preamble, the EPA established 
an overall matching pool of 300 million short tons of CO2 to 
be made available for states participating in the CEIP. Participating 
states that allocate early action allowances or issue early action ERCs 
are able to receive matching allowances or matching ERCs from the EPA 
from this matching pool. In this action, we are proposing a methodology 
to determine a state's pro rata share of the matching pool for both 
mass- and rate-based programs. The EPA is proposing to use this 
methodology to determine the amount of matching allowances or ERCs that 
will be available to each CEIP-participating state. We are also 
proposing that a state may only allocate or issue early action 
allowances or ERCs to eligible CEIP projects in a total amount not to 
exceed the number of matching ERCs or allowances that are apportioned 
to the state.\24\
---------------------------------------------------------------------------

    \24\ The EPA notes that, while a mass-based state may not 
allocate from its CEIP early action set-aside a number of allowances 
larger than the number of matching allowances available to the 
state, such a state could choose to create an additional allowance 
set-aside from which it could allocate allowances to incentivize 
additional early investments in RE or EE. In general, a state has 
full discretion to allocate its allowances as it sees fit.

---------------------------------------------------------------------------

[[Page 42950]]

    Additionally, this action proposes a division of the matching pool 
that would establish the portion of the matching pool available to each 
CEIP-participating state for awards to eligible CEIP RE projects, and 
the portion of the matching pool available to each CEIP-participating 
state for awards to eligible CEIP low-income community projects.
1. The Size of the EPA Matching Pool in Terms of Allowances and ERCs
    As stated in the preamble of the final Clean Power Plan, the EPA 
determined that the matching pool of 300 million short tons of 
CO2 emissions was an appropriate reflection of the 
CO2 emission reductions that could be achieved in 2020 and 
2021 through additional early investment in technologies with zero 
associated CO2 emissions, 80 FR 64830. We recite this 
information as it is relevant to our calculation of the size of the 
pool in terms of allowances and ERCs, but we are not reopening the size 
of the matching pool as finalized in the EGs. To estimate short tons of 
CO2, the EPA projected that potential additional early 
investment in wind and solar could result in 400 million MWh of clean 
generation in 2020 and 2021, and applied the assumption that each MWh 
displaces approximately 0.8 short tons of CO2 from carbon-
emitting generation per MWh of clean energy generation.\25\ 400 million 
MWh multiplied by 0.8 short tons of CO2 per MWh results in 
320 million tons. The EPA applied a conservative downward adjustment to 
this calculation to set the size of the matching pool at 300 million 
short tons.
---------------------------------------------------------------------------

    \25\ 0.8 short tons of CO2 per MWh is approximately 
the CO2 emission intensity of all affected sources in 
2012. See Data File: Goal Computation Appendix 1-5, TSD to the Clean 
Power Plan Final Rule titled Emission Performance Rate and Goal 
Computation.
---------------------------------------------------------------------------

    The EPA is using the relationship between tons of CO2 
and allowances that was established in the final Clean Power Plan EGs 
in order to determine the overall amount of matching allowances 
available through the EPA matching pool. Under a mass-based state plan, 
an allowance represents a limited authorization to emit one ton of 
CO2. The matching pool was established in the EGs at 300 
million short tons of CO2, which would be equivalent to 300 
million allowances. Thus, the EPA matching pool, in the form of 
allowances, will be equal to 300 million allowances.
    The EPA is using the relationship between MWh and ERCs that was 
established in the final Clean Power Plan EGs, along with an adjustment 
identical to that applied when setting the matching pool at 300 million 
short tons, in order to determine the overall number of matching ERCs 
available through the EPA matching pool. Under a rate-based state plan, 
each MWh of generation or savings from an eligible resource that meets 
all applicable requirements of the EGs may be issued one ERC by a 
state. The EPA is proposing to establish the size of the matching pool, 
in the form of ERCs, based on the projection of 400 million MWh of wind 
and solar generation in 2020 and 2021, with the application of the same 
conservative downward adjustment the EPA used to adjust 320 million 
short tons of CO2 emissions downward to 300 million short 
tons in setting the size of the matching pool in the final Clean Power 
Plan. As follows, the EPA proposes that the size of the matching pool, 
in the form of ERCs, will be equal to 375 million ERCs.
    The establishment of the matching pool in terms of both allowances 
and ERCs does not have any bearing on the final Clean Power Plan's 
provisions that allowances from a mass-based emission budget trading 
program may not be used for compliance in a rate-based emission trading 
program and that ERCs may not be used for compliance in a mass-based 
emission budget trading program. Allowances and ERCs are distinct 
tradable compliance instruments used by states implementing mass-based 
and rate-based emission standards, respectively, and are not 
interchangeable under the Clean Power Plan EGs, see 40 CFR 60.5750(d); 
id. 60.5790(a); 80 FR 64839. Using a single multiplication factor on a 
one-time basis to represent the matching pool in both forms--allowances 
and ERCs--is done simply for the limited purpose of providing for the 
implementation of the CEIP in the context of either a mass-based or a 
rate-based emission trading program.
2. Awards for CEIP-eligible MWh, in Terms of ERCs and Allowances
    The final Clean Power Plan EGs specified the ERC award ratios (both 
by a state and the EPA) for MWh of generation or energy savings 
achieved by an eligible project under the CEIP.\26\ These award ratios 
would be applied by a state with a rate-based state plan that chooses 
to implement the CEIP. Specifically, eligible CEIP RE projects may 
receive an award of two ERCs for every two MWh of clean energy 
generated. This award is based on the issuance of one early action ERC 
by the state and the award of one matching ERC by the EPA. In addition, 
eligible low-income community projects are eligible for a ``double'' 
award of four ERCs for every two MWh of energy savings. This award is 
based on the issuance of two early action ERCs by the state and the 
award of two matching ERCs by the EPA.
---------------------------------------------------------------------------

    \26\ These provisions are discussed in section VIII.B.2 of the 
preamble to the final EGs (80 FR 64830, October 23, 2015). See also 
40 CFR 60.5737(b) of the EGs.
---------------------------------------------------------------------------

    For example, if a CEIP-eligible RE project generates 50 MWh in 
2020, the project would be eligible to receive 25 early action ERCs 
from the state and 25 matching ERCs from the EPA, for a total award of 
50 ERCs. As another example, if a CEIP-eligible low-income community 
project saves 50 MWh in 2020, the project would be eligible to receive 
50 early action ERCs from the state and 50 matching ERCs from the EPA, 
for a total award of 100 ERCs.
    While the final Clean Power Plan EGs specified the ERC award ratios 
for CEIP-eligible MWh that may be used by rate-based states, we stated 
that the Agency would propose in a future action the allowance award 
ratios for CEIP-eligible MWh that mass-based states may use. As 
follows, in this action the EPA is proposing that the allocation of 
early action allowances by a state, and the award of matching 
allowances by the EPA, will be based on a 0.8 short tons of 
CO2/MWh factor. As discussed previously in this section, 
this is the same factor applied by the EPA when it established the size 
of the matching pool of 300 million short tons of CO2 
emissions (see 80 FR 64830).
    For eligible CEIP RE projects under a mass-based program, the 
proposed 0.8 short tons of CO2/MWh factor would result in a 
total of 0.8 allowances awarded for every one MWh. Again, with half of 
the total award being made by the state in the form of allocated early 
action allowances, and the other half of the award being made by the 
EPA in the form of matching allowances, both the state and EPA would 
provide 0.4 allowances for each MWh generated, for a total of 0.8 
allowances.\27\ For example, if a CEIP-eligible wind project generates 
50 MWh in 2020, the total potential combined award available from the 
state and the EPA would be 40 allowances (i.e., 50 MWh x 0.8 short tons 
CO2/MWh). The project would be eligible to receive an 
allocation of 20 early action allowances from the state and award of 20 
matching

[[Page 42951]]

allowances from the EPA, for a total award of 40 allowances.
---------------------------------------------------------------------------

    \27\ Allowances may only be allocated or awarded in whole-
allowance increments.
---------------------------------------------------------------------------

    Given the two-to-one award available to low-income community 
projects, for each MWh of CEIP-eligible energy savings or generation 
from a low-income community project under a mass-based program, a CEIP 
project provider would be eligible to receive 0.8 early action 
allowances from the state and 0.8 matching allowances from the EPA, for 
a total award of 1.6 allowances per MWh. For example, if a CEIP-
eligible low-income community project saves 50 MWh in 2020, the total 
combined award available to the project would be 80 allowances (i.e., 
50 x 0.8 short tons CO2/MWh x 2 (to account for the two-to-
one award ratio, per MWh of energy savings)). The project would be 
eligible to receive an allocation of 40 early action allowances from 
the state and an award of 40 matching allowances from the EPA, for a 
total award of 80 allowances.
3. Division of the Matching Pool of 300 Million Short Tons of 
CO2 Emissions Into a Reserve for RE Projects and a Reserve 
for Low-Income Community Projects
    In the final Clean Power Plan EGs, the EPA expressed its intent to 
divide the matching pool of 300 million short tons of CO2 
emissions into a RE reserve for wind and solar projects, and a reserve 
for low-income demand-side EE projects, (80 FR 64829, October 23, 
2015). As presented in section III.C of this preamble, in this action, 
the EPA is proposing that the RE reserve would also accommodate CEIP 
awards (on a one-to-one basis) to geothermal and hydropower projects 
and that the low-income community reserve would also accommodate CEIP 
awards (on a two-to-one basis) to solar projects implemented to serve 
low-income communities. After taking account of this proposal to 
include geothermal and hydropower projects as eligible for the RE 
reserve, and solar projects implemented to serve low-income communities 
as eligible for the low-income community reserve, the EPA is proposing, 
consistent with the intent stated in the final Clean Power Plan EGs, 
that the matching pool be divided evenly between the two reserves, with 
50 percent of the matching pool (150 million allowances, or 187.5 
million ERCs) made available for eligible CEIP RE projects and 50 
percent of the matching pool (150 million allowances, or 187.5 million 
ERCs) made available for eligible CEIP low-income community projects.
    The EPA is proposing that a CEIP-participating state may allocate 
early action allowances or issue early action ERCs up to an amount 
equivalent to the number of matching allowances or matching ERCs the 
state is eligible to receive from the EPA for each reserve, as listed 
in tables 1 and 2 of this preamble. Allowances or ERCs that are 
designated for one reserve may not be re-designated for the other 
reserve, (e.g., allowances that are reserved for low-income community 
projects may not be reallocated to the RE reserve or vice versa).
    The proposal for the 50 percent/50 percent apportionment is based 
in part upon the EPA's analysis of the potential MWh that may be 
achieved by wind, solar, geothermal, hydropower, and low-income EE 
projects in 2020 and 2021, as well as upon stakeholder feedback 
regarding the appropriate apportionment between these two reserves.
    As discussed in section III.C of this preamble, the EPA is 
proposing to replace the term ``commence construction'' for CEIP-
eligible RE projects with the term ``commence commercial operation,'' 
as well as to make an associated change in the date of project 
eligibility to on or after January 1, 2020. The EPA is not reopening 
the decision to set the size of the CEIP matching pool at 300 million 
short tons. However, we note that even under the proposed changes to 
project eligibility, and the updated assumptions as discussed in the 
TSD to this action titled ``Renewable Energy and Low Income Energy 
Efficiency Potential,'' the EPA projects that energy generation from 
potentially eligible CEIP wind, solar, geothermal and hydropower 
projects will not exceed 400 million MWh in 2020 and 2021 combined. 
Thus, even if the EPA were considering a change in the magnitude of the 
CEIP (which it is not), new information and assumptions at this point 
would not lead the Agency to a different result in terms of the 
appropriate size of the CEIP matching pool, in light of the objectives 
for the CEIP identified in the final EGs, 80 FR at 64829-64832.
    Further, the EPA proposes, in line with the discussion in the final 
EGs, that 50 percent of the matching pool would be the appropriate 
amount to apportion to the RE reserve. With regard to wind and solar 
potentials, at the time of promulgation of the Clean Power Plan EGs, 
the EPA projected that the deployment rates for wind and solar energy 
would remain relatively modest in the years leading up to the start of 
the interim plan performance period (i.e., no greater than the combined 
historic maximum deployment rates experienced for wind in 2012 and for 
solar in 2014).\28\ Subsequent to finalization of the CPP, Congress 
extended tax credits for wind and solar resources. It is likely that 
the extension of the wind and solar tax credits in December 2015, as 
well as the May 5, 2016 IRS guidelines extending the Production Tax 
Credit (PTC) Continuity Safe Harbor from 2 years to 4 years, may also 
impact the development of wind and solar projects that commence 
commercial operation in 2020 onward.\29\ Nonetheless, the EPA continues 
to believe that one half of the total size of the CEIP matching pool 
remains the appropriate amount to incentivize the qualifying RE 
technologies--wind, solar, geothermal and hydropower--in light of the 
multiple purposes and scale of the CEIP.
---------------------------------------------------------------------------

    \28\ See TSD to the Final Clean Power Plan titled ``Greenhouse 
Gas Mitigation Measures,'' Docket ID No. EPA-HQ-OAR-2013-0602.
    \29\ See: Consolidated Appropriations Act, 2016 (H.R. 2029, Sec. 
301 and Sec. 303) (Dec. 18, 2015). This legislation extended the 
expiration date for the Production Tax Credit (PTC) for qualified 
facilities that use wind to produce electricity, as well as 
permission for PTC-eligible wind facilities to claim the Investment 
Tax Credit (ITC) in lieu of the PTC, through the end of 2019 (Sec. 
301). The Act also extended the expiration date for the ITC tax 
credit for qualified solar energy equipment that generates 
electricity until January 2, 2022 (Sec. 303). See also: Internal 
Revenue Service Notice 2016-31, May 5, 2016.
---------------------------------------------------------------------------

    At the same time, the EPA believes that the remaining 50 percent of 
the CEIP matching pool remains the appropriate size for the low-income 
community reserve, leaving a more-than adequate margin to accommodate 
large-scale deployment of both demand-side EE projects and solar 
projects implemented to serve low-income communities. As discussed in 
section III.C of this preamble, the EPA is proposing to clarify the 
term ``commence operation'' for CEIP-eligible low-income demand-side EE 
projects, and to make a change in the date of eligibility for such 
projects such that they may commence operation on or after September 6, 
2018. In addition, also as discussed in section III.C of this preamble, 
the EPA is proposing to replace the term ``commence construction'' for 
CEIP-eligible RE projects (including solar projects implemented to 
serve low-income communities) with the term ``commence commercial 
operation'' and to make an associated change in the eligibility date 
for such projects to January 1, 2020.\30\

[[Page 42952]]

Given these assumptions, and also as explained in detail in the TSD to 
this action titled ``Renewable Energy and Low Income Energy Efficiency 
Potential,'' the EPA estimates that energy savings from potentially 
eligible CEIP low-income demand-side EE projects could reach up to 39 
million MWh in 2020 and 2021 combined, thus absorbing approximately ten 
percent of the matching allowances or ERCs provided by the EPA in the 
matching pool. The EPA estimates that generation from solar projects 
implemented to serve low-income communities could reach up to 8 million 
MWh in 2020 and 2021 combined, thus absorbing approximately an 
additional two percent of the matching allowances or ERCs provided by 
the EPA in the matching pool.
---------------------------------------------------------------------------

    \30\ As explained above in Section II.B, the decision not to 
propose further changes to the key timing elements of the CEIP in 
this action should not be taken to indicate any particular view or 
intention by the Agency regarding how the timelines for the Clean 
Power Plan overall may be impacted by the Supreme Court's stay.
---------------------------------------------------------------------------

    Given that eligible low-income community projects may receive CEIP 
awards on a two MWh to one MWh basis (as discussed in section III.A of 
this preamble), with half of the award coming from the state, and half 
of the award coming from the EPA, these 39 million MWh of low-income 
energy efficiency savings and 8 million MWh of solar generation 
implemented to serve low-income communities would be eligible to 
receive approximately 47 million matching ERCs, or 38 million matching 
allowances.
    In light of this analysis, and in agreement with stakeholder 
comment that the EPA should apportion the matching allowances and ERCs 
evenly between a reserve for RE projects and a reserve for low-income 
community projects, the EPA is proposing that the matching pool be 
divided evenly between the two reserves, with 50 percent of the 
matching pool (150 million allowances, or 187.5 million ERCs) made 
available for RE projects and 50 percent of the matching pool (150 
million allowances, or 187.5 million ERCs) made available for low-
income community projects.
    This apportionment is appropriate for several policy and 
technology-driven reasons. The apportionment achieves the policy 
objective of the CEIP, which is to ensure incentives for deployment of 
additional projects in both reserves (RE projects as well as low-income 
community projects). Whereas some stakeholders requested that we 
apportion the matching pool such that low-income community projects be 
eligible to receive more than 50 percent of the matching pool, our 
analyses do not support the need for a reserve for low-income community 
projects larger than 150 million allowances/187.5 million ERCs in order 
to meet demand during the CEIP period, even with the two-to-one award 
for such projects. However, the EPA requests information and data that 
may support a larger reserve for low-income community projects.
    The proposal would also add solar projects implemented to serve 
low-income communities as eligible low-income community CEIP projects. 
This expansion of the CEIP scope in low-income communities promotes 
emission reductions and will help these communities better harness the 
benefits of energy efficiency and solar resources. More specifically, 
this expansion of the CEIP scope will provide low-income communities a 
greater opportunity to reach the full scale of opportunity presented by 
the reserve of matching allowances and ERCs for low-income community 
projects.
    The EPA further believes that the 50-50 apportionment is an 
appropriate choice based on the rapidly evolving pace of technology and 
consumer demand for energy in the United States. Several analysts have 
noted that the electric power sector will undergo transformative 
changes from a number of factors, particularly lower costs for 
distributed generation, technology improvements in RE resources, and 
rapid innovation in energy efficiency technologies (e.g., lighting and 
temperature controls). For example, a 2016 first quarter update from 
the Federal Energy Regulatory Commission (FERC) shows that RE made up 
almost all new capacity added in the United States so far this year--
constituting 99% of the new generation capacity in service.\31\ These 
changes are occurring at a rapid pace and support the view that the 
CEIP apportionment should provide incentives and room for continued 
growth in both renewables and energy efficiency projects in low-income 
communities.
---------------------------------------------------------------------------

    \31\ Federal Energy Regulatory Commission (FERC). March 2016. 
Energy Infrastructure Update; Office of Energy Projects. Page 4. 
Accessed on June 14 at http://www.ferc.gov/legal/staff-reports/2016/mar-infrastructure.pdf.
---------------------------------------------------------------------------

    The apportionment of the two reserves, on a state-by-state basis, 
is included in tables 1 and 2.\32\ The EPA further proposes that a 
state may not transfer matching allowances or ERCs between these two 
reserves in its state-level apportionment. In other words, should one 
reserve become fully subscribed, the state would not be permitted to 
move matching allowances or ERCs into it from the other reserve. 
Rather, as stated in the Clean Power Plan EGs, the EPA will retire 
matching allowances or ERCs that remain in each of the state's two 
reserves following January 1, 2023 (See 80 FR 64803, October 23, 2015). 
Such a retirement is appropriate given that the intent of the matching 
pool is to incentivize early actions in 2020 and 2021, and matching 
allowances and ERCs in this pool should not be available to award to 
actions from 2022 onward, during the performance periods under the 
Clean Power Plan EGs.
---------------------------------------------------------------------------

    \32\ In section III.D of this preamble, we discuss potential 
participation options for noncontiguous states and territories and 
for tribes without affected EGUs. Pro rata shares proposed in this 
action do not reflect potential shares that may be apportioned to 
these groups pending comments.
---------------------------------------------------------------------------

    The EPA seeks comment on all aspects of the proposed 50 percent/50 
percent division of the 300 million short ton matching pool into a 
reserve for RE projects and a reserve for low-income community 
projects. In particular, the EPA seeks comment on the extent to which 
the recent extension of the federal tax credits for wind and solar 
resources will help to meet the CEIP's objectives with respect to 
promoting increased deployment of RE resources, including wind and 
solar, over the period leading up to 2022. The EPA notes that DOE's 
National Renewable Energy Laboratory has published an analysis which 
found that with these tax credits in place, roughly 100 gigawatts of 
additional wind and solar capacity would be added by the end of 
2021.\33\ Similar analyses have been conducted by third parties. 
Therefore, the EPA seeks comment on whether it is appropriate, in light 
of the tax credit extensions, to include in the CEIP a mechanism that 
would limit the number of early action and matching allowances or ERCs 
that may be available to wind and solar projects that may not require 
additional incentives for deployment, and on how to best design such a 
mechanism.\34\ One potential approach would be to apportion less than 
50 percent (e.g., 30 percent or 25 percent) of the 300 million short 
ton matching pool to the reserve for eligible RE projects. Some 
stakeholders have suggested that another approach would be to exclude 
projects from CEIP eligibility that are benefitting from the Investment 
Tax Credit (ITC) or PTC from CEIP eligibility. In response to this 
stakeholder feedback, we request

[[Page 42953]]

comment on whether and how to implement limitations on CEIP 
participation for wind and solar resources that benefit from the ITC or 
PTC. For example, a state could request, as part of a wind or solar 
project's CEIP eligibility application that it submit a certification 
that it is not benefitting from the PTC or ITC. Further the EPA seeks 
comment on whether the project should still be allowed to receive CEIP 
awards if it only receives a partial tax credit. The EPA seeks comment 
on this and other approaches a state could use to ensure that a wind or 
solar project submitting an eligibility application for a CEIP award is 
not also receiving tax incentives. We also solicit comment on whether 
and how any considerations of impacts of the PTC or ITC should impact 
apportionment for the RE reserve. The EPA is also seeking comment on an 
alternative apportionment of the reserves, which would set a ``floor'' 
on the portion of the matching pool that would be available for RE 
projects and low-income community projects and leave a portion of the 
matching pool available to be apportioned at the states' discretion. 
For example, 40 percent of every state's pro rata share could be 
reserved for RE projects and 40 percent could be reserved for low-
income community projects, with the remaining 20 percent to be awarded 
at the state's discretion to any CEIP-eligible project type.
---------------------------------------------------------------------------

    \33\ http://www.nrel.gov/docs/fy16osti/65571.pdf.
    \34\ The EPA acknowledges that geothermal technologies are 
eligible for a permanent 10 percent tax credit. However, because 
analysis indicates that these technologies will likely not be widely 
deployed during the 2020-2021 timeframe, we do not believe it is 
necessary to constrain the number of early action and matching 
allowances or ERCs that may be available to geothermal projects. For 
a projection of constant geothermal generation in 2020 and 2021, see 
http://www.eia.gov/forecasts/aeo/data/browser/<#/?id=16-
AEO2016&cases=ref2016~ref_no_cpp&sourcekey=0.
---------------------------------------------------------------------------

4. Apportionment of the Matching Pool Among the States: Allowances and 
ERCs Available in the RE and Low-Income Community Reserves
    The final Clean Power Plan EGs expressed the EPA's intent to 
apportion the 300 million ton matching pool among states based on the 
amount of reductions from 2012 levels the affected EGUs in the state 
are required to achieve relative to those in other participating states 
(80 FR 64830, October 23, 2015). Tables 1 and 2 show the state-level 
shares that result from this calculation approach, including the number 
of allowances (of the 300 million allowance total) or ERCs (of the 375 
million ERC total) that would be available to a CEIP-participating 
state depending on the choice of a mass-based or rate-based state plan. 
See the TSD to this action, titled ``Apportionment of the Matching Pool 
among the States,'' for further discussion of the calculation approach.
    As discussed in section III.A, the EPA proposes to divide each 
state's share of the matching pool into a portion for RE projects and a 
portion for low-income community projects. An apportionment between the 
two reserves of 50 percent for RE and 50 percent for low-income 
community projects is shown in tables 1 and 2 of this preamble. The EPA 
is proposing that only those states with EGUs subject to the final 
Clean Power Plan EGs and that have submitted a final plan with approved 
CEIP provisions, as well as those states for whom the EPA may implement 
a federal plan, will receive an apportionment of the matching pool that 
the EPA is making available under the CEIP.\35\ However, we do note 
that eligible projects outside of the boundaries of CEIP-participating 
states may still be eligible for award of early action and matching 
allowances or ERCs, so long as that project provides a benefit to the 
state issuing the award.
---------------------------------------------------------------------------

    \35\ See section III.D for a discussion of pathways by which 
tribes and states without affected EGUs, as well as states and 
territories for which the EPA has not yet finalized emission goals 
under the Clean Power Plan, may participate in the CEIP.
    \36\ As discussed in section III.D of this document, shares that 
may be provided to states and territories where goals have yet to be 
established would be distributed from the 300 million short ton 
matching pool, if the Agency moves forward with those options. Once 
the values for these shares are determined, if at all, table 1 would 
be updated to reflect the shares for all states, territories and 
tribes receiving CEIP matching allowances. We anticipate that the 
overall total share of the CEIP matching pool needed for states and 
territories where goals have yet to be established would be no more 
than five percent of the total pool (or about 15 million 
allowances).

