Proposed Federal Plan & Model Trading Rules

Training for Tribal CommunitiesFarmington, New Mexico | Tuba City, Arizona

December 7 – 10, 2015

How to Comment the Proposed Federal Plan and Model Rules

• Proposed Federal Plan and Model Trading Rules:• Docket ID Number EPA-HQ-OAR-2015-0199 • Deadline: January 21, 2016

Be sure to reference the docket number.• Go to www.regulations.gov and follow the on-line instructions for

submitting comments.• Send comments by e-mail to a-and-r-Docket@epa.gov.• Fax your comments to: (202) 566-9744.• Mail your comments to:

EPA Docket Center,Environmental Protection Agency, Mail Code: 28221T1200 Pennsylvania Ave., NWWashington, DC 20460

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The Clean Power Plan – Quick Re-cap

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Clean Power Plan Final Rule sets state/tribal specific goals for carbon dioxide emissions from electric generating units (EGUs)

The Clean Power Plan is an emission guideline that would be implemented by:

States (state plan)

Tribes (tribal plan)

EPA (federal plan)

States/tribes can choose to develop plans that use rate-based OR mass-based goals

Federal Plan and Model Trading Rules Proposal

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Definitions

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Model Trading Rules = example plans that EPA developed that states and tribes can use or modify as their state or tribal plan

• Mass-Based Plan = EGUs must meet a mass-based limit (tons of carbon dioxide)• Comply by holding ALLOWANCES

• Rate-Based Plan = EGUs must meet a rate-based limit (pounds of carbon dioxide per megawatt-hour) • Comply using EMISSION RATE CREDITS (ERCs) to reduce their rate

Federal Plan = the plan that EPA would apply to states and tribes that do not develop their own plan for the Clean Power Plan

• EPA would implement the federal plan in any state/tribe that does not submit an approvable plan.

• The model rules provide an easy and cost effective way for ‐states and power plants to use emissions trading.

• The proposal contains four key actions:• A rate-based model trading rule

• A mass-based model trading rule

• A rate-based federal plan

• A mass-based federal plan

Overview of the Federal Plan and Model Trading Rules Proposal

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EPA intends to finalize either a mass-based or rate-based federal plan when needed

EPA intends to finalize both the rate‐based and mass‐based model trading rules in summer 2016

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Tribes and the Clean Power Plan

• EPA finalized goals for three areas of Indian country: • Navajo Nation• Fort Mojave Indian Tribe• Ute Tribe of the Uintah and Ouray Reservation

• These tribes have the opportunity, but not the obligation to develop and implement a tribal plan under the Clean Power Plan for these sources

• If a tribe chooses not to develop a plan, EPA will put a federal plan in place if it determines that a plan is necessary or appropriate (1st step)

• The proposed Federal Plan includes a proposed determination that it is necessary or appropriate to do a plan for the 3 tribes with goals – EPA is requesting comment on this

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Final Goals for Select States and Tribes

2030 Rate Goal

(lb/MWh)

2030 Mass Goal

(short tons)2012 Rate (lb/MWh)

2012 Mass (short tons)

Arizona 1,031 30.2 million 1,552 40.5 millionNevada 855 13.5 million 1,102 15.5 million

New Mexico 1,146 12.4 million 1,798 19.9 millionFort Mojave 771 0.59 million 858 0.58 million

Navajo Nation 1,305 21.7 million 2,121 31.4 millionUintah and

Ouray 1,305 2.26 million 2,034 3.3 million

Federal Plan and Model Rules Timeline

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• January 21, 2016 – Comment Period Closes for Federal Plan and Model Rule Proposal

• Summer 2016 – EPA issues Final Model Rules

• September 6, 2016 – States submit Final Plan or make initial submittal with extension request

• September 6, 2018 – States with extensions submit Final Plans for approval

7 Years

• January 1, 2022 – 1st compliance period begins

Federal Plans may be done as

needed on a state-by-state or

tribe-by-tribe basis

What You Need to Know about the Proposed

Mass-Based Federal Plan

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Mass-Based Model Rule/Federal Plan

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• Mass Goal = total tons of CO2 that can be emitted by all affected EGUs in the state/tribe = total “allowances” in the state/tribe

• One “allowance” = one short ton of CO2

• # of allowances an EGU has determines how much carbon dioxide they are allowed to emit

• “Allocation” is how the total budget of allowances is distributed in the state/tribe to affected EGUs or other purposes

• In a state/tribal plan, states/tribes determine allocation• In federal plan, EPA determines allocation approach OR a state/tribe can

submit a partial plan to specify its own approach• Some or all allowances can be distributed for a specific purpose

• Example: allowances set-aside to ensure use of RE resources or help electricity ratepayers in the state