                                 Table 1--Proposed State Shares of Matching Pool
                                                [Allowances] \36\
----------------------------------------------------------------------------------------------------------------
                                                                  Available matching allowances (mass-based plan
                                                                                      states)
                                                                 -----------------------------------------------
                           State/tribe                               Renewable      Low-income
                                                                  energy reserve     community      Total share
                                                                       (50%)       reserve (50%)      (100%)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................       4,683,458       4,683,458       9,366,916
Arizona.........................................................       2,579,426       2,579,426       5,158,852
Arkansas........................................................       3,280,844       3,280,844       6,561,688
California......................................................         328,268         328,268         656,536
Colorado........................................................       3,334,788       3,334,788       6,669,576
Connecticut.....................................................         104,122         104,122         208,244
Delaware........................................................         207,588         207,588         415,176
Florida.........................................................       4,845,372       4,845,372       9,690,744
Georgia.........................................................       4,133,434       4,133,434       8,266,868
Idaho...........................................................          22,392          22,392          44,784
Illinois........................................................       8,953,081       8,953,081      17,906,162
Indiana.........................................................       8,631,114       8,631,114      17,262,228
Iowa............................................................       3,286,774       3,286,774       6,573,548
Kansas..........................................................       3,173,445       3,173,445       6,346,890
Kentucky........................................................       7,429,292       7,429,292      14,858,584
Lands of the Fort Mojave Tribe..................................           8,827           8,827          17,654
Lands of the Navajo Nation......................................       2,434,598       2,434,598       4,869,196
Lands of the Uintah and Ouray Reservation.......................         263,264         263,264         526,528
Louisiana.......................................................       2,246,141       2,246,141       4,492,282
Maine...........................................................          31,109          31,109          62,218
Maryland........................................................       1,459,162       1,459,162       2,918,324
Massachusetts...................................................         255,705         255,705         511,410
Michigan........................................................       5,591,791       5,591,791      11,183,582
Minnesota.......................................................       3,004,354       3,004,354       6,008,708

[[Page 42954]]

 
Mississippi.....................................................         535,959         535,959       1,071,918
Missouri........................................................       5,656,983       5,656,983      11,313,966
Montana.........................................................       1,965,515       1,965,515       3,931,030
Nebraska........................................................       2,222,542       2,222,542       4,445,084
Nevada..........................................................         504,431         504,431       1,008,862
New Hampshire...................................................         161,696         161,696         323,392
New Jersey......................................................         669,007         669,007       1,338,014
New Mexico......................................................       1,234,572       1,234,572       2,469,144
New York........................................................         836,656         836,656       1,673,312
North Carolina..................................................       4,011,884       4,011,884       8,023,768
North Dakota....................................................       3,225,953       3,225,953       6,451,906
Ohio............................................................       7,182,558       7,182,558      14,365,116
Oklahoma........................................................       3,100,508       3,100,508       6,201,016
Oregon..........................................................         231,529         231,529         463,058
Pennsylvania....................................................       7,559,018       7,559,018      15,118,036
Rhode Island....................................................          53,511          53,511         107,022
South Carolina..................................................       2,479,202       2,479,202       4,958,404
South Dakota....................................................         396,310         396,310         792,620
Tennessee.......................................................       3,267,125       3,267,125       6,534,250
Texas...........................................................      15,600,288      15,600,288      31,200,576
Utah............................................................       2,101,783       2,101,783       4,203,566
Virginia........................................................       2,079,819       2,079,819       4,159,638
Washington......................................................       1,127,151       1,127,151       2,254,302
West Virginia...................................................       5,260,335       5,260,335      10,520,670
Wisconsin.......................................................       3,590,805       3,590,805       7,181,610
Wyoming.........................................................       4,656,486       4,656,486       9,312,972
                                                                 -----------------------------------------------
    Total.......................................................     149,999,975     149,999,975     299,999,950
----------------------------------------------------------------------------------------------------------------

                                 Table 2--Proposed State Shares of Matching Pool
                                          [Emission rate credits] \37\
----------------------------------------------------------------------------------------------------------------
                                                                     Available matching ERCs (rate-based plan
                                                                                      states)
                                                                 -----------------------------------------------
                           State/tribe                               Renewable      Low-income
                                                                  energy reserve     community      Total share
                                                                       (50%)       reserve (50%)      (100%)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................       5,854,323       5,854,323      11,708,646
Arizona.........................................................       3,224,283       3,224,283       6,448,566
Arkansas........................................................       4,101,055       4,101,055       8,202,110
California......................................................         410,335         410,335         820,670
Colorado........................................................       4,168,485       4,168,485       8,336,970
Connecticut.....................................................         130,153         130,153         260,306
Delaware........................................................         259,485         259,485         518,970
Florida.........................................................       6,056,715       6,056,715      12,113,430
Georgia.........................................................       5,166,792       5,166,792      10,333,584
Idaho...........................................................          27,991          27,991          55,982
Illinois........................................................      11,191,352      11,191,352      22,382,704
Indiana.........................................................      10,788,892      10,788,892      21,577,784
Iowa............................................................       4,108,467       4,108,467       8,216,934
Kansas..........................................................       3,966,806       3,966,806       7,933,612
Kentucky........................................................       9,286,616       9,286,616      18,573,232
Lands of the Fort Mojave Tribe..................................          11,034          11,034          22,068
Lands of the Navajo Nation......................................       3,043,247       3,043,247       6,086,494
Lands of the Uintah and Ouray Reservation.......................         329,080         329,080         658,160
Louisiana.......................................................       2,807,677       2,807,677       5,615,354
Maine...........................................................          38,886          38,886          77,772
Maryland........................................................       1,823,952       1,823,952       3,647,904
Massachusetts...................................................         319,632         319,632         639,264
Michigan........................................................       6,989,739       6,989,739      13,979,478
Minnesota.......................................................       3,755,443       3,755,443       7,510,886
Mississippi.....................................................         669,949         669,949       1,339,898

[[Page 42955]]

 
Missouri........................................................       7,071,229       7,071,229      14,142,458
Montana.........................................................       2,456,894       2,456,894       4,913,788
Nebraska........................................................       2,778,178       2,778,178       5,556,356
Nevada..........................................................         630,539         630,539       1,261,078
New Hampshire...................................................         202,121         202,121         404,242
New Jersey......................................................         836,258         836,258       1,672,516
New Mexico......................................................       1,543,216       1,543,216       3,086,432
New York........................................................       1,045,820       1,045,820       2,091,640
North Carolina..................................................       5,014,855       5,014,855      10,029,710
North Dakota....................................................       4,032,441       4,032,441       8,064,882
Ohio............................................................       8,978,197       8,978,197      17,956,394
Oklahoma........................................................       3,875,635       3,875,635       7,751,270
Oregon..........................................................         289,411         289,411         578,822
Pennsylvania....................................................       9,448,773       9,448,773      18,897,546
Rhode Island....................................................          66,889          66,889         133,778
South Carolina..................................................       3,099,003       3,099,003       6,198,006
South Dakota....................................................         495,387         495,387         990,774
Tennessee.......................................................       4,083,907       4,083,907       8,167,814
Texas...........................................................      19,500,360      19,500,360      39,000,720
Utah............................................................       2,627,229       2,627,229       5,254,458
Virginia........................................................       2,599,773       2,599,773       5,199,546
Washington......................................................       1,408,939       1,408,939       2,817,878
West Virginia...................................................       6,575,419       6,575,419      13,150,838
Wisconsin.......................................................       4,488,506       4,488,506       8,977,012
Wyoming.........................................................       5,820,607       5,820,607      11,641,214
                                                                 -----------------------------------------------
    Total.......................................................     187,499,975     187,499,975     374,999,950
----------------------------------------------------------------------------------------------------------------

5. Provisions for Reapportioning Matching Allowances and ERCs Among 
CEIP-Participating States
---------------------------------------------------------------------------

    \37\ As discussed in section III.D of this document, shares that 
may be provided to states and territories where goals have yet to be 
established would be distributed from the 300 million short ton 
matching pool, if the Agency moves forward with those options. Once 
the values for these shares are determined, if at all, table 2 would 
be updated to reflect the shares for all states, territories and 
tribes receiving CEIP matching ERCs. We anticipate that the overall 
total share of the CEIP matching pool needed for states and 
territories where goals have yet to be established would be no more 
than five percent of the total pool (or about 18.75 million ERCs).
---------------------------------------------------------------------------

    The preamble to the final Clean Power Plan EGs indicated that, 
following receipt of final state plans, the EPA would execute a 
reapportionment of matching allowances or ERCs among the states, if it 
proves necessary. However, some stakeholders during the informal 
outreach period raised concerns around the timing in which the EPA 
would know that additional matching allowances or ERCs are available 
for reapportionment and whether a later reapportionment would be 
capable of addressing remaining unmet-demand for eligible CEIP 
projects. The EPA agrees that timing considerations may create a degree 
of uncertainty that makes reapportionment among states inappropriate. 
Additionally, as discussed in section III.A, the wind and solar tax 
credit extensions could also impact the imperative for reapportionment. 
Therefore, the EPA is not including reapportionment provisions in the 
CEIP.
    The EPA also recognizes that there may be administrative challenges 
that may not support reapportioning of matching allowance/ERCs to 
states participating in the CEIP. From an administrative perspective, 
reapportioning CEIP allowances/ERCs after the known CEIP participants 
are determined, but before the CEIP program begins, may not be feasible 
depending on when state plans are submitted and approved, including 
approvable CEIP provisions. In addition, if a reapportionment were to 
occur, it could occur when the state has already begun to implement its 
CEIP, thus providing an element of uncertainty for states and project 
providers.
    Reapportionment of matching allowances/ERCs may also influence a 
state's decision to opt-in to the CEIP, based on considerations that 
neighboring states could receive additional matching allowances/ERCs if 
the state chooses not to opt-in to the program. This could be perceived 
as a `double-disadvantage': Not only is the state electing to not 
receive matching allowances/ERCs, it is also electing to have other 
states' matching allowance/ERC shares increased. This consideration 
could lead to a perverse incentive for a state to opt-in to the program 
in an effort to shield their original share of the matching pool from 
reapportionment, but not follow through on program implementation. 
Lastly, the EPA expects that most states will opt to take advantage of 
the benefits provided by the CEIP, and therefore as such, do not expect 
a large pool of remaining matching allowances or ERCs would be 
available for reapportionment. In lieu of reapportioning matching 
allowances or matching ERCs that are not claimed by a state that 
chooses not to opt-in to the CEIP, the EPA would simply retire these 
unclaimed matching allowances or ERCs on January 1, 2023.
    Although we are not including reapportionment provisions in this 
proposal, we are seeking comment on whether these provisions should be 
included. In the case of reapportionment, only those states with

[[Page 42956]]

approved state plans that include approved CEIP provisions, and states 
for whom the EPA is implementing the federal plan, would be eligible to 
receive a final apportionment of matching allowances or ERCs from the 
EPA. States that choose not to participate in the CEIP, or states with 
approved state plans that do not contain approved CEIP provisions, 
would not be eligible to receive an apportionment. If a state elects 
not to participate in the CEIP or the CEIP provisions of a state's 
approved state plan are disapproved, the matching allowances or ERCs 
listed for that state in tables 1 and 2 of this preamble would be 
reapportioned to the other states that are participating in the CEIP 
via an approved state plan with approved CEIP provisions, or via a 
federal plan. This reapportionment would be executed on a pro-rata 
basis, using the same calculation method used to establish the initial 
apportionment of matching allowances/ERCs among the states.\38\ Any 
matching allowances or ERCs that were not awarded from a state's 
matching allowance or ERC apportionment by January 1, 2023 would be 
retired by the EPA. The EPA requests comment on whether to include 
reapportionment provisions, and the methodology that should be used for 
reapportioning matching allowances or ERCs.
---------------------------------------------------------------------------

    \38\ See TSD titled ``Apportionment of the Matching Pool among 
the States''.
---------------------------------------------------------------------------

B. Requirements for States That Choose to Participate in the CEIP

    State plans that include implementation of the CEIP must meet 
certain requirements to ensure effective administration of the state's 
CEIP. Several basic requirements have already been established in the 
final EGs at 40 CFR 60.5737. This section summarizes those requirements 
and also proposes additional requirements necessary for implementation 
of a state CEIP and the related award of EPA matching allowances or 
ERCs. This section also discusses relevant proposed optional example 
rule provisions for the CEIP, which would constitute a presumptively 
approvable approach for meeting these CEIP requirements.\39\ In the 
discussion that follows, we present requirements for allocation of 
early action allowances or issuance of early action ERCs by a state. 
Section III.B.2 discusses a proposed process by which EPA matching 
allowances or ERCs would be awarded. Section III.B.3 reviews the 
requirement finalized in the Clean Power Plan EGs to maintain the 
stringency of mass-based or rate-based CO2 emission 
performance by affected EGUs when implementing the CEIP, and proposes a 
method for meeting this requirement for mass-based plans and rate-based 
plans. Section III.B.4 proposes how states may define ``low-income 
community'' for purposes of implementing the CEIP. Section III.B.5 
proposes requirements for addressing potential improper allocation or 
issuance of early action allowances or early action ERCs, respectively.
---------------------------------------------------------------------------

    \39\ The EPA requests comment on the use of the proposed 
optional CEIP example rule provisions as suitable regulatory text in 
the event of implementation of a federal plan CEIP.
---------------------------------------------------------------------------

1. State Plan Requirements for Distribution of Early Action Allowances 
or ERCs
    A state plan that implements the CEIP must include requirements 
that specify the process for application for, and allocation/issuance 
of, early action allowances or ERCs under the CEIP, as 
applicable.40 41 Many of these requirements were included in 
the final EGs at 40 CFR 60.5737, and unless otherwise noted, this 
action does not re-open these requirements. (We discuss these 
requirements solely to help identify what new or revised requirements 
we are proposing, and to provide an overall view of all the 
requirements.) However, this action proposes several changes and 
enhancements to these requirements. If the changes proposed in this 
action are finalized, then taken together, these requirements would 
include:
---------------------------------------------------------------------------

    \40\ States with rate-based state plans would issue early action 
ERCs; states with mass-based state plans would allocate early action 
allowances.
    \41\ Consistent with provisions in the Clean Power Plan 
emissions guidelines at 80 FR 64906, section VIII.K.2.b, a state may 
empower an agent to act on its behalf when administering the CEIP. A 
state agent is a party acting on behalf of the state, based on 
authority vested in it by the state, pursuant to the legal authority 
of the state. A state could designate an agent to provide certain 
limited administrative services, or could choose to vest an agent 
with greater authority. Where an agent issues an ERC or allowance on 
behalf of the state, such issuance would have the same legal effect 
as issuance of an ERC or allowances by the state.

--Eligibility requirements for projects under the CEIP, including the 
definition(s) of low-income community a state intends to use to make 
CEIP awards to low-income community projects;
--Requirements for submission of project eligibility \42\ applications 
to the state for the allocation/issuance of early action allowances or 
early action ERCs, demonstrating the eligibility of the project under 
the CEIP, including an EM&V plan for the project;
---------------------------------------------------------------------------

    \42\ CEIP-eligible project types are discussed in section III.C 
of this proposal.
---------------------------------------------------------------------------

--Requirements for submission of M&V reports to the state, containing 
monitored and verified MWh generation or savings results for a project;
--Requirements for submission of accompanying verification reports by 
an accredited independent verifier, for both eligibility applications 
and M&V reports; \43\
---------------------------------------------------------------------------

    \43\ While submitted separately by an independent verifier, a 
verification report constitutes part of an eligibility application 
and M&V report.
---------------------------------------------------------------------------

--Requirements for accreditation of independent verifiers and conduct 
of independent verifiers;
--State allocation or issuance of early action allowances or early 
action ERCs, based on quantified and verified MWh;
--Tracking system capabilities and infrastructure necessary to support 
state administration of the CEIP; \44\
---------------------------------------------------------------------------

    \44\ Following the proposal of the Clean Power Plan, the EPA 
received a number of comments from states and stakeholders about the 
value of the EPA's support in developing and/or administering 
tracking systems to support state administration of emission trading 
programs. The EPA is exploring options for providing such support 
and is conducting a scoping assessment of tracking system support 
needs and functionality. This scoping assessment will consider 
support that could assist states with implementation of the CEIP, 
should a state choose to include the CEIP in a state plan.
---------------------------------------------------------------------------

--Actions to be taken if early action allowances or early action ERCs 
are found to have been improperly issued;
--A mechanism for ensuring maintenance of CO2 emission 
performance by affected EGUs, considering state implementation of the 
CEIP; \45\
---------------------------------------------------------------------------

    \45\ As established in the Clean Power Plan EGs (and not re-
opened here), any state that chooses to participate in the CEIP must 
demonstrate in its plan that it has a mechanism in place that 
enables issuance of early action ERCs or early action allowances in 
a manner that would have no impact on the aggregate emission 
performance of affected EGUs required to meet rate-based or mass-
based CO2 emission standards during the compliance 
periods (80 FR 64831). For a mass-based program, maintenance of 
stringency is addressed through the established emission budget for 
affected EGUs, as discussed in this section. The mechanism by which 
rate-based states may meet this requirement is discussed in this 
section.

    We note the requirement in the final EGs, which we are not 
reopening, that if a final state plan includes CEIP provisions, the 
entire plan, including the CEIP, is subject to the requirements for 
meaningful engagement and public comment. In addition, the EPA is 
proposing in this action that a state plan must not prohibit an 
eligible CEIP project from receiving early action allowances or ERCs on 
the basis that the project is located in Indian country.
    Many of the requirements listed previously were established in the 
final Clean Power Plan EGs (80 FR 64692). This proposal includes 
additions and

[[Page 42957]]

revisions to certain requirements in the final Clean Power Plan EGs 
necessary to allow for implementation of the CEIP. This action proposes 
no changes to, and does not in any way re-open, any aspects of the 
final Clean Power Plan other than those expressly proposed or on which 
we expressly request comment, and all such potential changes are solely 
related to the CEIP. We are also proposing optional example regulatory 
text for the CEIP, which when finalized, would provide presumptively 
approvable approaches for implementing the CEIP by a state as part of a 
mass-based emission budget trading program or a rate-based emission 
trading program.\46\ The EPA has structured the proposed optional 
example regulatory text for the CEIP in a manner that would enable it 
to be integrated with the proposed model trading rules for mass-based 
and rate-based emission trading programs.\47\ The CEIP optional example 
regulatory text in this proposal replaces proposed provisions for the 
CEIP included in the October 23, 2015, model trading rules proposal. In 
addition, the EPA requests comment on utilizing this presumptively 
approvable optional example regulatory text as CEIP provisions under a 
federal plan.
---------------------------------------------------------------------------

    \46\ While the proposed optional example regulatory text 
provides a presumptively approvable approach for a state's 
participation in the CEIP, the EPA recognizes that states may choose 
alternate approaches, provided they meet the requirements for CEIP 
participation included in amendments to the Clean Power Plan EGs 
included in this action, once finalized.
    \47\ 80 FR 64966-65116 (October 23, 2015)
---------------------------------------------------------------------------

    As finalized in the Clean Power Plan EGs, states opting into the 
CEIP must include requirements in their plans for allocation or 
issuance of early action allowances or early action ERCs, respectively, 
that meet the requirements for the issuance of ERCs (see final rule 
preamble, section VIII.K.2, and regulatory text at 40 CFR 60.5737(e)). 
Such a requirement applies to both mass-based and rate-based state 
plans including the CEIP, as the CEIP is based on eligible MWh of 
energy savings or RE generation, and these MWh must be quantified and 
verified appropriately in order to demonstrate eligibility for awards 
of early action and matching allowances or ERCs. Where relevant, the 
proposed CEIP optional example regulatory text cross-references 
applicable provisions in the proposed mass-based and rate-based model 
trading rules, respectively, that address such requirements.\48\ The 
EPA is proposing two sets of CEIP optional example regulatory text--one 
set of provisions for inclusion in a mass-based trading program, and 
one set of provisions for inclusion in a rate-based trading program. As 
a result, each set of proposed CEIP optional example regulatory text 
makes relevant cross references to provisions in the proposed mass-
based and rate-based model trading rules. These cross references 
include references to provisions in the proposed mass-based and rate-
based model trading rules that would, in the Agency's view (pending its 
review of public comments and ultimate finalization of the model 
trading rules), meet the requirements in the final EGs for the process 
for state issuance of ERCs. (The final EGs themselves are not re-opened 
with respect to the requirements for ERC issuance.) This includes 
provisions in the proposed mass-based and rate-based model trading 
rules that address: Requirements for eligibility applications 
(including EM&V plans),\49\ EM&V requirements for different types of 
eligible projects and programs,\50\ M&V reports,\51\ verification 
reports (included with both eligibility applications and M&V reports), 
requirements for independent verifiers,\52\ and provisions that address 
potential improper issuance of ERCs or improper allocation of 
allowances.\53\
---------------------------------------------------------------------------

    \48\ The cross-referenced provisions themselves are not re-
proposed by this action.
    \49\ See id. at 64998.
    \50\ See id. at 65002.
    \51\ See id. at 65096.
    \52\ See id. at 65001.
    \53\ See id. at 64998.
---------------------------------------------------------------------------

    The state plan requirements for implementation of the CEIP 
summarized previously apply regardless of whether a state is allocating 
early action allowances under a mass-based emission budget trading 
program or issuing early action ERCs under a rate-based emission 
trading program. In addition, these provisions must specify 
requirements for eligible projects under the CEIP, including the 
requirement that EE projects are implemented in ``low-income 
communities.'' \54\ These provisions must also include requirements for 
the quantification and verification of MWh results, as well as a two-
step administrative process for determination of project eligibility 
and allocation or issuance of either early action allowances or ERCs. 
These requirements, for rate-based and mass-based programs, 
respectively, are discussed in the sections that follow.
---------------------------------------------------------------------------

    \54\ Section III.B discusses low-income definitions.
---------------------------------------------------------------------------

a. Requirements for State Plans that Include Mass-Based Emission Budget 
Trading Programs
    Where a state plan includes a mass-based emission budget trading 
program, the plan will need to include requirements that support the 
allocation of early action allowances under the state CEIP. A number of 
these are additional requirements that are not necessary under an 
approvable mass-based emission budget trading program that does not 
include a state CEIP. However, many of these additional requirements 
are similar to those that would be entailed for the administration of 
allowance set-asides to address potential leakage to new sources in the 
absence of the CEIP, if the state chooses such set-asides as the means 
for addressing potential leakage. In general, administering an 
allowance set-aside involves provisions to address entities that are 
eligible to receive allowances from a set-aside and specification of 
the method for allocating allowances from the set-aside. As a result, 
to the extent that a state decides to implement one or more allowance 
set-asides as part of its plan, even in the absence of the CEIP, a 
similar framework to the one summarized previously would likely be 
established in many cases.
    These additional requirements include regulatory provisions that 
address the eligibility of resources for state allowance allocation 
under the CEIP, and the process for such allocation, including: 
Requirements for submission of eligibility applications, which include 
EM&V plans; requirements for EM&V requirements for submission of 
periodic M&V reports; requirements for accreditation of independent 
verifiers; requirements for independent verifier reports (which must 
accompany both eligibility applications and M&V reports); and necessary 
tracking system capabilities that provide for the required two-step 
process for application for early action allowances that is consistent 
with the required two-step process for the issuance of ERCs.
    In addition, the requirements for allocation of early action 
allowances under a state CEIP must include provisions for how 
allowances will be allocated based on the number of quantified and 
verified MWh reported by an eligible resource (i.e., the MWh-to-
allowance award ratios for CEIP-eligible RE, and low-income community 
projects). The EPA is proposing that early action allowances allocated 
under a state CEIP must be allocated in conformance with the provisions 
included in section III.A of this preamble.

[[Page 42958]]

b. Requirements for State Plans that Include Rate-Based Emission 
Trading Programs
    Where a state is implementing a rate-based emission trading 
program, the state plan will include necessary provisions for the 
issuance of ERCs, as previously described. These are the same 
requirements that are necessary to support state issuance of early 
action ERCs under the CEIP. As a result, the state plan would require 
limited additional requirements in order to implement the CEIP, beyond 
those required for a rate-based state plan in general. These additional 
requirements include provisions establishing the eligibility of 
projects under the CEIP and provisions to address maintenance of 
CO2 emission performance by affected EGUs, as described in 
section III.B.3. In addition, an approvable state plan that includes a 
rate-based emission trading program will already include an identified 
tracking system that has the necessary capabilities and infrastructure 
to support the issuance of early action ERCs.
2. Process for the Award for EPA Matching Allowances or ERCs
    The EPA is proposing that state plan requirements for the request 
of EPA matching allowances or ERCs must be consistent with the 
following process.
    The EPA is proposing that it will establish an EPA matching 
allowance or ERC account for each state in the relevant tracking system 
for each state mass-based emission budget trading program (in the case 
of matching allowances) and rate-based emission trading program (in the 
case of matching ERCs). The EPA proposes to grant states the ability to 
transfer EPA matching allowances or ERCs from the EPA matching account, 
on behalf of the EPA, under the conditions described later in this 
preamble.
    The state plan must specify the conditions under which the state 
will authorize such transfers of EPA matching allowances or ERCs from 
the EPA matching account to the designated account of an eligible CEIP 
project. Those state plan provisions must specify that a transfer of 
EPA matching allowances or ERCs may only occur subsequent to a state 
allocation or issuance of early action allowances or ERCs, in 
accordance with requirements for such state early action awards 
specified in the state plan; must be made in accordance with the award 
ratios established in the EGs (and specified in the state plan); and 
must correspond with the number of early action allowances or ERCs 
allocated or issued to an eligible CEIP project. The EPA is also 
proposing that, when awarding matching allowances or ERCs on behalf of 
the EPA, a state must assign a vintage for each awarded matching 
allowance or ERC that corresponds to the vintage of the related early 
action allowance or ERC on the basis of which the matching allowance or 
ERC was awarded.\55\ The EPA requests comment on this provision.
---------------------------------------------------------------------------

    \55\ For an ERC, ``vintage'' refers to the calendar year in 
which the MWh on which issuance of the ERC is based occurred. For an 
allowance, ``vintage'' refers to the emission budget year of the 
allowance. Both ERCs and allowances may be banked for future use 
without limitation, as established in the final CPP. Borrowing of 
allowances is not allowed under the final CPP. For allowances, this 
means that only allowances for budget years that fall within a 
current or past compliance period may be used to demonstrate 
compliance. Borrowing is also prohibited for ERCs, but is not 
relevant from a practical standpoint, as ERCs may only be issued 
after quantification and verification of MWh generation or savings. 
As a result, by default, borrowing of ERCs is not possible.
---------------------------------------------------------------------------

    The state plan must adequately describe how the tracking system 
used to administer the state mass-based emission budget trading program 
or rate-based emission trading program will provide transparent public 
access to transfers of EPA matching allowances or ERCs from the EPA 
matching account. This includes tracking system access to CEIP project 
documentation related to the state allocation or issuance of early 
action allowances or ERCs, respectively. Furthermore, the tracking 
system must provide a mechanism for tracking the awarded EPA matching 
allowances or ERCs back to the relevant CEIP project documentation, and 
documentation of the state award of early action allowances or ERCs for 
which the EPA matching award was made.\56\ The EPA notes that such 
requirements are consistent with the tracking system requirements in 
the EGs for the issuance of ERCs. In addition, the EPA is proposing 
optional example regulatory text for the CEIP that specifies this 
required process under both a mass-based emission budget trading 
program and a rate-based emission trading program.
---------------------------------------------------------------------------

    \56\ This includes access to the eligibility application for the 
relevant CEIP resource, the relevant M&V report on which the state 
award of early action allowances or ERCs is based, related 
independent verifier reports (for the eligibility application and 
relevant M&V report), and documentation of the state award of early 
action allowances or ERCs.
---------------------------------------------------------------------------

    These state plan provisions must specify that the state will 
transfer EPA matching allowances or ERCs from the EPA matching account 
on a regular established schedule, and no sooner than 60 days from the 
date of the relevant state award of early action allowances or early 
action ERCs for an eligible CEIP project. Prior to this date, the EPA 
may place a hold on state transfers from the EPA matching account, if 
it has questions about the proper state allocation of early action 
allowances or issuance of early action ERCs consistent with the 
requirements and process established in the approved state plan, or if 
there is evidence of potential improper state awards. The EPA believes 
that this approach balances streamlined implementation of the CEIP with 
appropriate safeguards to ensure the integrity of the CEIP. The EPA 
requests comment on this provision to provide for a delay between 
allocation or issuance of early action allowances or ERCs and the award 
of matching allowances or ERCs.
3. Addressing Requirement To Maintain Stringency of Mass-Based or Rate-
Based Emission Performance
    The Clean Power Plan EGs require that states opting in to the CEIP 
include in their state plans a mechanism that ensures that the 
allocation of early action allowances or issuance of early action ERCs 
to CEIP-eligible parties will not impact the CO2 emission 
performance of affected EGUs required to meet rate-based or mass-based 
CO2 emission standards during the plan performance 
periods.\57\ This mechanism is not required to account for matching 
ERCs or allowances that may be issued to the state by the EPA.\58\ This 
section proposes approaches for such mechanisms, for both mass-based 
emission budget trading programs and rate-based emission trading 
programs. Several commenters provided suggestions for how to address 
stringency maintenance for early action allowances allocated or early 
action ERCs issued. Commenters generally supported the inclusion of 
requirements that stringency must be maintained. Several commenters 
stated that EPA should not adjust state goals during the compliance 
period as a mechanism for maintaining stringency and that doing so may 
be too complicated of a methodology. For rate-based plans,

[[Page 42959]]

several commenters suggested that EPA include provisions that account 
for early action ERCs and either allow for retirement of ERCs that 
would have been issued during the compliance period or require a 
`discounting' or adjustment factor be applied to ERCs issued during the 
compliance period.
---------------------------------------------------------------------------

    \57\ For a description of this requirement, see the preamble to 
the final Clean Power Plan EGs at 80 FR 64830-64831 and the final 
rulemaking regulatory text at 40 CFR 60.5737(c).
    \58\ In addition, for states adopting a state measures plan 
type, we note that the EGs require inclusion of a federally 
enforceable backstop and associated implementing measures such as 
triggers based on reported emissions. See 40 CFR 60.5740(a)(3)(i). 
The EPA is proposing here that any trigger for the backstop required 
by the EGs for a state measures plan would not need to include or 
account for emissions authorized per EPA-awarded matching allowances 
under the CEIP. The EPA solicits comments on this proposal and any 
alternatives.
---------------------------------------------------------------------------

a. Addressing Maintenance of Stringency for Mass-Based Programs
    Addressing maintenance of stringency under a mass-based state plan 
is straightforward. A state must address this plan requirement by 
implementing the CEIP through an allowance set-aside from the 
established state emission budget. Since allowances are being 
distributed from a finite emission budget, allocation of allowances 
from that budget for CEIP early actions cannot result in an increase in 
the allowable CO2 emissions from the fleet of affected EGUs 
when complying with their emission standards.\59\ Stringency is 
therefore maintained by the structure of an emission budget trading 
program, because the emission budget is established under the state 
plan and early action allowances related to a state CEIP are allocated 
from that emission budget.\60\ As a result, the state-established 
emission budget is not increased as a result of the state allocation of 
allowances from a CEIP set-aside. The EPA further proposes that early 
action allowances must be allocated only from a state's emission budget 
established for the first interim step plan performance period (i.e., 
2022-2024).
---------------------------------------------------------------------------

    \59\ Under an emission budget trading program, the emission 
standard that applies to an individual affected EGU is a requirement 
to surrender allowances equal to reported CO2 emissions 
for a given compliance period. Allowances are generally allocated in 
an amount that equals the CO2 emission budget (i.e., the 
CO2 emission constraint that applies to the combined 
group of affected EGUs subject to the program).
    \60\ To meet the requirement to maintain stringency, the state 
plan must allocate early action allowances from within the 
established emission budget. The state may not increase the budget.
---------------------------------------------------------------------------

b. Addressing Maintenance of Stringency for Rate-Based Programs
    For a rate-based emission trading program included in a state plan 
implementing the CEIP, addressing the plan requirement to maintain the 
stringency of CO2 emission performance requires a different 
mechanism than that required under a mass-based program. The very 
nature of a rate-based approach, which does not limit total emissions, 
poses certain challenges for demonstrating that stringency will be 
maintained.
    In this program context, the state is implementing the CEIP by 
issuing early action ERCs for MWh of generation or savings achieved by 
CEIP-eligible projects during 2020 and/or 2021, before the plan 
performance period begins in 2022.\61\ These early action ERCs may be 
used by affected EGUs to comply with a rate-based CO2 
emission standard during the plan performance period.
---------------------------------------------------------------------------

    \61\ Outside the context of the CEIP, ERCs may only be issued by 
a state for MWh of generation or savings by eligible resources that 
occur in 2022 and subsequent years (i.e., during the plan 
performance period). Thus, in contrast with the discretion available 
to states implementing a mass-based program to allocate allowances 
for early action outside the context of the CEIP (though without the 
availability of any EPA matching allowances), states implementing a 
rate-based program may not issue ERCs for early action other than 
through the CEIP. This result is a natural consequence of the 
requirements for eligible resources that can be issued ERCs 
established in 40 CFR 60.5800 and is not open for comment in this 
action.
---------------------------------------------------------------------------

    State-issued early action ERCs for CEIP-eligible MWh generation or 
savings in 2020 and/or 2021 will result in a larger total number of 
potential ERCs available for use by affected EGUs than would have 
otherwise been available in the absence of the CEIP. As finalized in 
the EGs, a state plan must account for these early action ERCs during 
the plan performance period, or there will be an impact on the 
aggregate CO2 emission performance achieved by affected EGUs 
during the plan performance period when complying with their rate-based 
CO2 emission standards. For purposes of fulfilling this plan 
requirement, the EPA is proposing that, for each early action ERC a 
state issues under the CEIP, the state must, during the interim plan 
performance period, either permanently withhold (i.e., not issue) one 
ERC for a quantified and verified MWh achieved by an eligible ERC 
resources, or permanently retire one unused ERC \62\ such that it 
cannot be used for CPP compliance. Unless such an adjustment is applied 
during the plan performance period to account for the issuance of early 
action ERCs, this total increase in potential available ERCs would 
allow affected EGUs to emit more CO2 than would occur 
through the application of the CO2 emission performance 
levels or state rate-based CO2 goal during the plan 
performance period beginning in 2022.
---------------------------------------------------------------------------

    \62\ ERCs that can be retired for this purpose may be produced 
by eligible ERC resources within the state or in other states that 
share the same rate-based approach (i.e. CO2 emission 
performance levels or a state rate-based CO2 goal). They 
may also be early action ERCs issued under the CEIP.
---------------------------------------------------------------------------

    As described later in this preamble, the EPA is proposing a 
specific presumptively approvable approach that rate-based states 
opting in to the CEIP may choose to use to meet the plan requirement to 
maintain the stringency of CO2 emission performance by 
affected EGUs. (The EPA anticipates that it would use this approach if 
the EPA were to implement the CEIP under a rate-based federal plan.) 
The EPA is also soliciting comment on other approaches that could be 
considered presumptively approvable in a rate-based state plan that 
includes the CEIP.
    The proposed presumptively approvable approach is as follows: A 
rate-based state opting in to the CEIP would apply an adjustment factor 
to all quantified and verified MWh from eligible ERC resources that are 
achieved during the first interim step (2022-2024) of the plan 
performance period, to account for the number of early action ERCs 
issued by a state under the CEIP for MWh achieved during 2020 and/or 
2021. The state would apply this adjustment factor to the quantified 
and verified MWh reported by each eligible ERC resource, regardless of 
whether that resource received early action ERCs under the CEIP. This 
presumptively approvable approach would enable a state to fully account 
for the issuance of early action ERCs during the first interim step 
(2022-2024) of the plan performance period (i.e., the number of early 
action ERCs issued by the state would be equal to the number of 
quantified and verified MWh from eligible ERC resources for which ERCs 
would be permanently withheld during the first interim step of the plan 
performance period), and thus demonstrate that its state plan is 
maintaining the stringency of CO2 emission performance by 
affected EGUs.
    The adjustment factor to be used in the presumptively approvable 
approach is determined by the following equation:
[GRAPHIC] [TIFF OMITTED] TP30JN16.014

[[Page 42960]]

Where:

 State-Issued CEIP Early Action ERCs = the total number of 
early action ERCs issued by a state under the CEIP, for eligible MWh 
achieved in 2020 and/or 2021
 Adjustment Period = 3, the number of years in the first 
interim step of the plan performance period (2022-2024), to which 
the adjustment factor will be applied to address maintenance of 
CO2 emission performance stringency
 Quantified and Verified MWh During Reporting Year = The 
total number of quantified and verified MWh reported by all eligible 
ERC resources to a state for a specific year of the first interim 
step of the plan performance period (2022-2024)

    This equation calculates the adjustment factor (a fraction) that a 
rate-based state opting in to the CEIP would apply to the total 
quantified and verified MWh reported to that state by each individual 
eligible ERC resource for actions undertaken during the first interim 
step of the plan performance period (2022-2024). Once applied, this 
factor ``adjusts'' the number of ERCs that an eligible ERC resource may 
receive for actions undertaken during the first interim step of the 
plan performance period, to account for the early action ERCs the state 
issued to CEIP-eligible providers for MWh achieved in 2020 and/or 2021.
    The following is an example calculation of the adjustment factor, 
for a scenario that assumes that 300 early action ERCs are issued by a 
state under the CEIP, and that, during the year 2022 (the first year of 
the first interim step period), all eligible ERC resources report 1,000 
MWh to the state:
[GRAPHIC] [TIFF OMITTED] TP30JN16.015

    Based on application of the adjustment factor, each eligible ERC 
resource would receive a number of ERCs equal to the MWh it reported, 
multiplied by the adjustment factor of 0.9. In aggregate, all eligible 
ERC resources would receive 900 ERCs total for the 1,000 MWh total they 
reported in 2022.\63\ The 100 MWh of quantified and verified MWh 
achieved by the eligible ERC resources, but for which the state did not 
issue ERCs, are applied toward the state's demonstration that it 
maintained the stringency of rate-based CO2 emission 
performance during 2022.
---------------------------------------------------------------------------

    \63\ If application of the adjustment factor resulted in a total 
calculated number of MWh that ends with a fractional value of a MWh 
remaining (e.g., 900.7 MWh), the EPA is proposing that the number of 
MWh for which ERCs may be issued would be rounded down to the 
nearest integer (e.g., 900). Such rounding is necessary, as ERCs may 
only be issued in whole MWh increments.
---------------------------------------------------------------------------

    This proposed presumptively approvable approach for maintaining 
stringency in a rate-based program provides a number of advantages. 
First, the approach provides a transparent way of demonstrating that 
the number of ERCs issued by a state under the CEIP is being fully 
accounted for during the plan performance period. Second, the proposed 
approach applies the same adjustment factor to all eligible ERC 
resources. This approach would provide greater assurance that early 
action ERCs are fully accounted for during the plan performance period 
than if an adjustment was only applied to the eligible ERC resources 
that received early action ERCs. It is uncertain that there would be 
sufficient MWh of energy generation or savings achieved by these 
resources during the plan performance period to fully account for the 
early action ERCs that were issued to those individual CEIP projects 
and providers.\64\ Third, this approach would not substantially dilute 
the incentive provided to eligible resources that receive early action 
ERCs, in keeping with the goal of the CEIP to drive early action.
---------------------------------------------------------------------------

    \64\ The ongoing operation of individual projects or programs 
that are eligible for issuance of ERCs is subject to uncertainty. 
Projects or programs might be terminated, or might choose to suspend 
their application for the issuance of ERCs going forward, for 
multiple potential reasons unrelated to a state plan. Furthermore, 
the quantified and verified MWh of electricity generation or savings 
from an individual project or program could vary significantly from 
year to year, for a number of potential reasons. Therefore, it is 
uncertain that the projects or programs that received early action 
ERCs under the CEIP would cumulatively report quantified and 
verified MWh during the first 3 years of the plan performance period 
equal to or greater than the number of quantified and verified MWh 
reported for 2020 and 2021.
---------------------------------------------------------------------------

    The EPA understands that there is a potential disadvantage to this 
approach. This method of applying the adjustment factor to all eligible 
ERC resources would reduce the number of ERCs issued to eligible ERC 
resources that did not participate in the CEIP, relative to their total 
quantified and verified MWh during the plan performance period. These 
eligible ERC resources would not have received early action incentives 
through the CEIP, yet would see a reduction in the potential incentives 
they could receive during the plan performance period. Nonetheless, the 
EPA also notes that such an incentive structure could provide further 
encouragement for projects and programs to participate in the CEIP, if 
it were implemented through a state plan.
    The EPA seeks comment on this proposed presumptively approvable 
approach, including the timing for and duration of the adjustment 
period to be incorporated into the adjustment factor equation. The EPA 
also requests comment on alternative approaches the agency could 
consider as presumptively approvable methods to maintain the stringency 
of CO2 emission performance achieved by affected EGUs during 
the plan performance period under a rate-based emission trading program 
that includes the CEIP. These could include approaches by which a state 
would withhold or retire ERCs during the first interim step of the plan 
performance period in an amount equal to the number of early action 
ERCs issued by the state under the CEIP for MWh achieved during 2020 
and/or 2021. Additionally, we request information on mechanisms for 
ensuring that stringency is met with any alternative presumptively 
approvable approaches suggested.
4. Requirement To Establish a Definition of ``Low-Income Community'' 
for Purposes of Implementing the CEIP
    A key element of the CEIP as finalized in the EGs is the 
establishment of incentives specific to projects implemented in low-
income communities. As discussed in the final EGs, the additional 
incentive offered for low-income community projects is an effort to 
help overcome historical barriers to the deployment of energy 
efficiency projects in low-income communities (80 FR 64831). 
Incentivizing these projects will place affected EGUs in a better 
position to meet their emission reduction obligations under the EGs and 
improve the cost of implementation of the EGs, consistent with 
Congress' design in section 111 of the CAA. At the same time, the 
Agency believes that a focus on low-income communities will also 
deliver economic and environmental benefits to a more expansive set of 
underserved populations, including

[[Page 42961]]

low-income, minority and tribal communities.\65\
---------------------------------------------------------------------------

    \65\ For more information about the link between minority and 
low-income communities please see Section V Community and 
Environmental Justice Considerations.
---------------------------------------------------------------------------

    Proposing how states may develop their definition of ``low income 
community'' is a critical part of this action. In the context of the 
CEIP, the EPA is interpreting the term ``community'' in a manner 
consistent with the Council on Environmental Quality's Environmental 
Justice Guidance Under the National Environmental Policy Act which 
states ``In identifying low-income populations, agencies may consider 
as a community either a group of individuals living in geographic 
proximity to one another, or a set of individuals . . . where either 
type of group experiences common conditions of environmental exposure 
or effect.'' \66\
---------------------------------------------------------------------------

    \66\ Council on Environmental Quality's Environmental Justice 
Guidance Under the National Environmental Policy Act, Appendix A 
(December 1997). http://www3.epa.gov/environmentaljustice/resources/policy/ej_guidance_nepa_ceq1297.pdf.
---------------------------------------------------------------------------

    In establishing requirements for a definition of ``low-income 
community,'' the EPA considered several key principles. One principle 
is a desire to establish requirements that are clear and easy for 
states to implement as they develop their plans. The EPA believes that 
use of existing federal, state, and local definitions will provide the 
most clarity and ease of implementation. Another principle for the 
Agency is that a state's definition should provide transparency and 
consistency for all stakeholders with an interest in the CEIP, 
including project providers and communities that may benefit from 
implementation of CEIP-eligible projects. To further these principles, 
the EPA emphasizes that, by establishing clear definitions for a ``low-
income community'' in the state plan, a state can make the process 
easier to implement and more transparent for all parties. Additional 
guidance on low-income community project eligibility is discussed in 
section III.C of this preamble.
    A state plan that includes implementation of the CEIP must 
establish eligibility requirements for projects under the CEIP, 
including a requirement that eligible CEIP low-income community 
projects must be implemented in a low-income community.\67\ We propose 
that a state choosing to participate in the CEIP must include in its 
state plan one or more definitions of low-income community that the 
state will apply to evaluate whether proposed EE and solar projects are 
implemented in low-income communities in that state. During the public 
outreach sessions for the CEIP and the comment period for the CEIP non-
regulatory docket, the EPA heard from many commenters who supported 
enabling states to use existing low-income definitions, allowing both 
geographic and household-based definitions, allowing flexibility to 
address rural and urban areas of each state, and recognizing the 
existing public benefit programs being run by states and utilities.\68\ 
The EPA agrees with those commenters. Due to the short-term (two-year) 
nature of the CEIP, and since existing program providers have 
experience with evaluating and implementing EE and RE projects in low-
income communities, the EPA recognizes the value of building on 
successful existing local, state and federal programs that serve low-
income communities rather than the Agency creating a new definition of 
``low-income community.'' Finally, the Agency recognizes the 
variability in state economic and demographic conditions, and the range 
of experiences that local, state and federal agencies have in 
administering low-income programs, including low-income energy 
programs. As a result, the EPA is proposing that it will neither create 
a new definition nor provide a single definition of low-income 
community that it will require states to use. Rather, the EPA proposes 
to provide states with the flexibility to use existing local, state or 
federal definitions that best suit their specific economic and 
demographic conditions while ensuring that eligible projects and 
programs receiving incentives are benefitting low-income communities. 
Local, state or federal definitions are considered existing if they 
were established prior to the publication of the final Clean Power Plan 
EGs on October 23, 2015. Routine updates of underlying federal or state 
data do not constitute a new definition for the purposes of this 
action.
---------------------------------------------------------------------------

    \67\ See the Final Clean Power EGs at section 60.5737(a)(4) and 
(b)(2) (80 FR 64943).
    \68\ See CEIP non-regulatory docket at EPA-HQ-OAR-2015-0734.
---------------------------------------------------------------------------

    It is reasonable to enable a state to include more than one 
definition of ``low-income'' in its state plan, to allow eligibility 
for a range of different types of programs (e.g., housing vs. 
commercial) and geographic scale (e.g., household vs. geographic 
boundary). Requiring a state to use only one could exclude projects 
that would be entirely consistent with the purposes of the Clean Power 
Plan EGs. There are many examples of existing federal definitions, 
including, but not limited to, geographic-based definitions, such as 
the New Market Tax Credits (NMTC) \69\ and the HUD Qualified Census 
Tracts,\70\ and household-based definitions, such as the Department of 
Energy's Weatherization Assistance Program (WAP) Income Guidelines \71\ 
and the Federal Poverty Level Guidelines (FPLG).\72\
---------------------------------------------------------------------------

    \69\ https://www.irs.gov/pub/irs-utl/atgnmtc.pdf.
    \70\ https://www.huduser.gov/portal/datasets/qct.html.
    \71\ http://energy.gov/eere/wipo/downloads/wpn-15-3-2015-poverty-income-guidelines-and-definition-income.
    \72\ https://aspe.hhs.gov/2015-poverty-guidelines.
---------------------------------------------------------------------------

    The EPA is proposing that these federal level definitions (NMTC, 
HUD Qualified Census Tracts, WAP, and the FPLG) are each presumptively 
approvable definitions that may be used in final state plans.\73\ The 
EPA is requesting comment on other federal level definitions that could 
be included as presumptively approvable. At the state level, 
definitions may include established utility program definitions that 
have public utility commission (PUC) or state energy office (SEO) 
approval, eligibility requirements for state tax credits or incentives, 
or qualification for state administered benefit programs, among others. 
At the local level, definitions may include established utility program 
definitions administered by a municipality, a public power entity, a 
rural electric cooperative or other analogous utility provider not 
subject to state oversight. Examples of state and utility administered 
low-income EE and solar programs are discussed in section III.C of this 
preamble.
---------------------------------------------------------------------------

    \73\ See section III.C for information on requirements for 
eligible EE projects.
---------------------------------------------------------------------------

    If a state includes more than one definition, it must have clear 
and consistent criteria for applying the multiple definitions. For 
instance, a state may use one definition for one type of program and 
another definition for another type of program, but it should not 
choose between the definitions for a specific program in such a way 
that would allow for arbitrary inclusion or exclusion of individual 
projects.
    During the public outreach sessions on the CEIP in the fall of 
2015, commenters raised concerns about the appropriateness of using 
state-based definitions. Specifically, some commenters stated that some 
state-specific definitions may either exclude some low-income 
electricity consumers or be overly inclusive of higher-income 
households or institutions that do not serve low-income residents. The 
EPA is requesting further comment on these

[[Page 42962]]

concerns as well as potential remedies to address these concerns.
    Additionally, some commenters have expressed concerns over needing 
appropriate safeguards to ensure that low-income communities are the 
beneficiaries of eligible CEIP energy-efficiency projects. Some 
commenters have suggested that states consider limiting the total 
population within a state that could be considered as `low-income'. 
Others have suggested that states consider evaluating the number of 
high-income households that would be included under their proposed 
definition of low-income. Another commenter asked that states consider 
whether restrictions on the types of commercial and transmission and 
distribution projects are appropriate, (e.g., whether the entities are 
public, private, or not-for-profit). In response to these concerns, the 
EPA is also requesting comment on restrictions or safeguards that may 
be needed to ensure that projects receiving incentives from the low-
income community reserve are limited to those that benefit low-income 
communities.
    The EPA requests comments on the suitability for a federal plan of 
the existing federal definitions listed previously (specifically: NMTC, 
HUD Qualified Census Tracts, WAP, and the FPLG), as well as any 
existing state or local definitions for programs in that state. This 
would be consistent with the flexibility granted to states under a 
state plan, as discussed previously.
    As a state contemplates possible definitions of ``low-income 
community'' it may be appropriate to consider the range of factors 
specific to the state that impact the energy burden \74\ on low income 
ratepayers (e.g., disparities in median income across the state, 
utility prices, EJ concerns, or state median income in comparison with 
national median income). This can help states select a definition that 
maximizes inclusion of communities and households in which there are 
significant energy burdens and barriers to energy efficiency programs.
---------------------------------------------------------------------------

    \74\ Energy burden is defined broadly as the burden placed on 
household incomes by the cost of energy, or more simply, the ratio 
of energy expenditures to household income. Nationally, the energy 
burden for households that qualified for federal low-income 
weatherization programs in 2014 was 16.3%, while the energy burden 
for non-eligible households was 3.5%. Expenditures on electricity 
represent a portion of the larger energy burden. http://weatherization.ornl.gov/pdfs/ORNLTM2014_133.pdf.
---------------------------------------------------------------------------

5. Requirements Addressing Potential Improper Allocation or Issuance of 
Early Action Allowances or ERCs
    The EPA is proposing that state plans implementing the CEIP must 
include requirements for actions that will be taken if early action 
allowances or ERCs are improperly allocated or issued by the state.\75\ 
Improper issuance by a state could occur as a result of error or 
misrepresentation by a CEIP-eligible resource. Because the EPA would 
also be awarding matching allowances or ERCs on the basis of state-
issued early action allowances or ERCs, the EPA is proposing that the 
improper issuance provisions in a state plan that implements the CEIP 
must apply to both the state-issued early action allowances or ERCs and 
the corresponding EPA matching allowances or ERCs that are awarded.
---------------------------------------------------------------------------

    \75\ This section uses the term ``state-issued'' to refer to 
both state allocation of early action allowances and state issuance 
of early action ERCs.
---------------------------------------------------------------------------

    The EPA is proposing that if a state or the EPA finds that any 
early action state allowances or ERCs have been improperly allocated or 
issued, then the EPA will bar award of matching allowances or ERCs to 
those projects that received improperly allocated or issued early 
action allowances or early action ERCs.\76\ As described in section 
III.B of this preamble, in such an instance the EPA would place a hold 
on a state's matching allowance or ERC account, preventing the transfer 
of EPA matching allowances by the state from the EPA account to the 
account of the eligible CEIP resource at issue.
---------------------------------------------------------------------------

    \76\ The EPA award of matching allowances or ERCs is not 
considered EPA endorsement that such allowances or ERCs were 
properly allocated or issued in accordance with state plan 
requirements. Such allowances or ERCs are still subject to a 
potential subsequent finding that they were improperly allocated or 
issued, in accordance with the requirements in an approved state 
plan.
---------------------------------------------------------------------------

    In the case where matching allowances or ERCs are awarded on the 
basis of improperly allocated or issued early action allowances or 
ERCs, the EPA is proposing that the EPA matching allowances or ERCs 
must be subject to requirements in a state plan that address improper 
allocation or issuance. The EPA has determined this approach is 
necessary because the EPA matching allowances or ERCs are compliance 
instruments that are indistinct from state-issued early action 
allowances or ERCs, and the award of the EPA matching instruments is 
predicated on the proper issuance of the state instruments. Both the 
state-issued compliance instrument and the EPA matching compliance 
instrument may be used by an affected EGU to comply with either a mass-
based emission standard (allowances) or a rate-based emission standard 
(ERCs).
    The EPA is proposing that state plans must include requirements 
specifying how improper allocation or issuance of early action 
allowances or ERCs will be addressed. The EPA is proposing that these 
plan requirements must apply to both state-allocated early action 
allowances and state-issued early action ERCs, as well as to the 
matching allowances or ERCs awarded by the EPA.
    Where a state plan includes a rate-based emission trading program, 
the final Clean Power Plan EGs include requirements that a state plan 
must include provisions that address the improper issuance of ERCs.\77\ 
The proposed rate-based model trading rule includes presumptively 
approvable provisions related to the improper issuance of ERCs.\78\
---------------------------------------------------------------------------

    \77\ See the EGs at 40 CFR 60.5790(c)(3); id. 60.5805(g) and 
(h). The potential for improper issuance of ERCs by a state is 
discussed in the preamble to the final EGs rule at section 
VIII.K.2.d (80 FR 64907, October 23, 2015).
    \78\ Provisions to address improper issuance of ERCs are 
discussed in the preamble to the proposed federal plan and model 
trading rules (80 FR 65000, October 23, 2015). See also, proposed 
rule text at 40 CFR 62.16450 of the rate-based model trading rule.
---------------------------------------------------------------------------

    We propose that these finalized EGs provisions (which have already 
been promulgated and are not being reopened) and the corresponding 
proposed model rule provisions, are equally appropriate and would 
suffice for purposes of improper state issuance of early action ERCs 
under the CEIP.
    Thus, the EPA is proposing that where a state implements the CEIP, 
those same provisions addressing state-issued early action ERCs in an 
approvable plan must also apply to any related EPA-awarded matching 
ERCs. Where any early action ERCs are found to be improperly issued by 
a state, the same requirements must apply to the matching EPA ERCs 
awarded on the basis of the original state-issued ERCs.
    Where a state plan includes a mass-based emission budget trading 
program, the EPA is proposing to amend the final Clean Power Plan EGs 
to require that a state plan must include provisions like those in a 
rate-based plan under the EGs to address the improper state allocation 
of early-action allowances under a state CEIP. While mass-based plans 
under the EGs are required to include provisions for adjustment in the 
case of incorrect allocations, see 40 CFR 60.5815(d), the rules for 
improper issuance of ERCs under rate-based plans under the EGs are 
different. See 40 CFR 60.5790(c)(3); id. 60.5805(g), (h). Neither of 
these sets

[[Page 42963]]

of requirements are being reopened. The EPA is proposing, however, that 
the rate-based approach would apply for purposes of the CEIP in both 
mass-based and rate-based state plans.
    This is due to the availability of the matching allowances under 
the CEIP. State allocation of early action allowances under the CEIP is 
the necessary predicate for the award of EPA matching allowances, which 
would functionally expand the emission budget for affected EGUs under 
the state plan. These EPA matching allowances that are awarded to the 
state, if based on improper allocation by the state under its CEIP set 
aside, could potentially erode the integrity of a mass-based emission 
trading program under the Clean Power Plan.\79\
---------------------------------------------------------------------------

    \79\ In the case of improperly allocated allowances, the 
allocation by the state would not be appropriately based on actual 
MWh of generation or savings from eligible resources under the CEIP, 
and related avoided CO2 emissions prior to the beginning 
of the plan performance period. At the same time, the EPA matching 
allowances would expand the emission budget under the state emission 
budget trading program.
---------------------------------------------------------------------------

    Because of the distinctions between the impact of state-allocated 
early action allowances and the award of EPA matching allowances 
described previously, the EPA is proposing an approach for mass-based 
state plans where a state plan must include provisions comparable to 
the improper issuance provisions for ERCs in a rate-based program that 
apply to the EPA matching allowances. A state plan could include 
different requirements that apply for the improperly state-allocated 
early action allowances under the CEIP. Under this proposed approach, 
application of the improper allocation provisions in an approved state 
plan would be triggered based on a finding by the state or the EPA that 
early action allowances were improperly allocated by the state under 
the CEIP. The remedies under the improper allocation provisions would 
address the EPA matching allowances, which resulted in a functional 
expansion of the state emission budget.

C. Requirements for CEIP-Eligible Projects

    In the final EGs, we specified certain criteria for eligible 
projects, including the date after which eligible RE projects must 
``commence construction'' and the date after which eligible EE projects 
must ``commence operation.'' 40 CFR 60.5737. We requested comment in 
the proposed model trading rules and federal plan on what, if any, 
additional criteria should apply to determine eligibility for CEIP 
projects. 80 FR 65026. Accordingly, we are proposing to clarify the 
eligibility criteria for CEIP projects, guided by the objectives for 
the CEIP identified in the final Clean Power Plan, see 80 FR at 64829-
64832, as well as the importance of ensuring simplicity in plan 
development and ease in implementation of this time-limited program.
    We received significant input from a wide range of stakeholders 
about requirements for eligible CEIP projects. We considered this 
feedback carefully in developing this proposal. In this action, we 
propose to clarify the term ``project'' as used in the Clean Power Plan 
EGs for purposes of the CEIP. Additionally, in this action we propose 
to replace the definition of ``commence construction'' as applied to 
eligible RE projects, as well as to clarify the definition of 
``commence operations'' as applied to eligible low-income EE projects. 
We are also proposing to remove the existing language from Section 
60.5815, paragraph (c) of the Clean Power Plan EGs which pertained to 
EM&V requirements for the CEIP allowance set-aside, as duplicative, and 
we are clarifying and consolidating the EM&V requirements for eligible 
CEIP projects in this action.
1. Definition of ``Project'' for Purposes of the CEIP
    The Clean Power Plan EGs specify that solar and wind, as well as 
low-income EE, ``projects,'' are eligible for the award of early action 
allowances and ERCs under the CEIP.\80\ The EPA is proposing to clarify 
that the current term ``project'' also encompasses programs that result 
in the deployment of CEIP-eligible solar, wind, geothermal or 
hydropower generating capacity and the implementation of CEIP-eligible 
EE or solar programs in low-income communities (i.e., programs that 
deploy eligible projects). This clarification is simply to better 
reflect the EPA's intent and to maintain consistency with the approach 
in the Clean Power Plan EGs for issuance of ERCs, which refers to 
``eligible resources,'' a general term which encompasses both projects 
and programs.\81\ The term ``eligible resource'' provides for the 
eligibility of both individual projects and programs for the issuance 
of ERCs, provided the project or program involves energy generation or 
savings from an eligible resource.\82\ To clarify the term eligible 
project, the EPA proposes to add a new defined term, ``eligible CEIP 
resource,'' to the final Clean Power Plan EGs (at 40 CFR 60.5880) and 
make related conforming amendments to the CEIP provisions in the EGs 
(at section 60.5737). In addition, as used throughout this preamble, 
the term ``project'' as it refers to projects eligible under the CEIP, 
also refers to programs that implement such projects. Consistent with 
the final emissions guidelines provisions for ERC issuance, an 
eligibility application submitted by a project provider under the CEIP 
may represent either an individual EE/RE project or multiple projects 
implemented as part of program (i.e., it is not necessary for each 
project implemented as part of a larger program to submit its own 
eligibility application).
---------------------------------------------------------------------------

    \80\ See 40 CFR 60.5737(a) and (b).
    \81\ See definition of ``eligible resource'' at 40 CFR 60.5880.
    \82\ See the preamble to the final Clean Power Plan EGs, at 
section VIII.K.2.b (80 FR 64906-64907) and section VIII.K.2.f (80 FR 
64907), and the EGs at 40 CFR 60.5800(a).
---------------------------------------------------------------------------

2. Definition of ``Commence Construction'' and ``Commence Operations'' 
for Purposes of the CEIP
    In this action the EPA is proposing to replace the term ``commence 
construction'' for CEIP-eligible RE projects with the term ``commence 
commercial operation,'' as well as to clarify the term ``commence 
operations'' for CEIP-eligible low-income community projects. The 
Agency believes that ``commence commercial operation'' is more 
consistent with the intent of the Clean Power Plan EGs. In addition, 
the Agency wishes to avoid any confusion with the term ``commence 
construction'' as used in other contexts under sections 111 and 112 of 
the CAA.
    The Agency heard from several commenters during the CEIP outreach 
sessions and in comments submitted to the non-regulatory docket that 
``commence construction'' could be understood to encompass such 
activities as entering into contracts for eligible RE projects. If this 
were the Agency's intent, according to these stakeholders, then the 
effect would be to render many RE projects ineligible as a result of 
early project development activities that may have occurred prior to 
the start date of eligibility. This was not the intent of the Agency, 
and we believe it is appropriate to correct this terminology to more 
accurately reflect the Agency's intent; that is, RE projects (including 
those in low-income communities) should be eligible to participate in 
the CEIP if they commence commercial operation on or after the 
eligibility start date. By replacing the term ``commence construction'' 
with ``commence commercial operation,'' the EPA would be taking an 
approach to eligibility for RE projects that is consistent with the

[[Page 42964]]

approaches that have been used in prior programs, such as the Acid Rain 
Program (ARP). In the ARP, the term ``commence commercial operation'' 
means ``to have begun to generate electricity for sale, including the 
sale of test generation,'' see, e.g., 40 CFR 72.2.
    With respect to the term ``commence operations'' for CEIP-eligible 
demand-side EE projects implemented in low-income communities, the EPA 
is proposing to establish a definition that is consistent with the 
proposed replacement of ``commence construction'' with ``commence 
commercial operation'' discussed previously. That is, the EPA is 
proposing that the term ``commence operations'' be defined as the date 
that a CEIP-eligible low-income community demand-side EE project is 
delivering quantifiable and verifiable electricity savings.\83\ This 
means the date when the eligible CEIP low-income community demand-side 
EE project's electricity savings begin and are measureable is the date 
when the project commenced operation for the purpose of CEIP 
eligibility. Additionally, the term ``commercial'' is excluded from the 
``commence operations'' term used for eligible EE projects implemented 
in low-income communities, as ``commercial'' is used as a qualifier to 
describe when electricity is available for sale or to generate 
electricity that receives financial credit through net metering or 
equivalent policies (as in the case of power generation), not when it 
is saved (as in the case of EE projects).
---------------------------------------------------------------------------

    \83\ For infrastructure projects such as conservation voltage 
reduction (CVR) that deliver end-use energy efficiency in residences 
and buildings, it is common practice to test circuit performance by 
switching voltage optimization controls ``on'' and ``off'' for a 
continuous period of time (typically a year) to collect baseline 
data for quantification of savings during the performance period. 
Similar to the Agency's intent that wind and solar projects not be 
penalized for project development activities that occur prior to 
commencing commercial operations, voltage management of a circuit 
solely for the purpose of testing prior to ``commencing operations'' 
does not render a circuit ineligible for participation in the CEIP. 
Similarly, a limited duration or one-time control of voltage during 
a peak demand incident does not render a circuit ineligible for 
participation in the CEIP.
---------------------------------------------------------------------------

    In light of the proposed corrected terminology from ``commenced 
construction'' to ``commenced commercial operations'', the EPA is 
proposing to revise the date for eligible CEIP RE projects (including 
those implemented in low-income communities) to commence commercial 
operation to January 1, 2020, or commence operations, in the case of 
low-income demand-side EE projects, to September 6, 2018. First, the 
proposal to no longer use the date of final state plan submittal as a 
potential eligibility start-date would remove a source of uncertainty 
given the Supreme Court's stay of the Clean Power Plan EGs in West 
Virginia, et al. v. EPA, et al., No. 15A773 (February 9, 2016). Because 
the effectiveness of deadlines for state plan submittals is currently 
stayed, it may not make sense at this point to continue to tie CEIP 
project eligibility to plan submissions. However, as discussed 
previously, while we are retaining the putative timing aspects of the 
CEIP in general in discussing this proposal, the Agency recognizes that 
adjustments may be needed upon the resolution of the litigation. See 
discussion in section II.B of this preamble.
    Second, in the case of RE projects looking to become eligible CEIP 
projects, the date of January 1, 2020 for eligibility for projects that 
have commenced commercial operations reflects the initial intent of the 
timing finalized in the Clean Power Plan EGs. The previous language 
that based eligibility timing on when a project ``commenced 
construction'' considered the build-out time that would be required 
from the time of a project's initial conception. Since the CEIP is 
designed primarily to encourage additional renewable deployment, 
establishing a date of January 1, 2020 supports the overarching goal of 
the CEIP to encourage such deployment.
    For eligible CEIP low-income community demand-side EE projects, 
some commenters have requested that the EPA should allow an expanded 
ramp-up period for projects. Commenters stated that while energy 
efficiency programs can be deployed quickly, adequate ramp-up time must 
be allowed to thoughtfully design and target programs, and to achieve 
desired levels of volume. The EPA agrees with this comment, and the 
additional time needed for adequate design and targeting of eligible 
CEIP low-income community demand-side EE projects is reflected in the 
eligibility date of September 6, 2018. Additionally, we agree with 
commenters' assertions that eligible CEIP low-income community demand-
side EE projects need ramp-up time to ensure that they realize the full 
benefits of the CEIP following project deployment.
    Given that the CEIP project eligibility approach included in the 
final Clean Power Plan EGs was tied to commencement of construction 
after submission of a state plan, and that there may be additional 
relevant factors not considered here, EPA seeks comment on whether the 
proposed approach described above, the approach included in the final 
Clean Power Plan EGs, or a combination of the two approaches, would 
best serve the goals of the CEIP.
    3. Option to use an Agent for reviewing CEIP project applications, 
allocating early action allowances, and issuing early action ERCs. As 
discussed in section III.B of this preamble, a state plan that 
implements the CEIP must specify a process for application, and 
allocation/issuance of, early action allowances or ERCs under the CEIP 
to eligible project providers. The proposed rate- and mass-based model 
trading rules include related provisions that, when finalized, would 
constitute a presumptively approvable approach for meeting relevant EGs 
requirements (80 FR 64966-65116), and the EPA is proposing optional 
example provisions in this action to cross-reference those provisions 
under the CEIP.
    This process, defined by the state in its plan requirements, may be 
implemented by the state itself, or alternatively the state may 
delegate this function to a qualified agent. The ability to rely on 
agents is discussed further in the final Clean Power Plan EGs at 80 FR 
64906.\84\ The EPA is not proposing any specific requirements with 
respect to the use of agents in this action, nor reopening the issue of 
a state's ability to rely on agents under the EGs. We simply observe 
here that the use of agents would also be appropriate under the CEIP 
for similar purposes.
---------------------------------------------------------------------------

    \84\ As described in the Clean Power Plan EGs, an agent is a 
party acting on behalf of the state, based on authority vested in it 
by the state, pursuant to the legal authority of the state. A state 
could designate an agent to provide certain limited administrative 
services, or could choose to vest an agent with greater authority. 
Where an agent issues an ERC on behalf of the state, such issuance 
would have the same legal effect as issuance of an ERC by the state. 
In the context of the CEIP, such an agent may also be vested with 
the authority to issue allowances. Where an agent issues an 
allowance on behalf of the state, such issuance would have the same 
legal effect as issuance of an allowance by the state.
---------------------------------------------------------------------------

    In the event of a federal plan, the EPA anticipates that it would 
serve the same role as the state, and thus the EPA, or an agent(s) it 
may designate, would review project applications and reports of 
quantified and verified MWh in advance of allocating early action and 
matching allowances, and issuing early action and matching ERCs to 
eligible project providers.
    4. Eligible CEIP RE projects. In 40 CFR 60.5737 of the final EGs, 
the EPA established that eligible CEIP RE project types are those that 
``generate metered MWh from any type of wind or solar resources.'' In 
order to streamline the requirements for eligible CEIP wind and solar 
resources, as well as to clarify the requirements for geothermal and

[[Page 42965]]

hydropower resources we are proposing to add to the list of CEIP-
eligible resources, the EPA is proposing in this rule to change the 
project eligibility requirements so that eligible CEIP RE projects must 
generate wind, solar, geothermal or hydropower renewable electricity 
measured in MWh consistent with the requirements of 60.5830(c)(1) of 
the final CPP EGs: The generation data must be physically measured on a 
continuous basis. These RE resources may include utility-scale or 
distributed projects, and must be grid-connected. In the case of solar 
power generation, solar resources could be solar photovoltaic or 
concentrating solar power technologies.
    The limitation of eligible CEIP RE technologies to wind and solar 
in the Clean Power Plan EGs was based partially on the concern from 
commenters on the Clean Power Plan proposal that there could be an 
unintended shift in investment away from RE to natural gas, and 
partially on the fact that these technologies--in addition to being 
essential for longer-term climate strategies--generally can be deployed 
with shorter lead times than other technologies (See 80 FR 64831). 
Therefore, wind and solar would be readily available for participation 
during the two-year CEIP period. However, the extension of the PTC and 
ITC tax credits following the promulgation of the Clean Power Plan EGs 
has led some stakeholders to suggest that wind and solar projects that 
receive PTC or ITC benefits should be excluded from CEIP eligibility. 
This is because one of the objectives of the CEIP is to incentivize 
reductions in emissions that might not otherwise have occurred, and 
projects receiving tax credits may already be induced by those 
incentives rather than the CEIP. These tax credits are discussed more 
fully in section III.A of this preamble, where we also request comment 
on whether and how to implement limitations on CEIP participation for 
wind and solar resources that receive ITC or PTC benefits.
    In addition, stakeholders have noted that other types of clean 
generating technologies, in addition to wind and solar, could be 
deployed during the CEIP timeframe,\85\ and therefore, should also be 
included as eligible for the CEIP. Specifically, some commenters 
requested that the EPA consider other renewables such as geothermal and 
hydropower. Other stakeholders have called for all of the technologies 
the EPA recognized as potentially creditable in state plans under the 
final EGs, including qualified biomass, CHP, WHP, and nuclear projects, 
to be CEIP creditable. The Agency also received several petitions for 
reconsideration on the final Clean Power Plan requesting that the scope 
of CEIP technology eligibility be expanded.\86\
---------------------------------------------------------------------------

    \85\ See document titled ``Summary of feedback received during 
the CEIP listening sessions, Fall 2015'' in the docket associated 
with this action, as well as the CEIP non-regulatory docket at EPA-
HQ-OAR-2015-0734.
    \86\ While there is some overlap in this action on this and 
several other issues relating to the CEIP raised by the petitions 
for reconsideration, the Agency continues to review, and is not 
acting on, these or any other aspects of the petitions for 
reconsideration of the Clean Power Plan at this time.
---------------------------------------------------------------------------

    The EPA believes that our initial determination of criteria for 
eligible technologies remains appropriate, and, therefore, are 
retaining those criteria. The criteria we identified in the final Clean 
Power Plan that drove our determination of eligible technology types 
for the CEIP were that they are zero-emitting and essential to longer 
term climate strategies, and require lead times of relatively shorter 
duration given the time-limited nature of the CEIP and to counteract 
the potential shift in investment from RE to natural gas in the lead up 
to the start of the interim performance period. See 80 FR 64831.
    As noted in section II.D. of this preamble, some commenters 
requested that other RE technologies, including geothermal, biomass, 
hydropower, as well as other generating technologies such as combined 
heat and power (CHP) and waste heat to power (WHP) be considered as 
eligible technologies for the CEIP. While we do not believe that it is 
appropriate to expand the list of eligible CEIP technologies to include 
all those suggested by commenters, we believe that two other RE 
technologies, specifically geothermal and hydropower, meet the criteria 
for CEIP eligibility that were identified in the final CPP. Thus, in 
this action we are proposing to expand the list of CEIP-eligible RE 
technologies beyond wind and solar resources alone only to two other 
zero-emitting technologies: Geothermal and hydropower.\87\ The EPA 
believes stakeholders are correct that these two technologies, like 
wind and solar, are capable of contributing to long-term climate change 
strategies, and can be implemented on the time-scales relevant to the 
CEIP. See 80 FR 64831. Expected growth in these technologies may be 
lower than wind and solar, 80 FR at 64808, but this would not be a 
reason for excluding them. Any scale or type of wind and solar project, 
as finalized in the EGs, would remain eligible for the CEIP, assuming 
other eligibility requirements are met.\88\ The EPA is only proposing 
the expansion of eligible CEIP RE projects to include geothermal and 
hydropower. We solicit comment on whether any additional technologies 
meet the criteria identified for eligible RE technologies: 
Specifically, whether there are additional renewable technologies that 
are zero-emitting and essential to longer term climate strategies, 
require investment and deployment lead times of relatively shorter 
duration given the time-limited nature of the CEIP, and counteract the 
potential shift in investment from RE to natural gas in the lead up to 
the start of the interim performance period.
---------------------------------------------------------------------------

    \87\ See 80 FR 64807 and also the TSD to the final Clean Power 
Plan titled ``GHG Mitigation Measures.''
    \88\ ``Any type'' of wind or solar resource is already eligible 
under the CEIP as finalized in the EGs, 80 FR at 64943, and the EPA 
is not reopening this determination.
---------------------------------------------------------------------------

    5. Eligible CEIP low-income community projects. The Clean Power 
Plan EGs established that demand-side energy efficiency projects 
implemented in low-income communities would be eligible for the two-to-
one CEIP incentive. This section discusses eligible low-income EE 
projects, and also presents a proposal that solar projects implemented 
to serve low-income communities that provide direct electricity bill 
benefits to low-income ratepayers also be eligible for the two-to-one 
incentive.
    Demand-side energy efficiency refers to an extensive array of 
technologies, practices and measures that are applied throughout all 
sectors of the economy to reduce electricity demand while providing the 
same, and sometimes better, level and quality of service.\89\ The EPA 
is proposing that states have flexibility to determine the types of 
demand-side EE projects they may deem eligible for CEIP awards, so long 
as they are implemented in communities that meet the state's approved 
definition(s) for ``low-income community.'' Such projects may be 
implemented as part of an EE program (i.e., implemented by regulated 
electric distribution utilities or other private providers), which 
could play a key role in generating early action ERCs or allowances. 
Specifically, states

[[Page 42966]]

may deem residential and commercial projects to be eligible for CEIP 
awards, as well as transmission and distribution improvements that 
reduce electricity consumption on the customer side of the meter (such 
as conservation voltage reduction). The EPA notes that in some 
instances multi-family housing, group homes, shelters or other 
temporary housing may be considered commercial entities for utility 
billing purposes. Excluding these commercial entities from CEIP could 
keep these residential ratepayers from being eligible under CEIP. 
Additionally, our experience has been that small businesses, 
organizations and institutions that work with low-income residents 
often face similar energy risks (e.g., large bills, disproportionate 
energy spending, shutoff threats) and experience the same barriers 
(e.g., lack of capital, lack of expertise, split incentives for 
renters) as the residential sector. High energy expenses hamper their 
ability to provide clients with energy, health, educational, housing, 
legal and other services. Thus, the EPA believes all of these types of 
EE projects can be designed to benefit low-income communities and 
ratepayers, and all have the potential to encourage investment in 
demand-side energy efficiency projects (in part by offsetting the 
higher barriers to deployment for such projects in those communities), 
for the purpose of achieving emissions reductions at affected EGUs, in 
accordance with the purposes of the CEIP, 80 FR 64832. For residential 
projects, the EPA recommends that the state consider projects that 
adhere to the health and safety standards established by the Department 
of Energy's Weatherization Assistance Program or comparable standards. 
For commercial EE projects, the EPA recommends that a state consider 
projects that reduce electricity demand in buildings and institutions 
that provide critical services (e.g., community centers, street 
lighting, health clinics, etc.) within or to low-income communities 
and/or households. For transmission and distribution improvement 
projects that reduce energy consumption on the customer side of the 
meter, the EPA recommends that a state consider improvements that 
significantly reduce consumer electricity demand within the boundaries 
of a low-income community or within low-income households. EPA requests 
comment on the inclusion of commercial and transmission and 
distribution projects, and on whether there should be any restrictions 
on the types of commercial and/or transmission and distribution 
projects that may qualify.
---------------------------------------------------------------------------

    \89\ A number of demand-side EE measures are discussed in the 
TSD to the Clean Power Plan Final Rule titled ``Demand-Side Energy 
Efficiency,'' August 2015, available at https://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-technical-documents. 
Typical examples of energy efficiency measures in homes include: Air 
and duct sealing, increased insulation in walls and attics, highly 
efficient equipment for heating and air conditioning (e.g., air- and 
ground-source heat pumps, high efficiency furnaces, etc.), and 
highly efficient appliances (e.g., refrigerators, television sets, 
etc.).
---------------------------------------------------------------------------

    The Department of Energy, in cooperation with industry, has 
developed a suite of quality assurance resources that address work 
quality, training and workforce certification. The EPA has also 
developed resources to assist program managers with implementing 
residential and commercial energy efficiency programs under the 
auspices of the ENERGY STAR program as well as resources that address 
indoor air quality and energy efficiency. These resources are 
applicable to all energy efficiency retrofit programs, including low-
income, regardless of design, administration or scope. States are 
encouraged to consider use of DOE's Guidelines for Home Energy 
Professionals \90\ and DOE's Better Buildings Workforce Guidelines \91\ 
as well as EPA's Guidance and Tools for Protecting IAQ During Building 
Upgrades,\92\ and ENERGY STAR's resources for residential and 
commercial energy efficiency.\93\
---------------------------------------------------------------------------

    \90\ http://energy.gov/eere/wipo/guidelines-home-energy-professionals.
    \91\ https://www4.eere.energy.gov/workforce/projects/workforceguidelines.
    \92\ https://www.epa.gov/indoor-air-quality-iaq/health-energy-efficiency-and-climate-change.
    \93\ https://www.energystar.gov/.
---------------------------------------------------------------------------

    A number of states have already implemented successful low-income 
EE projects and programs that can serve as examples to other states as 
they consider the project types that may be possible through the CEIP. 
We present examples of two of these projects in section III.C of this 
preamble.
    The EPA is proposing to include solar projects implemented to serve 
low-income communities that provide direct electricity bill benefits to 
low-income community ratepayers as eligible for the two-to-one matching 
award from the reserve established for low-income EE projects. This 
would be a change from the CEIP provisions included in the Clean Power 
Plan EGs, which limited projects eligible for the two-to-one match to 
low-income EE projects alone. However, during the outreach sessions in 
the fall of 2015, stakeholders suggested solar projects in low-income 
communities face many of the same barriers to deployment as do EE 
projects, and provide the same environmental benefit in terms of 
displacing carbon-emitting generation. Based on such input from 
stakeholders and other information, the EPA believes that solar 
technology--particularly distributed, rooftop, or community solar--is 
particularly well suited among zero-emitting RE resources to 
implementation in low-income communities, as it is relatively 
affordable compared to other distributed RE technologies, it is already 
widely available for installation, and the primary barriers to 
deployment are economic rather than technical. Enabling such projects 
to receive the two-to-one match would serve the same basic purpose of 
improving cost impacts and expanding compliance opportunities for 
affected EGUs under the Clean Power Plan. In addition, as discussed in 
section III.A of this preamble, the EPA's preliminary analysis shows 
that the MWh savings potential for eligible low-income EE projects is 
relatively low even with the CEIP as a driver, and as a result it may 
be appropriate to enable equally beneficial solar projects implemented 
in low-income communities to be eligible for awards from the matching 
allowance/ERC reserve for low-income community projects.
    By including such provisions in the CEIP, any type of solar project 
implemented to serve a low-income community that provides direct 
electricity bill benefits to low-income community ratepayers would be 
eligible for a two-to-one award from the low-income community reserve 
of the matching pool.
    Some of the types of solar projects that the EPA envisions could 
qualify for awards from the low-income community reserve include roof-
top solar and community-owned solar projects.\94\ A number of states 
have already implemented successful solar projects that can serve as 
examples to other states as they consider the project types that may be 
possible through the CEIP. We present an example of one of these 
projects in section III.C of this preamble.
---------------------------------------------------------------------------

    \94\ The following links provide examples of several existing 
programs: http://solar.gwu.edu/research/bridging-solar-income-gap; 
http://www.cesa.org/assets/2014-Files/Clean-Energy-for-Resilient-Communities-Report-Feb2014.pdf. https://www.solarelectricpower.org/media/422095/community-solar-design-plan_web.pdf.
---------------------------------------------------------------------------

    The EPA solicits comment on the types of solar technologies and 
programs that could be eligible for the low-income community reserve of 
the matching pool, and how states may be able to determine benefits 
delivered to low-income community ratepayers. We also solicit comment 
on whether wind generation, geothermal, or hydropower may provide 
similar ratepayer benefits to low-income communities. The intent of the 
low-income community reserve in the matching pool is to make awards 
available to projects that provide direct electricity bill benefits to 
low-income ratepayers, and the EPA's objective is to

[[Page 42967]]

ensure that any program that has access to this pool fulfills this 
criterion.
    a. Examples of EE and RE projects implemented in low-income 
communities. This section presents three examples of low-income EE and 
RE programs currently underway in states around the country: Energy 
Outreach Colorado (EOC), the PECO Conservation Voltage Reduction 
Program, and the Multifamily Affordable Solar Housing (MASH) Program in 
California. These examples may be of assistance to states exploring the 
development of EE and RE programs in low-income communities.\95\
---------------------------------------------------------------------------

    \95\ These examples are illustrative only. More information on 
these examples is available on the EPA Web page titled ``Climate and 
Energy Resources for State, Local and Tribal Governments'' at 
https://www.epa.gov/statelocalclimate/bringing-benefits-energy-efficiency-and-renewable-energy-low-income-communities. Although we 
believe these programs are successful and worthy of replication, the 
EPA has not determined if they would qualify for awards under the 
CEIP.
---------------------------------------------------------------------------

    The first example is EOC, an independent non-profit organization 
that works to ensure all Coloradans can meet their home energy needs 
through emergency bill payment and furnace repair assistance, energy 
efficiency improvements, consumer behavior change and advocacy for the 
energy needs of low-income households.\96\ EOC's Affordable Housing 
Weatherization Program serves affordable multi-family housing 
properties across the state that have five or more units, are centrally 
heated, and where 67 percent of the residents are at or below 200 
percent of the federal poverty level. EOC also developed the Nonprofit 
Energy Efficiency Program, which offers facility energy efficiency 
grants to non-profit organizations serving low-income individuals and 
families. The program helps nonprofit organizations reduce energy 
expenses in their own commercial buildings so that they can allocate 
more of their operating budgets to community services. Since its 
creation in 1989, EOC has saved low-income utility customers 19,200 MWh 
of electricity, thereby reducing or avoiding almost 16,000 metric tons 
of CO2 emissions.\97\
---------------------------------------------------------------------------

    \96\ See http://www.energyoutreach.org/.
    \97\ MWh savings data are from personal communications with 
Jennifer Gremmert, Energy Outreach Colorado, January 2016. 
CO2 savings were calculated using the 2012 eGRID non-
baseload CO2 emissions rate for the WECC Rockies 
subregion (1822.65 lbs CO2/MWh). See EPA's Emissions & 
Generation Resource Integrated Database (eGRID) at https://www.epa.gov/sites/production/files/2015-10/documents/egrid2012_summarytables_0.pdf, Table 3.
---------------------------------------------------------------------------

    The second example is the PECO Conservation Voltage Reduction (CVR) 
program, a program implemented in the state of Pennsylvania to achieve 
load reductions through changes in voltage regulation parameters at the 
substation/transformer level.\98\ National standards for voltage 
generally require electricity to be delivered to consumers between 114 
and 126 Volts. Due to transmission line losses, power is transmitted at 
the higher end of that range to ensure all customers receive the 
minimum voltage. However, many homes receive more voltage than they 
need, resulting in higher energy use and higher bills. By adjusting 
voltage to the lower end of its acceptable range, customers save energy 
because some equipment operates more efficiently at lower voltage. 
Since the efficiency opportunity is implemented by the utility, all 
customers on the affected feeders benefit with no need for household 
level action. During a 4-month period from February through May 2010, 
PECO manually lowered voltage by one percent across its system 
(involving approximately 84 substations, 220 distribution transformers, 
and 6400 circuits). Reported gross energy savings were 25,630 MWh/yr 
for low-income customers and 38,445 MWh/year for government and non-
profit customers, resulting in reductions of approximately 45,000 
metric tons of CO2.\99\
---------------------------------------------------------------------------

    \98\ Source: Final Annual Report to the Pennsylvania Public 
Utility Commission for the Period June 2011 through May 2012, 
Program Year 3, For Pennsylvania Act 129 of 2008 Energy Efficiency 
and Conservation Plan, Prepared by Navigant Consulting, Inc. for 
PECO, November 15, 2012.
    \99\ MWh savings data are from the Final Annual Report to the 
Pennsylvania Public Utility Commission for the Period June 2011 
through May 2012, Program Year 3, For Pennsylvania Act 129 of 2008 
Energy Efficiency and Conservation Plan, Prepared by Navigant 
Consulting, Inc. for PECO, November 15, 2012. https://www.peco.com/CustomerService/RatesandPricing/RateInformation/Documents/PDF/New%20Filings/ACT%20129%20EECP.pdf. CO2 savings were 
calculated using the 2010 eGRID non-baseload CO2 
emissions rate for the RFC East subregion (1562.72 lbs CO/MWh). See 
EPA's Emissions & Generation Resource Integrated Database (eGRID) at 
https://www.epa.gov/sites/production/files/2015-01/documents/egrid_9th_edition_v1-0_year_2010_summary_tables.pdf, Table 3.
---------------------------------------------------------------------------

    The last example is the Multifamily Affordable Solar Housing (MASH) 
Program, overseen by the California Public Utilities Commission. This 
program has brought solar energy to thousands of multifamily building 
owners and tenants across the state. MASH offers an up-front rebate to 
offset the costs of new solar energy systems for qualified, existing 
multifamily low-income housing. The program uses ``virtual net 
metering'' to allow the tenants to benefit from lower electricity bills 
due to the energy generated by the solar energy system. From 2008 to 
2015, MASH has led to the installation of more than 23 MW of solar 
capacity across nearly 360 projects \100\ serving more than 6,500 low-
income households.\101\ In buildings that have implemented virtual net 
metering, tenants' electricity bills have fallen by an average of about 
$480 over the first year. According to a third-party evaluation of the 
program, the MASH solar energy systems avoided more than 27,450 tons of 
CO2 emissions from 2011 to 2013.\102\
---------------------------------------------------------------------------

    \100\ California Solar Statistics. Application status page, MASH 
program. https://www.californiasolarstatistics.ca.gov/reports/application_status/?source=mash.
    \101\ California Public Utilities Commission, 2015. Multifamily 
Affordable Solar Housing Semiannual Progress Report, July 31, 2015. 
http://www.cpuc.ca.gov/General.aspx?id=3752.
    \102\ Navigant, 2015. California Solar Initiative--Biennial 
Evaluation Studies for the Single[hyphen]Family Affordable Solar 
Homes (SASH) and Multifamily Affordable Solar Housing (MASH) 
Low[hyphen]Income Programs Impact and Cost[hyphen]Benefit Analysis 
Program Years 2011-2013. Prepared for California Public Utilities 
Commission.
---------------------------------------------------------------------------

D. CEIP Participation for States, Tribes, and Territories for Which the 
EPA Has Not Established Goals

1. Participation for Tribes Without Affected EGUs
    Many tribes have expressed interest in participating in the CEIP 
even though they do not have EGUs subject to the Clean Power Plan EGs. 
These tribes have the potential to develop RE and low-income community 
projects that could qualify as eligible CEIP projects. As finalized in 
the EGs, such projects would in general be able to apply and receive 
early action allowances or early action ERCs through state plans that 
include the CEIP. However, several tribes have expressed concern that 
requiring tribes to participate in the CEIP by applying for early 
action ERCs or allowances from CEIP-participating states would infringe 
upon their sovereign rights. In addition, some stakeholders have 
expressed concern that without explicit direction to deploy projects on 
tribal lands, project providers will opt to invest in CEIP-eligible 
projects only on the lands of CEIP-participating states, and not on 
tribal lands. Lastly, tribes have also expressed concern that in order 
to remain competitive in wind and solar deployment, they must consider 
CEIP participation as part of their strategy.
    The EPA does not agree that the CEIP would result in an 
infringement on tribal sovereignty, because neither the Clean Power 
Plan nor the CEIP impose legal obligations on tribes without affected 
EGUs or authorize states to impose such obligations. Rather, the Clean 
Power Plan and the CEIP provide

[[Page 42968]]

opportunities for projects located on tribal lands to voluntarily seek 
credit through a state plan that regulates affected EGUs. Further, the 
EPA wishes to clarify that an eligible project that is located in 
Indian country within the borders of a state, solely for the purposes 
of the CEIP, is considered to be ``located'' in the state, in order to 
facilitate such projects' eligibility to voluntarily seek early action 
allowances or early action ERCs under the CEIP. In other words, the EPA 
does not require that a project fulfill a ``benefit'' demonstration in 
addition to meeting the grid-connection requirement, solely because it 
is located in Indian country.\103\ The fact that projects located in 
Indian country may voluntarily seek crediting under a state plan does 
not constitute an approval of a state plan as applied in Indian 
country. The plan of a surrounding state merely provides an opportunity 
for projects located in Indian country to voluntarily participate in 
the CEIP by applying to such state for credits. This clarification may 
address some concerns about the ability of projects located in Indian 
country to be eligible for the CEIP.
---------------------------------------------------------------------------

    \103\ Where a project provider in Indian country seeks to apply 
for early action allowances or early action ERCs under the CEIP in a 
state other than the one in which that Indian country is located, 
then that project would need to meet the ``benefit'' test, in the 
same way that a project located in a different state from the one it 
is applying to would need to meet that test.
---------------------------------------------------------------------------

    Nonetheless, the EPA invites comment on an approach that may 
further enhance the ability of project providers located in Indian 
country without affected EGUs to participate in the CEIP. The approach 
for which we seek comment would be to include as a condition of 
participation in the CEIP a requirement that state plans may not 
disqualify an otherwise eligible CEIP project on the basis that it is 
located in Indian country or in any way apply different requirements to 
applications for CEIP projects located in Indian country. This approach 
would provide tribes and project developers in Indian country with 
assurance that their projects will be given the same consideration as 
all other projects that are located in or benefit a CEIP-participating 
state. In such a scenario, a project in Indian country would be 
eligible for an early action award from the state, and the 
complementary matching award from the EPA.
    The EPA also invites comment on other possible approaches that may 
enable CEIP-eligible projects located in Indian country to participate 
in the CEIP.
2. Participation for Non-Contiguous States and Territories
    As stated in the final Clean Power Plan, the EPA did not finalize 
emission guidelines for the fossil-fuel fired EGUs in Alaska, Hawaii, 
Guam or Puerto Rico because of the lack of suitable data and analytic 
tools needed to develop area-appropriate building block targets (See 80 
FR 64825; October 23, 2015). The EPA is still in the process of 
assessing the achievability of emissions reductions for the affected 
EGUs in these remaining jurisdictions and thus has not taken further 
action to finalize emission guidelines for them.
    The EPA acknowledges that project providers that may be located in 
non-contiguous states and territories are interested in the opportunity 
to participate in the CEIP. The Agency recognizes that these projects 
should have opportunities and access to the same early action 
incentives as the contiguous states. However, the Agency believes such 
opportunities can only be available at the point that emissions 
guidelines are put in place for these jurisdictions. Projects in these 
non-contiguous jurisdictions are not connected to the contiguous U.S. 
electrical grid and cannot be said to be located in or benefit a CEIP 
state, and are thus ineligible to generate either ERCs or early action 
ERCs or early action allowances under the final Rule and this proposal. 
40 CFR 60.5800(a)(2). See also id. 60.5737 (both as finalized and as 
proposed to be amended by this action, requiring CEIP projects to be 
located in or benefit the state operating the CEIP program).
    Nonetheless, the EPA anticipates making available CEIP 
participation for these remaining states and territories when the 
Agency finalizes emission guidelines for fossil-fuel fired EGUs in 
these states and territories. The EPA anticipates that matching 
allowances or ERCs for noncontiguous states and territories would be 
apportioned from the existing matching pool of 300 million short tons 
of CO2 emissions. Therefore, as noted in section III.A of 
this preamble, the total amount of CEIP matching allowances or ERCs 
apportioned among the rest of the states would be reduced accordingly, 
albeit only by a small percentage, likely no more than 5 percent.
    The EPA is taking comment on how to determine the appropriate 
portion of the matching pool that should be apportioned to the non-
contiguous states and territories, if they choose to participate in the 
CEIP. The EPA could attempt to estimate the pro rata share of the 
matching pool for each of the non-contiguous states and territories 
with affected EGUs before the emission performance goals have been 
finalized for these jurisdictions. The Agency requests comment on 
approaches that could be used to estimate the appropriate share for 
these locations while their goals are still undetermined. 
Alternatively, the EPA could defer apportioning the matching allowances 
or ERCs to these states and territories until such time when their 
emission performance goals are established. At that future time, the 
matching shares would be calculated by applying the methodology 
described in this action and the matching shares apportioned to the 
contiguous states would be adjusted. The EPA is soliciting comments on 
both of these approaches.
3. Participation for States Without Affected EGUs
    For the contiguous U.S. states, the EPA is providing the 
opportunity for participation in the CEIP only for those states with 
approved state plans and those states that may become subject to a 
federal plan. Since states without affected EGUs do not have an 
obligation to submit a state plan for EPA approval under CAA section 
111(d), there is no clear path for inclusion of these states in the 
CEIP.
    However, eligible projects developed in those states without 
affected EGUs may apply for and receive early action allowances or ERCs 
from another state that has chosen to participate in the CEIP. The 
developers of such eligible RE and low-income community projects may 
receive early action allowances or ERCs from another state, so long as 
the project benefits the state providing the award and that state has 
an approved final plan establishing its participation in the CEIP. The 
final EGs recognized the potential CEIP eligibility of projects that 
``benefit'' a state even if they are not located in that state. 80 FR 
64830. In the Clean Power Plan, however, we did not explain what 
``benefit'' means in the context of the CEIP. For purposes of the CEIP, 
we propose that ``benefit'' a state means that the electricity is 
generated or saved with the intention to meet or reduce electricity 
demand in the CEIP participating State.
    This approach is intended to parallel the approach to providing 
ERCs to RE projects that are located in a mass-based plan state for use 
in compliance under a rate-based plan. 40 CFR 60.5800(a)(3)(ii). A 
project could meet this test by submitting documentation such as a 
power purchase agreement, see 80 FR 64913.

[[Page 42969]]

IV. Community and Environmental Justice Considerations

    As discussed in the Clean Power Plan EGs, the additional incentive 
offered for low-income community projects by the CEIP, in addition to 
supporting affected EGU compliance and reducing costs by rewarding 
emission reduction measures that occur earlier than the performance 
period under the EGs, will help overcome historic barriers to the 
deployment of energy efficiency and solar projects in low-income 
communities. Bringing these energy efficiency and solar projects to 
low-income communities can also provide low-income ratepayer benefits 
(80 FR 64831).
    In response to stakeholder concerns during the outreach session 
that the program does not explicitly direct its benefits towards EJ 
communities, the EPA examined the characteristics of different 
communities that may benefit from the CEIP, and our analysis 
demonstrates that by making EE projects in low-income communities 
eligible for the CEIP, the projects can also provide benefits to other 
underserved populations, including minority communities. A complete 
discussion of the methodology and results reported in this section is 
available in the TSD to this action titled ``Community and 
Environmental Justice Considerations''.
    We performed two analyses to look at how minority populations could 
be assisted by energy efficiency projects or programs that may be 
located in low-income populations.\104\ Both analyses use data 
collected by the U.S. Census Bureau.
---------------------------------------------------------------------------

    \104\ As discussed in section III.B of this preamble, a state 
that chooses to participate in the CEIP must include in its state 
plan one or more definitions of low-income community. In the 
analysis described in this section, the income level that defines a 
low-income household or community is illustrative, in order to 
demonstrate the correlation between low-income households and EJ 
communities. The use of this income level for this analysis is not 
intended to limit a state's definition of a low-income household or 
community for the purposes of implementing the CEIP. In addition to 
being the income level used in EJSCREEN to identify a low-income 
household, it is also the definition of poverty used in the U.S. 
Census Bureau's Income and Poverty in the United States report that 
includes the largest share of the U.S. population.
---------------------------------------------------------------------------

    For the first analysis we examined, on a national level, the 
relationship between low-income and minority populations. Income and 
race data are drawn from the U.S. Census Bureau's Report, Income and 
Poverty in the United States: 2014.\105\ For the purpose of this 
analysis, we define low-income individuals as having family income less 
than twice the federal poverty level, and we define minority as all 
racial categories identified in the report except ``White, not 
Hispanic.'' Using these definitions, in 2014, 33 percent of the U.S. 
population was low-income while 38 percent was minority. However, in 
the U.S., approximately half (47 percent), of those individuals who 
identify as minority are also low-income.
---------------------------------------------------------------------------

    \105\ DeNavas-Walt, Carmen and Bernadette D. Proctor, U.S. 
Census Bureau, Current Population Reports, P60-252, Income and 
Poverty in the United States: 2014, U.S. Government Printing Office, 
Washington, DC, 2015.
---------------------------------------------------------------------------

    While the first analysis focused on the overlap between income and 
race at the national-level, we also investigated the geographic overlap 
between low-income and minority populations, because, as noted in 
section III.B of this preamble, the EPA expects that both household-
based definitions and geographically-based definitions may be used to 
identify eligible projects in ``low-income communities''. The second 
analysis compares demographic data by Census block group using the 
2008-2012 American Community Survey (ACS) five-year summary file, 
available through EPA's EJSCREEN tool.\106\ The block group is a 
geographic unit used by the U.S. Census Bureau and is generally defined 
to contain between 600 and 3,000 people. For this analysis, a low-
income household is one with an income less than two times the federal 
poverty level, while the term ``minority'' includes individuals who 
identify themselves as one of any racial categories except ``White, not 
Hispanic.'' For this second analysis, we used two approaches for 
defining a low-income and minority block group. The first approach 
defines low-income and minority block groups based on how they compare 
to national shares of the population in these categories, while the 
second approach defines these relative to state shares of the 
population in these categories. Nationally, in 2014, 33 percent of the 
population are low-income while 38 percent are minority; if the 
percentage of the population in a block group exceeded the national 
percentage of the population that is low-income or minority, it was 
considered low-income or minority respectively. If a block group 
exceeded both these percentages, then we classified that block group as 
both low-income and minority. We found that, using these national 
percentages, 70 percent of minority block groups are also low-income.
---------------------------------------------------------------------------

    \106\ EJSCREEN, http://www.epa.gov/ejscreen.
---------------------------------------------------------------------------

    In the second approach, for each state, we used the pre-calculated 
means for low-income and minority populations in that state, available 
in the EJSCREEN data files. We compared the share of the population 
that is low-income or minority in each block group to that state's 
mean. If a block group exceeded the state mean for low-income or 
minority, then it was considered low-income or minority, respectively. 
We found that 70 percent of minority block groups are also low-income, 
which is the same as was found using the national percentages.
    These analyses support a conclusion that providing fully one half 
of the CEIP incentives to the low-income community reserve will provide 
additional benefits to EJ communities, and will be an important tool to 
bring the public health and economic advantages of clean energy to 
traditionally overburdened communities. We welcome comments on this 
analysis and the elements of the CEIP from this perspective.

V. Statutory and Executive Order Reviews

    Additional information about these statutes and Executive Orders 
can be found at http://www2.epa.gov/laws-regulations/laws-and-executive-orders.

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This action is a significant regulatory action that was submitted 
to the Office of Management and Budget (OMB) for review. This action 
raises novel legal or policy issues. As noted earlier, the EPA took 
final action in the Clean Power Plan to establish the framework for the 
CEIP, while identifying other design details that it would address in a 
future action. For example, in the final Clean Power Plan, the Agency 
established the CEIP framework, including the overall size of the 
matching pool available to CEIP-participating states and the matching 
award the EPA will make to qualifying RE and low-income community 
projects per MWh of electricity generation or savings.
    This action proposes design details of the CEIP that are consistent 
with the framework established in the final Clean Power Plan. Given 
that the framework of the CEIP has already been established in the 
Clean Power Plan EGs, the design details proposed in this action are 
not expected to result in significant costs, benefits, or economic 
impacts, beyond those associated with the Clean Power Plan EGs.

B. Paperwork Reduction Act (PRA)

    This action does not impose any new information collection burden 
under the PRA. OMB has previously approved the information collection 
activities

[[Page 42970]]

contained in the existing part 75 and 98 regulations (40 CFR part 75 
and 40 CFR part 98) under the provisions of the Paperwork Reduction 
Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060-
0626 and 2060-0629, respectively. There are no additional recordkeeping 
and reporting activities for this action that occur during the current 
reporting period covered by the existing ICR.

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic 
impact on a substantial number of small entities under the RFA. As 
previously discussed, the CEIP is an optional program that offers 
incentives for voluntary early actions involving RE and low-income 
energy efficiency. This action will not impose any requirements on 
small entities. Instead, this action proposes requirements that would 
need to be met by states in the event that states voluntarily opt into 
the CEIP under the Clean Power Plan. In the event of a federal plan, 
EPA continues to intend that it would implement the CEIP directly. Even 
where a state chooses to participate in the CEIP, small entities would 
not be subject to requirements except to the extent that they wish to 
voluntarily apply to receive early action ERCs or allowances, in which 
case certain conditions would apply.

D. Unfunded Mandates Reform Act (UMRA)

    This action does not contain any unfunded mandate as described in 
UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect 
small governments. The costs involved in this action are imposed only 
by voluntary participation in an optional program. UMRA generally 
excludes from the definition of ``federal intergovernmental mandate'' 
duties that arise from participation in a voluntary federal program.

E. Executive Order 13132: Federalism

    This proposed rule does not have federalism implications. The EPA 
believes, however, that this proposed rule may be of significant 
interest to state and local governments. Consistent with the EPA's 
policy to promote communications between the EPA and state and local 
governments, the EPA consulted with state and local officials early in 
the process of developing the Clean Power Plan EGs to permit them to 
have meaningful and timely input into its development.

F. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This action does not have tribal implications as specified in 
Executive Order 13175. There are no substantial costs imposed on 
tribes, and no actions taken that preempt tribal law. Thus, 
consultation under Executive Order 13175 is not required for this 
action.
    Consistent with the EPA Policy on Consultation and Coordination 
with Indian Tribes, the EPA consulted with tribal officials during the 
development of this action. The EPA invited all tribes to government-
to-government consultations and held consultations with the Forest 
County Potawatomi Indian Community, Navajo Nation, Ute Tribe of Uintah 
and Ouray Reservation, Blue Lake Rancheria and Gila River Indian 
Community. We also held technical and informational meetings with the 
Navajo Nation and the Ute Tribe of Uintah and Ouray Reservation. 
Additionally, the EPA held outreach and information workshops geared 
towards tribal audiences in Las Vegas, NV, Farmington, NM, and Tuba 
City, AZ.

G. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This action is not subject to 
Executive Order 13045 because it does not meet the definition in 
section 2-202.

H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use

    This action is not a ``significant energy action'' because it is 
not likely to have a significant adverse effect on the supply, 
distribution or use of energy. The CEIP was finalized in the final 
Clean Power Plan, and this action provides design details for the 
program. The design details do not incorporate any provisions that are 
expected to have any adverse energy impacts.

I. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    The EPA believes that this action will not have disproportionately 
high and adverse human health or environmental effects on minority 
populations, low-income populations, and/or indigenous peoples as 
specified in Executive Order 12898 (59 FR 7629; February 16, 1994) 
establishes federal executive policy on EJ. Its main provision directs 
federal agencies, to the greatest extent practicable and permitted by 
law, to make EJ part of their mission by identifying and addressing, as 
appropriate, disproportionately high and adverse human health or 
environmental effects of their programs, policies, and activities on 
minority populations and low-income populations in the United States. 
The EPA defines EJ as the fair treatment and meaningful involvement of 
all people regardless of race, color, national origin, or income with 
respect to the development, implementation, and enforcement of 
environmental laws, regulations, and policies.
    The EPA has conducted extensive outreach and engagement with EJ and 
tribal communities as we have developed this proposed rule. Section V 
of this preamble, titled Community and Environmental Justice 
Considerations, provides details on the outreach and engagement efforts 
conducted. The goal of these efforts was two-fold: First, the Agency 
sought to provide EJ and tribal communities with background information 
on the CEIP; and second, the Agency sought input from both groups on 
key provisions of the program.
    Whereas one priority of the CEIP is to overcome barriers to 
deployment of energy efficiency projects in low-income communities, 
thus, achieving emission reductions and providing compliance benefits 
to affected EGUs by providing these incentives in low-income 
communities, we believe that there will be considerable benefits 
provided to EJ and tribal communities. Our analysis indicates that by 
making the CEIP available to low-income populations, there is a 
significant segment of the population identified as minority, 
linguistically isolated, less than high school diploma, or under age 5 
or over age 64 (factors typically considered when assessing EJ 
concerns), that are also potentially eligible to benefit from the CEIP. 
The full EJ analysis conducted for this proposal is summarized in 
section V of this preamble and details can be found in the document,

[[Page 42971]]

Environmental Justice Consideration for the Clean Energy Incentive 
Program (CEIP) Design Details, located in the docket for this proposed 
rulemaking.

List of Subjects

40 CFR Part 60

    Environmental protection, Administrative practices and procedure, 
Air pollution control, Intergovernmental relations, Reporting and 
recordkeeping requirements.

40 CFR Part 62

    Environmental protection, Administrative practices and procedure, 
Air pollution control, Intergovernmental relations, Reporting and 
recordkeeping requirements.

    Dated: June 16, 2016.
Gina McCarthy,
Administrator.

    For the reasons stated in the preamble, title 40, chapter I, part 
60 of the Code of Federal Regulations is proposed to be amended and 
title 40, chapter I, part 62 of the Code of the Federal Regulations, as 
proposed to be amended at 80 FR 64966, October 23, 2015, is proposed to 
be further amended as follows:

PART 60--STANDARDS OF PERFORMANCE FOR NEW STATIONARY SOURCES

0
1. The authority citation for part 60 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
2. Section 60.5737 is revised to read as follows:

Sec.  60.5373  What is the Clean Energy Incentive Program and how do I 
participate?

    (a) This section establishes the Clean Energy Incentive Program 
(CEIP). Participation in this program is optional. Under the CEIP, 
States may allocate early action allowances or issue early action 
emission rate credits (ERCs) to projects in paragraphs (a)(1) and (2) 
of this section.
    (1) Early action allowances or ERCs may be issued to Eligible CEIP 
renewable energy (RE) projects that generate electricity during 
calendar years 2020 or 2021.
    (2) Early action allowances or ERCs may be issued to eligible CEIP 
low-income community projects that reduce electricity end-use or 
generate electricity and serve a low-income community during calendar 
years 2020 or 2021.
    (b) For the CEIP the matching pool of allowances and ERCs for each 
State is specified in Tables 5 and 6 of this subpart.
    (1) A State that participates in the CEIP, in accordance with the 
requirements of this section, will award on behalf of the EPA, matching 
allowances or ERCs, as applicable under its plan, from the State's 
apportioned matching allowances or ERCs specified in Tables 5 or 6 of 
subpart UUUU, as applicable.
    (2) Each State's apportionment in tables 5 and 6 of this subpart is 
divided into a reserve of matching allowances or ERCs that may be 
awarded to eligible CEIP RE projects, and a reserve that may be awarded 
to eligible CEIP low-income community projects. Matching allowances or 
ERCs in each reserve may be awarded by a State on behalf of the EPA 
only for the eligible CEIP project type specified for the reserve.
    (3) Any matching allowances or ERCs that are not awarded by January 
1, 2023 will be retired by the EPA.
    (c) If you participate in the CEIP, your plan must include the 
requirements in paragraphs (c)(1) through (10) of this section.
    (1) Requirements that define the CEIP projects that will be 
eligible under your State's CEIP and that meet the requirements 
included in paragraphs (d) and (e) of this section.
    (2) Requirements that restrict early action allowances to be 
allocated, or early action ERCs to be issued, only for electricity 
generation or savings achieved by eligible CEIP projects on or after 
January 1, 2020, and no later than December 31, 2021.
    (3) Requirements for the process for the allocation of early action 
allowances, or the issuance of early action ERCs, to eligible CEIP 
projects that meet the requirements of Sec.  60.5805 for ERC eligible 
resources.
    (4) Requirements for a tracking system that meets the requirements 
of Sec.  60.5810 in the case of a rate-based plan or Sec.  60.5820 in 
the case of a mass-based plan.
    (5) Requirements for EM&V plans that meet the requirements of Sec.  
60.5830.
    (6) Requirements for monitoring and verification (M&V) reports that 
meet the requirements of Sec.  60.5835.
    (7) A mechanism that ensures that the issuance of early action 
allowances or ERCs would have no impact on the emission performance by 
affected EGUs required to meet rate-based or mass-based emission 
standards during the interim and final performance periods. Where a 
state issues early action ERCs, the mechanism must account for the 
issued early action ERCs on a one-for-one basis during the first step 
of the interim period.
    (8) The definition(s) of ``low-income community'' you will apply to 
determine eligibility of CEIP low-income community projects. You must 
select a definition(s) that exists under a federal law, or under a 
state or local law in your state, or under a utility-administered 
program in your state, as of October 23, 2015. Routine updates of 
underlying federal, state or local data do not constitute a new 
definition for the purposes of this section.
    (i) You may select different definitions for low-income community 
eligibility that consider geographic scale and/or different types of 
projects, but you must apply the selected definitions consistently 
across the State.
    (ii) [Reserved]
    (9) Requirements for recordkeeping and reporting that are 
consistent with the applicable requirements in Sec.  60.5860(c) and 
(d). Where requirements at Sec.  60.5860(c) refer to ERCs, such 
requirements must also apply, as applicable under your plan, to early 
action ERCs, matching ERCs, early action allowances, and matching 
allowances under the CEIP. Where requirements in Sec.  60.5860(d) refer 
to ERCs or allowances, such requirements must also apply, as applicable 
under your plan, to early action ERCs, matching ERCs, early action 
allowances, and matching allowances under the CEIP.
    (10) Your plan must not prohibit an eligible CEIP project from 
receiving early action ERCs or allowances on the basis that the project 
is located in Indian country.
    (d) An RE project must meet the requirements in paragraphs (d)(1) 
through (4) of this section to be considered an eligible CEIP RE 
project.
    (1) The project must be connected to and deliver energy to the 
electric grid in the contiguous United States.
    (2) The project must either:
    (i) Be located in a State participating in the CEIP, including 
Indian country within the borders of a State participating in the CEIP; 
or
    (ii) Benefit a State participating in the CEIP or Indian country 
within the borders of a State participating in the CEIP.
    (3) The project must commence commercial operation on or after 
January 1, 2020.
    (4) The project must generate electricity from a wind, solar, 
geothermal, or hydropower RE resources, measured in MWh consistent with 
the requirements of 60.5830(c)(1).
    (e) A low-income community demand-side EE project must meet the 
requirements of paragraphs (e)(1) through (5) of this section to be

[[Page 42972]]

considered an eligible CEIP low-income community project. A low-income 
community renewable energy project must meet the requirements of 
paragraphs (e)(2) and (e)(5) through (8) of this section to be 
considered an eligible CEIP low-income community project.
    (1) The project must save electricity in residences or buildings 
that are connected to the electric grid in the contiguous United 
States.
    (2) The project must either:
    (i) Be located in a State participating in the CEIP, including 
Indian country within the borders of a State participating in the CEIP; 
or
    (ii) Benefit a State or Indian country within the borders of a 
State participating in the CEIP.
    (3) The project must commence operation on or after September 6, 
2018.
    (4) The project must save electricity measured in MWh consistent 
with the requirements of Sec.  60.5830(c)(2).
    (5) The project must be implemented in a ``low-income community'' 
as defined in your plan for purposes of the CEIP and consistent with 
the requirements in paragraph (c)(8) of this section.
    (6) The project must be connected to and deliver energy to the 
electric grid in the contiguous United States.
    (7) The project must commence commercial operation on or after 
January 1, 2020.
    (8) The project is a solar RE resource and is implemented to serve 
a low-income community, by providing direct electricity bill benefits 
to low-income community ratepayers. Such a project would be eligible 
for an award from the low-income community reserve of the matching pool 
for the energy generation that exclusively benefits low-income 
ratepayers, measured in MWh consistent with the requirements of Sec.  
60.5830(c)(1).
    (f) Upon the EPA's approval of your plan that includes approved 
CEIP provisions, or upon promulgation of a federal plan for your State 
that includes the CEIP, the EPA will deposit your apportioned matching 
allowances or ERCs, as listed in tables 5 and 6 of subpart UUUU, into 
an account within your EPA-approved or EPA-administered tracking 
system. Following your allocation or issuance of early action 
allowances or ERCs to an eligible CEIP project provider, you must then 
award to the project provider matching allowances or ERCs on behalf of 
the EPA, according to paragraphs (f)(1) through (3) of this section.
    (1) You must award matching allowances or ERCs on behalf of the EPA 
from your account no sooner than 60 days following State allocation or 
issuance of early action allowances or ERCs to a project provider.
    (2) The EPA retains the authority to obtain documentation from you 
at any time to determine that your allocation of early action 
allowances or issuance of early action ERCs is in accordance with the 
requirements of this section.
    (3) The EPA retains the authority to place a hold on your account, 
preventing the award of matching allowances or ERCs to an eligible CEIP 
project provider, if the EPA believes that you did not allocate early 
action allowances or issue early action ERCs in accordance with the 
requirements of this section.
    (g) You must allocate early action allowances or issue early action 
ERCs, and you must award matching allowances or award matching ERCs on 
behalf of the EPA, according to paragraphs (g)(1) and (2) of this 
section.
    (1) Allocation of early action allowances and award of matching 
allowances, is based on a 0.8 short ton of CO2 per MWh 
factor, such that:
    (i) For eligible CEIP RE projects, you must calculate early action 
allowances and matching allowances to be allocated and awarded to the 
project provider according to the following equations:
[GRAPHIC] [TIFF OMITTED] TP30JN16.016

Where:

Early Action Allowances = Allowances, denominated in short tons, 
allocated by the State rounded down to the nearest whole integer.
Matching Allowances = Allowances, denominated in short tons, awarded 
by the EPA rounded down to the nearest whole integer.
MWh generated = MWh generated by the eligible CEIP RE project.

    (ii) For eligible CEIP low-income community projects, you must 
calculate early action allowances and matching allowances to be 
allocated and awarded to the project provider according to the 
following equations:
[GRAPHIC] [TIFF OMITTED] TP30JN16.017

Where:

Early Action Allowances = Allowances, denominated in short tons, 
allocated by the State rounded down to the nearest whole integer.
Matching Allowances = Allowances, denominated in short tons, awarded 
by the EPA rounded down to the nearest whole integer.
MWh saved or generated = MWh saved or generated by the eligible CEIP 
low-income project.

    (2) Early action and matching ERCs will be issued and awarded such 
that:
    (i) For every two MWh of electricity generated by an eligible CEIP 
RE project, you must issue one early action ERC to the project 
provider, and award on behalf of the EPA one matching ERC to the 
project provider.

[[Page 42973]]

    (ii) For every two MWh in end-use electricity savings achieved by 
an eligible CEIP low-income community project, you must issue two early 
action ERCs to the project provider, and award on behalf of the EPA two 
matching ERCs to the project provider.
    (3) A State may only allocate early action allowances from its 
established emission budget for the 2022-2024 interim step period.
    (4) When awarding matching allowances or ERCs on behalf of the EPA, 
a State must assign a vintage for each awarded matching allowance or 
ERC that corresponds to the vintage of the related early action 
allowance or ERC on the basis of which the matching allowance or ERC 
was awarded.
    (5) A State may only allocate or issue early action allowances or 
ERCs to eligible CEIP projects in a total amount not to exceed the 
number of matching allowances or ERCs apportioned to the State in 
Tables 5 or 6 of this subpart.

Sec.  60.5800  [Amended]

0
3. Amend Sec.  60.5800, paragraph (a) introductory text, by removing 
the text ``ERCs'' and adding the words ``Except as provided in Sec.  
60.5737, ERCs'' in its place.

Sec.  60.5815  [Amended]

0
4. Amend Sec.  60.5815 by removing and reserving paragraph (c).
0
5. Amend Sec.  60.5860 by revising paragraphs (d) introductory text and 
(d)(6) to read as follows:

Sec.  60.5860  What applicable monitoring, recordkeeping, and reporting 
requirements do I need to include in my plan for affected EGUs?

* * * * *
    (d) Your plan must require the owner or operator of an affected EGU 
covered by your plan to include in a report submitted to you at the end 
of each compliance period the information in paragraphs (d)(1) through 
(6) of this section.
     * * *
    (6) If the owner or operator of an affected EGU is complying with 
an emission standard by using allowances, they must include in the 
report a list of all unique allowance serial numbers that were retired 
in the compliance period, and, for each allowance, the date an 
allowance was surrendered and retired.
* * * * *
0
6. Amend Sec.  60.5865 by adding paragraph (e) to read as follows:

Sec.  60.5865  What are my recordkeeping requirements?

* * * * *
    (e) If your plan includes the CEIP, you must keep records of all 
information relied upon in support of any demonstration of CEIP 
requirements and supporting documentation, including records of all 
data submitted by a CEIP project provider, and submitted by the owner 
or operator of each affected EGU, that is used to determine compliance 
with each affected EGU emission standard or requirements in an approved 
State plan, consistent with the affected EGU requirements listed in 
Sec.  60.5860. You must keep such records at a minimum for 10 years 
from the date the record is submitted to you. Each record must be in a 
form suitable and readily available for expeditious review.
0
7. Amend Sec.  60.5870 by revising paragraph (a) and adding paragraph 
(h) to read as follows:

Sec.  60.5870  What are my reporting and notification requirements?

    (a) In lieu of the annual report required under Sec.  60.25(e) and 
(f) of this part, you must report the information in paragraphs (b) 
through (f) and, if your plan includes the CEIP, (i) of this section.
* * * * *
    (h) If your plan includes the CEIP, you must submit a report that 
includes the following information due no later than July 1, 2023: A 
list of all unique early action emission rate credit or early action 
allowance serial numbers that were issued or allocated by you for MWh 
from eligible CEIP projects from January 1, 2020 through December 31, 
2021 (including all matching emission rate credit or allowance serial 
numbers) and identification information about each CEIP project 
sufficient to demonstrate that it is qualified to be issued or 
allocated such early action emission rate credits or early action 
allowances, and any other information specified in your plan.
0
8. Section 60.5880 is amended by adding, in alphabetical order, the 
definitions for ``Benefit a state'', ``Commence operation'', ``Commence 
commercial operation'', ``Early action allowance'', ``Early action 
emission rate credit or early action ERC'', ``Eligible CEIP project'', 
``Eligible CEIP low-income community project'', ``Eligible CEIP 
renewable energy (RE) project'', ``Matching allowance'', and ``Matching 
emission rate credit or matching ERC'' to read as follows:

Sec.  60.5880  What definitions apply to this subpart?

* * * * *
    Benefit a state, for purposes of the CEIP, means that electricity 
is generated or saved by an eligible CEIP project with the intention to 
meet or reduce electricity demand in the CEIP participating State or 
Indian country located within the borders of the CEIP participating 
State.
* * * * *
    Commence operation means, for the purposes of the CEIP, the date 
that a demand-side EE project is delivering quantifiable and verifiable 
electricity savings.
    Commence commercial operation means, for the purposes of the CEIP, 
the date that a RE project begins to generate electricity for sale, 
including the sale of test generation, or to generate electricity that 
receives financial credit through net metering or equivalent policies.
* * * * *
    Early action allowance means an allowance allocated by a state 
under the CEIP, in accordance with Sec.  60.5737(c) through (e) and 
(g).
    Early action emission rate credit or early action ERC means a 
tradable compliance instrument that meets the requirements of Sec.  
60.5790(c), except that, instead of meeting the requirements of Sec.  
60.5790(c)(2)(iii), it meets the requirements of Sec.  60.5737(d) or 
(e) and is issued by a State or its agent through an EPA-approved ERC 
tracking system that meets the requirements of Sec.  60.5790, or by the 
EPA through an EPA-administered tracking system.
    Eligible CEIP project means a project that meets the requirements 
of Sec.  60.5737(d) or (e). A ``project,'' for purposes of the CEIP, 
may include a program that aggregates multiple projects.
    Eligible CEIP low-income community project means a project that 
meets the requirements of Sec.  60.5737(e). A ``project,'' for purposes 
of the CEIP, may include a program that aggregates multiple projects.
    Eligible CEIP renewable energy (RE) project means a project that 
meets the requirements of Sec.  60.5737(d). A ``project,'' for purposes 
of the CEIP, may include a program that aggregates multiple projects.
* * * * *
    Matching allowance means an allowance awarded by the EPA, or by a 
State on behalf of the EPA, in accordance with 60.5737(f) through (g), 
based on the state allocation of an early action allowance under the 
CEIP.
    Matching emission rate credit or matching ERC means an ERC awarded 
by the EPA, or by a State on behalf of the EPA, in accordance with 
Sec.  60.5737(f) through (g), based on the state issuance of an early 
action ERC under the CEIP.
* * * * *

[[Page 42974]]

0
9. Add Tables 5 and 6 to Subpart UUUU of part 60 to read as follows:

                        Table 5 to Subpart UUUU of Part 60--State Shares of Matching Pool
                                                  [Allowances]
----------------------------------------------------------------------------------------------------------------
                                                                  Available matching allowances (mass-based plan
                                                                                      states)
                                                                 -----------------------------------------------
                           State/tribe                               Renewable      Low-income
                                                                  energy reserve     community      Total share
                                                                       (50%)       reserve (50%)      (100%)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................       4,683,458       4,683,458       9,366,916
Arizona.........................................................       2,579,426       2,579,426       5,158,852
Arkansas........................................................       3,280,844       3,280,844       6,561,688
California......................................................         328,268         328,268         656,536
Colorado........................................................       3,334,788       3,334,788       6,669,576
Connecticut.....................................................         104,122         104,122         208,244
Delaware........................................................         207,588         207,588         415,176
Florida.........................................................       4,845,372       4,845,372       9,690,744
Georgia.........................................................       4,133,434       4,133,434       8,266,868
Idaho...........................................................          22,392          22,392          44,784
Illinois........................................................       8,953,081       8,953,081      17,906,162
Indiana.........................................................       8,631,114       8,631,114      17,262,228
Iowa............................................................       3,286,774       3,286,774       6,573,548
Kansas..........................................................       3,173,445       3,173,445       6,346,890
Kentucky........................................................       7,429,292       7,429,292      14,858,584
Lands of the Fort Mojave Tribe..................................           8,827           8,827          17,654
Lands of the Navajo Nation......................................       2,434,598       2,434,598       4,869,196
Lands of the Uintah and Ouray Reservation.......................         263,264         263,264         526,528
Louisiana.......................................................       2,246,141       2,246,141       4,492,282
Maine...........................................................          31,109          31,109          62,218
Maryland........................................................       1,459,162       1,459,162       2,918,324
Massachusetts...................................................         255,705         255,705         511,410
Michigan........................................................       5,591,791       5,591,791      11,183,582
Minnesota.......................................................       3,004,354       3,004,354       6,008,708
Mississippi.....................................................         535,959         535,959       1,071,918
Missouri........................................................       5,656,983       5,656,983      11,313,966
Montana.........................................................       1,965,515       1,965,515       3,931,030
Nebraska........................................................       2,222,542       2,222,542       4,445,084
Nevada..........................................................         504,431         504,431       1,008,862
New Hampshire...................................................         161,696         161,696         323,392
New Jersey......................................................         669,007         669,007       1,338,014
New Mexico......................................................       1,234,572       1,234,572       2,469,144
New York........................................................         836,656         836,656       1,673,312
North Carolina..................................................       4,011,884       4,011,884       8,023,768
North Dakota....................................................       3,225,953       3,225,953       6,451,906
Ohio............................................................       7,182,558       7,182,558      14,365,116
Oklahoma........................................................       3,100,508       3,100,508       6,201,016
Oregon..........................................................         231,529         231,529         463,058
Pennsylvania....................................................       7,559,018       7,559,018      15,118,036
Rhode Island....................................................          53,511          53,511         107,022
South Carolina..................................................       2,479,202       2,479,202       4,958,404
South Dakota....................................................         396,310         396,310         792,620
Tennessee.......................................................       3,267,125       3,267,125       6,534,250
Texas...........................................................      15,600,288      15,600,288      31,200,576
Utah............................................................       2,101,783       2,101,783       4,203,566
Virginia........................................................       2,079,819       2,079,819       4,159,638
Washington......................................................       1,127,151       1,127,151       2,254,302
West Virginia...................................................       5,260,335       5,260,335      10,520,670
Wisconsin.......................................................       3,590,805       3,590,805       7,181,610
Wyoming.........................................................       4,656,486       4,656,486       9,312,972
                                                                 -----------------------------------------------
    Total.......................................................     149,999,975     149,999,975     299,999,950
----------------------------------------------------------------------------------------------------------------

[[Page 42975]]

                        Table 6 to Subpart UUUU of Part 60--State Shares of Matching Pool
                                             [Emission rate credits]
----------------------------------------------------------------------------------------------------------------
                                                                     Available matching ERCs (rate-based plan
                                                                                      states)
                                                                 -----------------------------------------------
                           State/tribe                               Renewable      Low-income
                                                                  energy reserve     community      Total share
                                                                       (50%)       reserve (50%)      (100%)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................       5,854,323       5,854,323      11,708,646
Arizona.........................................................       3,224,283       3,224,283       6,448,566
Arkansas........................................................       4,101,055       4,101,055       8,202,110
California......................................................         410,335         410,335         820,670
Colorado........................................................       4,168,485       4,168,485       8,336,970
Connecticut.....................................................         130,153         130,153         260,306
Delaware........................................................         259,485         259,485         518,970
Florida.........................................................       6,056,715       6,056,715      12,113,430
Georgia.........................................................       5,166,792       5,166,792      10,333,584
Idaho...........................................................          27,991          27,991          55,982
Illinois........................................................      11,191,352      11,191,352      22,382,704
Indiana.........................................................      10,788,892      10,788,892      21,577,784
Iowa............................................................       4,108,467       4,108,467       8,216,934
Kansas..........................................................       3,966,806       3,966,806       7,933,612
Kentucky........................................................       9,286,616       9,286,616      18,573,232
Lands of the Fort Mojave Tribe..................................          11,034          11,034          22,068
Lands of the Navajo Nation......................................       3,043,247       3,043,247       6,086,494
Lands of the Uintah and Ouray Reservation.......................         329,080         329,080         658,160
Louisiana.......................................................       2,807,677       2,807,677       5,615,354
Maine...........................................................          38,886          38,886          77,772
Maryland........................................................       1,823,952       1,823,952       3,647,904
Massachusetts...................................................         319,632         319,632         639,264
Michigan........................................................       6,989,739       6,989,739      13,979,478
Minnesota.......................................................       3,755,443       3,755,443       7,510,886
Mississippi.....................................................         669,949         669,949       1,339,898
Missouri........................................................       7,071,229       7,071,229      14,142,458
Montana.........................................................       2,456,894       2,456,894       4,913,788
Nebraska........................................................       2,778,178       2,778,178       5,556,356
Nevada..........................................................         630,539         630,539       1,261,078
New Hampshire...................................................         202,121         202,121         404,242
New Jersey......................................................         836,258         836,258       1,672,516
New Mexico......................................................       1,543,216       1,543,216       3,086,432
New York........................................................       1,045,820       1,045,820       2,091,640
North Carolina..................................................       5,014,855       5,014,855      10,029,710
North Dakota....................................................       4,032,441       4,032,441       8,064,882
Ohio............................................................       8,978,197       8,978,197      17,956,394
Oklahoma........................................................       3,875,635       3,875,635       7,751,270
Oregon..........................................................         289,411         289,411         578,822
Pennsylvania....................................................       9,448,773       9,448,773      18,897,546
Rhode Island....................................................          66,889          66,889         133,778
South Carolina..................................................       3,099,003       3,099,003       6,198,006
South Dakota....................................................         495,387         495,387         990,774
Tennessee.......................................................       4,083,907       4,083,907       8,167,814
Texas...........................................................      19,500,360      19,500,360      39,000,720
Utah............................................................       2,627,229       2,627,229       5,254,458
Virginia........................................................       2,599,773       2,599,773       5,199,546
Washington......................................................       1,408,939       1,408,939       2,817,878
West Virginia...................................................       6,575,419       6,575,419      13,150,838
Wisconsin.......................................................       4,488,506       4,488,506       8,977,012
Wyoming.........................................................       5,820,607       5,820,607      11,641,214
                                                                 -----------------------------------------------
    Total.......................................................     187,499,975     187,499,975     374,999,950
----------------------------------------------------------------------------------------------------------------

PART 62--APPROVAL AND PROMULGATION OF STATE PLANS FOR DESIGNATED 
FACILITIES AND POLLUTANTS

0
10. The authority citation for part 62 continues to read as follows:

    Authority:  42 U.S.C. 7401 et seq.

Subpart MMM--Greenhouse Gas Emissions Mass-Based Model Trading Rule 
for Electric Utility Generating Units That Commenced Construction 
on or Before January 8, 2014

0
11. Revise Sec.  62.16231, as proposed to be added at 80 FR 65062 
(October 23, 2015), to read as follows:

Sec.  62.16231  How will the optional Clean Energy Incentive Program be 
administered?

    (a) The CEIP will be administered according to the procedures in 
this section and those sections hereby cross-referenced in this section 
if the State elects to participate in the CEIP program. If the State 
does not elect to participate in the CEIP, the provisions

[[Page 42976]]

included in this section and those sections hereby cross-referenced in 
this section, solely with respect to implementation of a CEIP program, 
shall not apply.
    (b) The State will allocate early action allowances for electricity 
generation or savings achieved in the calendar years 2020 or 2021 to 
eligible CEIP projects that meet the requirements of Sec.  62.16245 
(c)(2) to be classified as an eligible CEIP RE project or eligible CEIP 
demand-side EE project.
    (c) The State will allocate early action allowances to eligible 
CEIP projects up to the amounts specified for the Renewable Energy 
Reserve and the Low-Income Community Reserve, respectively, for the 
State in Table 4 of this subpart and pursuant to the requirements set 
forth in Sec.  62.16235(e).
    (d) The State will award matching allowances on behalf of the EPA 
from the State's account of matching allowances. Matching allowance 
awards will be made according to the ratio set forth in paragraph (e) 
of this section, and in an amount up to the amounts specified for the 
Renewable Energy Reserve and Low-Income Community Reserve, 
respectively, for the State as established in Table 5 of subpart UUUU 
of Part 60 of this chapter.
    (e) The State will allocate early action allowances and award 
matching allowances on behalf of the EPA as follows. Allocation of 
early action allowances and award of matching allowances, is based on a 
0.8 short ton of CO2 per MWh factor, such that:
    (1) For eligible CEIP RE projects, early action allowances and 
matching allowances to be allocated and awarded to the project provider 
will be calculated according to the following equations:
[GRAPHIC] [TIFF OMITTED] TP30JN16.018

Where:

Early Action Allowances = Allowances, denominated in short tons, 
allocated by the state rounded down to the nearest whole integer.
Matching Allowances = Allowances, denominated in short tons, awarded 
by the state on behalf of the EPA, rounded down to the nearest whole 
integer.
MWh generated = MWh generated by the eligible CEIP RE project.

    (2) For eligible CEIP low-income community projects, the State will 
calculate early action allowances and matching allowances to be 
allocated and awarded to the project provider according to the 
following equations:
[GRAPHIC] [TIFF OMITTED] TP30JN16.019

Where:

Early Action Allowances = Allowances, denominated in short tons, 
allocated by the State rounded down to the nearest whole integer.
Matching Allowances = Allowances, denominated in short tons, awarded 
by the State on behalf of the EPA, rounded down to the nearest whole 
integer.
MWh saved or generated = MWh saved or generated by the CEIP low-
income community project.

0
12. Revise Sec.  62.16235 paragraph (e) and Table 4, as proposed to be 
added at 80 FR 65063 (October 23, 2015), to read as follows:

Sec.  62.16235  What are the statewide mass-based emission goals, 
renewable energy set-asides, output-based set-asides, and Clean Energy 
Incentive Program early action set-asides?

* * * * *
    (e) The state will set aside a portion of allowances for a Clean 
Energy Incentive Program Set-Aside covered under this subpart. The 
Clean Energy Incentive Program Set-Aside will contain the amount of 
allowances for the state shown in Table 4 of this section. Such amount 
will be reserved from the state's total emission budget for the first 
compliance period (2022-2024) as established in Table 1 of this 
subpart.

                  Table 4 to Subpart MMMM of Part 62--Clean Energy Incentive Program Set-Aside
                                                  [Allowances]
----------------------------------------------------------------------------------------------------------------
                                                                      CEIP set-aside (mass-based plan states)
                                                                 -----------------------------------------------
                           State/tribe                               Renewable      Low-income
                                                                  energy reserve     community      Total set-
                                                                       (50%)       reserve (50%)   aside (100%)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................       4,683,458       4,683,458       9,366,916
Arizona.........................................................       2,579,426       2,579,426       5,158,852
Arkansas........................................................       3,280,844       3,280,844       6,561,688
California......................................................         328,268         328,268         656,536

[[Page 42977]]

 
Colorado........................................................       3,334,788       3,334,788       6,669,576
Connecticut.....................................................         104,122         104,122         208,244
Delaware........................................................         207,588         207,588         415,176
Florida.........................................................       4,845,372       4,845,372       9,690,744
Georgia.........................................................       4,133,434       4,133,434       8,266,868
Idaho...........................................................          22,392          22,392          44,784
Illinois........................................................       8,953,081       8,953,081      17,906,162
Indiana.........................................................       8,631,114       8,631,114      17,262,228
Iowa............................................................       3,286,774       3,286,774       6,573,548
Kansas..........................................................       3,173,445       3,173,445       6,346,890
Kentucky........................................................       7,429,292       7,429,292      14,858,584
Lands of the Fort Mojave Tribe..................................           8,827           8,827          17,654
Lands of the Navajo Nation......................................       2,434,598       2,434,598       4,869,196
Lands of the Uintah and Ouray Reservation.......................         263,264         263,264         526,528
Louisiana.......................................................       2,246,141       2,246,141       4,492,282
Maine...........................................................          31,109          31,109          62,218
Maryland........................................................       1,459,162       1,459,162       2,918,324
Massachusetts...................................................         255,705         255,705         511,410
Michigan........................................................       5,591,791       5,591,791      11,183,582
Minnesota.......................................................       3,004,354       3,004,354       6,008,708
Mississippi.....................................................         535,959         535,959       1,071,918
Missouri........................................................       5,656,983       5,656,983      11,313,966
Montana.........................................................       1,965,515       1,965,515       3,931,030
Nebraska........................................................       2,222,542       2,222,542       4,445,084
Nevada..........................................................         504,431         504,431       1,008,862
New Hampshire...................................................         161,696         161,696         323,392
New Jersey......................................................         669,007         669,007       1,338,014
New Mexico......................................................       1,234,572       1,234,572       2,469,144
New York........................................................         836,656         836,656       1,673,312
North Carolina..................................................       4,011,884       4,011,884       8,023,768
North Dakota....................................................       3,225,953       3,225,953       6,451,906
Ohio............................................................       7,182,558       7,182,558      14,365,116
Oklahoma........................................................       3,100,508       3,100,508       6,201,016
Oregon..........................................................         231,529         231,529         463,058
Pennsylvania....................................................       7,559,018       7,559,018      15,118,036
Rhode Island....................................................          53,511          53,511         107,022
South Carolina..................................................       2,479,202       2,479,202       4,958,404
South Dakota....................................................         396,310         396,310         792,620
Tennessee.......................................................       3,267,125       3,267,125       6,534,250
Texas...........................................................      15,600,288      15,600,288      31,200,576
Utah............................................................       2,101,783       2,101,783       4,203,566
Virginia........................................................       2,079,819       2,079,819       4,159,638
Washington......................................................       1,127,151       1,127,151       2,254,302
West Virginia...................................................       5,260,335       5,260,335      10,520,670
Wisconsin.......................................................       3,590,805       3,590,805       7,181,610
Wyoming.........................................................       4,656,486       4,656,486       9,312,972
                                                                 -----------------------------------------------
    Total.......................................................     149,999,975     149,999,975     299,999,950
----------------------------------------------------------------------------------------------------------------

0
13. Amend Sec.  62.16240 as proposed to be added at 80 FR 65067 
(October 23, 2015), by adding paragraph (b)(3) to read as follows:

Sec.  62.16240  When are allowances allocated?

* * * * *
    (b) * * *
    (3) Clean Energy Incentive Program set-aside. By October 15, 2021 
and October 15, 2022, the state will allocate allowances from the Clean 
Energy Incentive Program set-aside, based on quantified and verified 
MWh that occurred during the preceding calendar year, and will 
subsequently award matching allowances according to Sec.  
62.16245(c)(5).
* * * * *
0
14. Amend Sec.  62.16245 as proposed to be added at 80 FR 65068 
(October 23, 2015), by adding paragraph (c) to read as follows:

Sec.  62.16245  How are set-aside allowances allocated?

* * * * *
    (c)(1) Clean Energy Incentive Program. The State will establish a 
Clean Energy Incentive Program set-aside as set forth in Sec.  
62.16235(e), and allocate CO2 allowances from the set-aside 
as outlined in this section.
    (2) Eligible CEIP projects. To be eligible to receive allowances 
from the Clean Energy Incentive Program set-aside, and related EPA 
matching

[[Page 42978]]

allowances, an eligible CEIP project must meet the requirements in 
paragraphs (c)(2)(i) of this section for an eligible CEIP RE project 
and (c)(2)(ii) of this section for an eligible CEIP low-income 
community project. Any project that does not meet the applicable 
requirements of paragraphs (c)(2)(i) or (ii) of this section cannot 
receive allowances from the Clean Energy Incentive Program set-aside 
and related EPA matching allowances.
    (i) An eligible CEIP RE project is a project that meets the 
requirements of paragraphs (c)(2)(i)(A) through (D) of this section.
    (A) The project must be connected to and deliver energy to the 
electric grid in the contiguous United States.
    (B) The project must either:
    (1) Be located in a state participating in the CEIP, including 
Indian country within the borders of a State participating in the CEIP; 
or
    (2) Benefit a state participating in the CEIP or Indian country 
within a state participating in the CEIP.
    (C) The project must commence commercial operation on or after 
January 1, 2020.
    (D) The project must generate electricity from a wind, solar, 
geothermal, or hydropower RE resources, measured in MWh consistent with 
the requirements of Sec.  62.16260(c)(1) or (2) as applicable.
    (ii) A low-income community demand-side EE project must meet the 
requirements of paragraphs (c)(2)(ii)(A) through (E) of this section to 
be considered an eligible CEIP low-income community project. A low-
income community renewable energy project must meet the requirements of 
paragraphs (c)(2)(ii)(B) and (c)(2)(ii)(E) through (H) of this section 
to be considered an eligible CEIP low-income community project.
    (A) The project must save electricity in residences or buildings 
that are connected to the electric grid in the contiguous United 
States.
    (B) The project must either:
    (1) Be located in a state participating in the CEIP, including 
Indian country within the borders of a state participating in the CEIP; 
or
    (2) Benefit a state participating in the CEIP or Indian country 
within a state participating in the CEIP.
    (C) The project must commence operation on or after September 6, 
2018.
    (D) The project must save electricity measured in MWh consistent 
with the requirements of Sec.  62.16260(c)(7).
    (E) The project must be implemented in a ``low-income community'' 
as defined under paragraph (c)(2)(iii) of this section.
    (F) The project must be connected to and deliver energy to the 
electric grid in the contiguous United States.
    (G) The project must commence commercial operation on or after 
January 1, 2020.
    (H) The project is a solar RE resource and is implemented to serve 
a low-income community, by providing direct electricity bill benefits 
to low-income community ratepayers. Such a project would be eligible 
for an award from the low-income community reserve of the matching pool 
for the energy generation that exclusively benefits low-income 
ratepayers, measured in MWh consistent with the requirements of Sec.  
60.5830(c)(1) of this chapter.
    (iii) For an eligible CEIP low-income community project, the 
project eligibility application must identify which one of the 
following definitions is used to establish the ``low-income community'' 
that the project will serve:
    (A) The definition of low-income used by the New Market Tax Credit 
Program;
    (B) The definition of low-income used by the Department of Housing 
and Urban Development's Qualified Census Tracts;
    (C) The definition of low-income used by the Department of Energy's 
Weatherization Assistance Program Income Guidelines; or
    (D) The definition of low-income used by the Federal Poverty Level 
Guidelines.
    (3) General account requirements. In order to receive an allocation 
of allowances from the Clean Energy Incentive Program set-aside, the 
project provider must establish a general account in the tracking 
system as provided in Sec.  62.16320(c).
    (4) Allocation of set-aside allowances. The process and 
requirements for allocation of CEIP set-aside allowances, and the 
related award of EPA matching allowances are set forth in paragraphs 
(c)(4)(i) through (ii) of this section.
    (i) Eligibility application. To receive set-aside allowances, and 
the related award of EPA matching allowances, the authorized account 
representative of an eligible CEIP project must submit an eligibility 
application to the state that demonstrates that the requirements of 
paragraph (c)(2) of this section are met and includes the following 
information:
    (A) Identification of the authorized account representative of the 
eligible CEIP project, including the authorized account 
representative's name, address, email address, telephone number, and 
allowance tracking system account number;
    (B) Project identification information under paragraph (a)(3)(i)(B) 
of this section, to the extent applicable, and information 
demonstrating that the project meets the criteria of paragraph (c)(2) 
of this section, and paragraph (a)(2)(v) of this section;
    (C) Certification required under paragraph (a)(3)(ii)(C) of this 
section;
    (D) An EM&V plan required under paragraph (a)(3)(ii)(D) of this 
section that meets the requirements of Sec.  62.16260;
    (E) Verification report from an accredited independent verifier who 
meets the requirements of Sec.  62.16275 and Sec.  62.16280 and that 
meets the requirements of paragraph (a)(3)(ii)(E) of this section and 
Sec.  62.16270.
    (F) The authorization under paragraph (a)(3)(ii)(F) of this 
section;
    (G) The statement required under paragraph (a)(3)(ii)(G) of this 
section.
    (ii) Monitoring and Verification Report. To receive set-aside 
allowances, and the related award of EPA matching allowances, following 
the year in which the electricity generation or savings occurred, the 
authorized account representative must submit to the state the 
monitoring and verification information required under paragraph (a)(4) 
of this section that meets the requirements of Sec.  62.16265. A 
monitoring and verification report must be submitted to the state by no 
later than September 15 of the applicable calendar year.
    (5) Allocation of Clean Energy Incentive Program allowances. Upon 
the state's approval of the monitoring and verification information 
submitted for an eligible CEIP project, the State will transfer 
allowances from the CEIP set-aside into the general account for the 
authorized account representative of the eligible CEIP project. 
Allowances will only be allocated from the CEIP set-aside based on 
quantified and verified electricity generation or savings from an 
eligible CEIP project that occurred on or after January 1, 2020, and no 
later than December 31, 2021. No earlier than 60 days from the date of 
the allocation of allowances from the CEIP set-aside, the state will 
award matching allowances on behalf of the EPA. The state will transfer 
matching allowances from the state's account of matching allowances 
into the general account for the authorized account representative of 
the eligible CEIP project, in accordance with Sec.  62.16231(e). 
Matching allowances awarded will be assigned the same allowance vintage 
as the related early action allowances that were allocated by the 
state. Early action allowances will not be allocated, and matching 
allowances will not be awarded, on the basis of a monitoring and 
verification report submitted after September 15, 2022. Any matching 
allowances that are

[[Page 42979]]

not awarded by January 1, 2023, will be retired by the state on behalf 
of the EPA.
    (6) Revocation of qualification status of an eligible CEIP project. 
The process for revocation of qualification status under Sec.  62.16250 
applies to eligible CEIP projects.
    (7) Error adjustments or misstatements, and suspension of allowance 
issuance. The process for error adjustments or misstatement, and 
suspension of allowance issuance under Sec.  62.16255 applies to 
eligible CEIP projects.
    (8) Recordkeeping and Reporting Requirements. The reporting and 
recordkeeping requirements for the owner or operator of an affected EGU 
under Sec.  62.16360(a)(1)(vi) and 62.16365(a)(2)(iv), respectively, 
that apply to the use for compliance of set-aside allowances also apply 
to allowances that were allocated from the Clean Energy Incentive 
Program set-aside and the related matching allowances that were awarded 
by the State on behalf of the EPA.
0
15. Amend Sec.  62.16375, as proposed to be added at 80 FR 65085 
(October 23, 2015), by adding, in alphabetical order, the definitions 
for ``Benefit a state'', ``Commence operation'', ``Commence commercial 
operation'', ``Early action allowance'', ``Eligible CEIP project'', 
``Eligible CEIP low-income community project'', ``Eligible CEIP 
renewable energy (RE) project'', and ``Matching allowance'' to read as 
follows:

Sec.  62.16375  What definitions apply to this subpart?

* * * * *
    Benefit a state, for purposes of the CEIP, has the same meaning as 
defined in subpart UUUU of part 60 of this chapter.
* * * * *
    Commence operation, for purposes of the CEIP, has the same meaning 
as defined in subpart UUUU of part 60 of this chapter.
    Commence commercial operation, for purposes of the CEIP, has the 
same meaning as defined in subpart UUUU of part 60 of this chapter.
* * * * *
    Early action allowance has the same meaning as defined in subpart 
UUUU of part 60 of this chapter.
    Eligible CEIP project has the same meaning as defined in subpart 
UUUU of part 60 of this chapter.
    Eligible CEIP low-income community project has the same meaning as 
defined in subpart UUUU of part 60 of this chapter.
    Eligible CEIP renewable energy (RE) project has the same meaning as 
defined in subpart UUUU of part 60 of this chapter.
* * * * *
    Matching allowance has the same meaning as defined in subpart UUUU 
of part 60 of this chapter.
* * * * *

Subpart NNN--Greenhouse Gas Emissions Rate-Based Model Trading Rule 
for Electric Utility Generating Units That Commenced Construction 
on or Before January 8, 2014

0
16. Revise Sec.  62.16431, as proposed to be added at 80 FR 65092 
(October 23, 2015), to read as follows:

Sec.  62.16431  How will the optional Clean Energy Incentive Program be 
administered?

    (a) The Clean Energy Incentive Program (CEIP) will be administered 
according to the procedures in this section and those sections hereby 
cross-referenced in this section if the State elects to participate in 
the CEIP. If the state does not elect to participate in the CEIP, the 
provisions included in this section and those sections hereby cross-
referenced in this section, solely with respect to implementation of a 
CEIP, shall not apply.
    (b) The state will issue early action ERCs for electricity 
generation or savings achieved in the calendar years 2020 or 2021 to 
eligible CEIP projects that meet the requirements of Sec.  62.16435 (d) 
to be classified as an eligible CEIP RE project or an eligible CEIP 
low-income community project.
    (c) The state will issue early action ERCs to eligible CEIP 
projects up to the amounts specified for the Renewable Energy Reserve 
and the Low-Income Reserve, respectively, for the State in Table 4 of 
this subpart and pursuant to the requirements set forth in this 
section.
    (d) The state will award matching ERCs on behalf of the EPA from 
the State's account of matching ERCs. Matching ERC awards will be made 
according to the ratio set forth in paragraph (e) of this section, and 
in an amount up to the amounts specified for the Renewable Energy 
Reserve and Low-Income Reserve, respectively, for the state as 
established in Table 6 of subpart UUUU of Part 60 of this chapter.
    (e) The issuance of early action ERCs by the state, and the award 
of matching ERCs by the state on behalf of the EPA, will be executed 
according to paragraphs (e)(1) and (2) of this section.
    (1) For eligible CEIP RE projects that generate metered MWh of 
electricity: For every two MWh generated, the project will receive one 
early action ERC and one matching ERC.
    (2) For eligible CEIP low-income community projects: For every two 
MWh in end-use electricity savings achieved or for every two MWh of 
electricity generated, the project will receive two early action ERCs 
and two matching ERCs.
    (f) The process for ERC issuance provided in Sec.  62.16445, the 
requirements for evaluation, measurement, and verification in Sec.  
62.16455, the requirements for monitoring and verification reports in 
Sec.  62.16460, the requirements for independent verifiers in 
Sec. Sec.  62.16470 through 62.16480, and the requirements for 
verification reports in Sec.  62.16465, shall apply to the issuance of 
early action ERCs to eligible CEIP projects and shall also be the basis 
for the award of matching ERCs to eligible CEIP projects.
    (1) The process for revocation of qualification status under Sec.  
62.16440 shall apply.
    (2) The process for error adjustments or misstatement, and 
suspension of ERC issuance under Sec.  62.16450 shall apply.
    (3) The reporting requirements of Sec.  62.16555 and the 
recordkeeping requirements of Sec.  62.16560 shall apply with respect 
to both early action ERCs issued by the state and matching ERCs awarded 
by the state on behalf of the EPA.

[[Page 42980]]

          Table 1 to Sec.   62.16431--Clean Energy Incentive Program Early Action Emission Rate Credits
----------------------------------------------------------------------------------------------------------------
                                                                   Available early action ERCs  (rate-based plan
                                                                                      states)
                                                                 -----------------------------------------------
                           State/tribe                               Renewable      Low-income      Total early
                                                                  energy reserve     community      action ERCs
                                                                       (50%)       reserve (50%)      (100%)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................       5,854,323       5,854,323      11,708,646
Arizona.........................................................       3,224,283       3,224,283       6,448,566
Arkansas........................................................       4,101,055       4,101,055       8,202,110
California......................................................         410,335         410,335         820,670
Colorado........................................................       4,168,485       4,168,485       8,336,970
Connecticut.....................................................         130,153         130,153         260,306
Delaware........................................................         259,485         259,485         518,970
Florida.........................................................       6,056,715       6,056,715      12,113,430
Georgia.........................................................       5,166,792       5,166,792      10,333,584
Idaho...........................................................          27,991          27,991          55,982
Illinois........................................................      11,191,352      11,191,352      22,382,704
Indiana.........................................................      10,788,892      10,788,892      21,577,784
Iowa............................................................       4,108,467       4,108,467       8,216,934
Kansas..........................................................       3,966,806       3,966,806       7,933,612
Kentucky........................................................       9,286,616       9,286,616      18,573,232
Lands of the Fort Mojave Tribe..................................          11,034          11,034          22,068
Lands of the Navajo Nation......................................       3,043,247       3,043,247       6,086,494
Lands of the Uintah and Ouray Reservation.......................         329,080         329,080         658,160
Louisiana.......................................................       2,807,677       2,807,677       5,615,354
Maine...........................................................          38,886          38,886          77,772
Maryland........................................................       1,823,952       1,823,952       3,647,904
Massachusetts...................................................         319,632         319,632         639,264
Michigan........................................................       6,989,739       6,989,739      13,979,478
Minnesota.......................................................       3,755,443       3,755,443       7,510,886
Mississippi.....................................................         669,949         669,949       1,339,898
Missouri........................................................       7,071,229       7,071,229      14,142,458
Montana.........................................................       2,456,894       2,456,894       4,913,788
Nebraska........................................................       2,778,178       2,778,178       5,556,356
Nevada..........................................................         630,539         630,539       1,261,078
New Hampshire...................................................         202,121         202,121         404,242
New Jersey......................................................         836,258         836,258       1,672,516
New Mexico......................................................       1,543,216       1,543,216       3,086,432
New York........................................................       1,045,820       1,045,820       2,091,640
North Carolina..................................................       5,014,855       5,014,855      10,029,710
North Dakota....................................................       4,032,441       4,032,441       8,064,882
Ohio............................................................       8,978,197       8,978,197      17,956,394
Oklahoma........................................................       3,875,635       3,875,635       7,751,270
Oregon..........................................................         289,411         289,411         578,822
Pennsylvania....................................................       9,448,773       9,448,773      18,897,546
Rhode Island....................................................          66,889          66,889         133,778
South Carolina..................................................       3,099,003       3,099,003       6,198,006
South Dakota....................................................         495,387         495,387         990,774
Tennessee.......................................................       4,083,907       4,083,907       8,167,814
Texas...........................................................      19,500,360      19,500,360      39,000,720
Utah............................................................       2,627,229       2,627,229       5,254,458
Virginia........................................................       2,599,773       2,599,773       5,199,546
Washington......................................................       1,408,939       1,408,939       2,817,878
West Virginia...................................................       6,575,419       6,575,419      13,150,838
Wisconsin.......................................................       4,488,506       4,488,506       8,977,012
Wyoming.........................................................       5,820,607       5,820,607      11,641,214
                                                                 -----------------------------------------------
    Totals......................................................     187,499,975     187,499,975     374,999,950
----------------------------------------------------------------------------------------------------------------

    (g) To account for the State issuance of early action ERCs to 
eligible CEIP projects, the quantified and verified MWh from any 
eligible resource during the first interim step period (2022 through 
2024) that are the basis for the issuance of ERCs will be adjusted 
according to paragraphs (g)(1) and (2) of this section.
    (1) Quantified and verified MWh reported by an eligible resource 
will be multiplied by an adjustment factor calculated in accordance 
with paragraph (g)(2) of this section. When applying the adjustment 
factor, the calculated number of MWh for which ERCs may be issued by 
the State is rounded down to the nearest integer.
    (2) The adjustment factor will be determined by the following 
equation:

[[Page 42981]]

[GRAPHIC] [TIFF OMITTED] TP30JN16.020

Where:

State-Issued Early Action ERCs = the total number of early action 
ERCs issued by the state under the CEIP
Adjustment Period = 3, the number of years during the first interim 
step of the interim performance period
Quantified and Verified MWh During Reporting Year = The total number 
of quantified and verified MWh reported by all eligible resources 
that occurred during a respective year during the first interim step 
period

0
17. Amend Sec.  62.16435, as proposed to be added at 80 FR 65093 
(October 23, 2015), by adding paragraph (d) to read as follows:

Sec.  62.16435  What eligible resources qualify for generation of ERCs 
in addition to affected EGUs?

* * * * *
    (d)(1) If a State chooses to establish a CEIP under Sec.  62.16431, 
then eligible CEIP projects are those that meet the requirements of 
paragraph (d)(2) of this section.
    (2) To be eligible to receive early action ERCs from the CEIP, and 
related EPA matching ERCs, an eligible CEIP project must meet the 
requirements in paragraph (d)(2)(i) of this section for an eligible 
CEIP RE project and paragraph (d)(2)(ii) of this section for an 
eligible CEIP low-income community project. Any project that does not 
meet the applicable requirements of paragraphs (d)(2)(i) or (ii) of 
this section cannot be issued early action ERCs and awarded related EPA 
matching ERCs.
    (i) An eligible CEIP RE project is a project that meets the 
requirements or paragraphs (d)(2)(i)(A) through (D) of this section.
    (A) The project must be connected to and deliver energy to the 
electric grid in the contiguous United States.
    (B) The project must either:
    (1) Be located in a State participating in the CEIP, including 
Indian country within the borders of a state participating in the CEIP; 
or
    (2) Benefit a state participating in the CEIP or Indian country 
within a State participating in the CEIP.
    (C) The project must commence commercial operation on or after 
January 1, 2020.
    (D) The project must generate electricity from a wind, solar, 
geothermal, or hydropower RE resources, measured in MWh consistent with 
the requirements of Sec.  62.16455(c)(1) or (2), as applicable.
    (ii) A low-income community demand-side EE project must meet the 
requirements of paragraphs (d)(2)(ii)(A) through (E) of this section to 
be considered an eligible CEIP low-income community project. A low-
income community renewable energy project must meet the requirements of 
paragraphs (d)(2)(ii)(B) and (d)(2)(ii)(E) through (H) of this section 
to be considered an eligible CEIP low-income community project.
    (A) The project must save electricity in residences or buildings 
that are connected to the electric grid in the contiguous United 
States.
    (B) The project must either:
    (1) Be located in a state participating in the CEIP, including 
Indian country within the borders of a State participating in the CEIP; 
or
    (2) Benefit a state participating in the CEIP or Indian country 
within a state participating in the CEIP.
    (C) The project must commence operation on or after September 6, 
2018.
    (D) The project must save electricity measured in MWh consistent 
with the requirements of Sec.  62.16455(c)(7).
    (E) The project must be implemented in a ``low-income community'' 
as defined under paragraph (d)(2)(iii) of this section.
    (F) The project must be connected to and deliver energy to the 
electric grid in the contiguous United States.
    (G) The project must commence commercial operation on or after 
January 1, 2020.
    (H) The project is a solar RE resource and is implemented to serve 
a low-income community, by providing direct electricity bill benefits 
to low-income community ratepayers. Such a project would be eligible 
for an award from the low-income community reserve of the matching pool 
for the energy generation that exclusively benefits low-income 
ratepayers, measured in MWh consistent with the requirements of Sec.  
60.5830(c)(1) of this chapter.
    (iii) For an eligible CEIP low-income community project the project 
eligibility application must identify which one of the following 
definitions is used to establish the ``low-income community'' that the 
project will serve:
    (A) The definition of low-income used by the New Market Tax Credit 
Program;
    (B) The definition of low-income used by the Department of Housing 
and Urban Development's Qualified Census Tracts;
    (C) The definition of low-income used by the Department of Energy's 
Weatherization Assistance Program Income Guidelines; or
    (D) The definition of low-income used by the Federal Poverty Level 
Guidelines.
0
18. Amend Sec.  62.16445, as proposed to be added at 80 FR 65094 
(October 23, 2015), by adding paragraph (g) to read as follows:

Sec.  62.16445  What is the process for issuance of ERCs?

* * * * *
    (g) Clean Energy Incentive Program early action ERCs. Upon the 
state's approval of the monitoring and verification information 
submitted for an eligible CEIP project, the state will issue early 
action ERCs, and transfer those early action ERCs into the general 
account for the authorized account representative of the eligible CEIP 
project. Early action ERCs will only be issued based on quantified and 
verified electricity generation or savings from an eligible CEIP 
project that occurred on or after January 1, 2020, and no later than 
December 31, 2021. No earlier than 60 days from the date of the 
issuance of early action ERCs, the state will award matching ERCs on 
behalf of the EPA. The state will transfer matching ERCs from the 
State's account of matching ERCs into the general account for the 
authorized account representative of the eligible CEIP project, in 
accordance with Sec.  62.16431(d) and (e). Early action ERCs will not 
be issued, and matching ERCs will not be awarded, on the basis of a 
monitoring and verification report submitted after September 15, 2022. 
Any matching ERCs that are not awarded by January 1, 2023, will be 
retired by the state on behalf of the EPA.
0
19. Amend Sec.  62.16570, as proposed to be added at 80 FR 65110 
(October 23, 2015), by adding, in alphabetical order, definitions for 
``Benefit a state'', ``Commence operation'', ``Commence commercial 
operation'', ``Early action emission rate credit or early action ERC'', 
``Eligible CEIP project'', ``Eligible CEIP low-income community 
project'', ``Eligible CEIP RE project'', and ``Matching emission rate 
credit or matching ERC'' to read as follows:

Sec.  62.16375  What definitions apply to this subpart?

* * * * *
    Benefit a state, for purposes of the CEIP, has the same meaning as 
defined

[[Page 42982]]

in subpart UUUU of part 60 of this chapter.
* * * * *
    Commence operation, for purposes of the CEIP, means the definition 
as defined in subpart UUUU of part 60 of this chapter.
    Commence commercial operation, for purposes of the CEIP, means the 
definition as defined in subpart UUUU of part 60 of this chapter.
* * * * *
    Early action emission rate credit or early action ERC means the 
definition as defined in subpart UUUU of part 60 of this chapter.
* * * * *
    Eligible CEIP project means the definition as defined in subpart 
UUUU of part 60 of this chapter.
    Eligible CEIP low-income community project means the definition as 
defined in subpart UUUU of part 60 of this chapter.
    Eligible CEIP renewable energy (RE) project means the definition as 
defined in subpart UUUU of part 60 of this chapter.
* * * * *
    Matching emission rate credit or matching ERC means the definition 
as defined in subpart UUUU of part 60 of this chapter.
* * * * *

[FR Doc. 2016-15000 Filed 6-29-16; 8:45 am]
 BILLING CODE 6560-50-P