• EPA proposed three allowance set-asides• The set-asides come from the emissions budget and therefore reduce the

direct allocations to the affected EGUs

What Power Plants Must Do:Mass-Based Approach

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Every plant must measure, monitor and report its CO2 emissions

Allowances are allocated before each compliance period. Every plant must have sufficient allowances to cover its emissions at the end of each compliance period

Allowance CO2

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How Mass-based Trading WorksExample Assumptions: 1) a total budget of 15 tons of CO2 for a state with 3 plants 2) allowances are allocated equally to each plant: 5 allowances per plant

5 allowances

5 allowances

5 allowances

5 TonsCO2

emitted

3 TonsCO2

7 TonsCO2

Plant B has two allowances (2 tons) available to trade

with Plant C

Plant A Plant CPlant B

5 Tons = 5 Allowances

+ 2 allowances

Mass-Based Trading Approach in the Federal Plan Proposal

• EPA will develop allowance tracking and compliance system• All states/tribes that have mass-based state/tribal/federal

plan can trade together, as long as they:• Are “trading ready”• Use same compliance instrument (short tons)• Use EPA-administered tracking system

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Navajo Nation and proposed Mass Allowances in 2030 if Mass-based Federal Plan Applies

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Proposed 2030 Allowances in

Proposed Federal Plan (short tons)

2012 Emissions (short tons)

Actions taken or scheduled for

Regional Haze BART

Four Corners 1 781,281 1,230,899 RetireFour Corners 2 817,424 1,234,121 Retire

Four Corners 3 1,037,807 1,911,875 Retire

Four Corners 4 3,192,183 5,012,381 Install SCR

Four Corners 5 3,621,467 5,102,038 Install SCR

NGS 1 3,649,040 6,184,134Retire or Curtail 560-750 MW and install

SCR on 2 unitsNGS 2 3,607,015 5,306,560

NGS 3 3,909,340 5,434,864

Proposed RE Set-aside 1,085,029

Total 21,700,586 31,416,873

• Requesting comment on allocations to retired units

What You Need to Know about the Proposed

Rate-Based Federal Plan

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Rate-Based Approach in Federal Plan Proposal

• In a rate-based plan, EGUs are assigned an emission rate measured in pounds per megawatt hour (lb/MWh)

• EGUs comply by lowering the unit’s emission rate and/or using Emission Rate Credits (ERCs) representing clean MWhs

• Tracking via an EPA-administered system

• EPA proposes that EGUs subject to a federal plan may trade with EGUs subject to rate-based state plans that:

• are deemed to be “ready for interstate trading” and

• that use the EPA-administered tracking system

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Rate-Based ApproachWhat Power Plants Must Do:

• Every affected EGU must • achieve its emission rate, and/or have sufficient ERCs to achieve its rate

performance rate at the end of each compliance period• measure, monitor and report its CO2 emissions and power generation

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Adjusted Emission Rate

Emission Rate Standard

Actual Emission

Rate

Zero Emitting Generation

Rate-based Trading: Types of Emissions Rate Credits (ERCs)

• ERCs are generated for every megawatt avoided and certain megawatts generated

• In proposed Federal Plan, ERCs are generated by:1. Renewable Energy (RE): wind, solar, geothermal, hydro and

nuclear generation• Asking for comments about other RE (biomass, waste-to-energy) and

demand-side energy efficiency (EE) as eligible for ERCs (these are available under Rate-Based Model Rule)

2. Natural Gas Combined Cycle operation to reflect incremental increases in existing NGCC generation

3. Megawatts avoided by an EGU operating below its applicable sub-category emission standard

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Rate vs. Mass for Navajo Nation

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Rate Goal in 2030 Mass Goal in 2030

1,305 lb/MWh 21.7 million tons

• May allow for more growth in electricity demand

• Probably easier to implement

• More types of renewable energy can count

• No verification requirements for renewable energy or energy

efficiency• Consideration of retirements

• Navajo Nation’s 2012 Baseline:• 2,121 lb/MWh• 31.4 million tons of carbon dioxide

Requesting Comment on the Federal Plan and Model Trading Rules Proposal

List of items in the proposal on which EPA is requesting comment is available at:

http://www2.epa.gov/cleanpowerplan/summary-requests-comments-clean-power-plan-federal-plan-and-model-trading-rules

Examples:

• Which approach, i.e., either mass-based or rate-based trading, should be selected if EPA opts to finalize a single approach for a Federal Plan? EPA currently intends to finalize a single approach.

• Whether it is necessary or appropriate to implement Federal Plan for areas of Indian country with affected EGUs.

• Whether allowances should continue to units that retire?• Whether a portion of the RE set-aside should be targeted to RE

projects that benefit low-income communities. 21

How to Comment the Proposed Federal Plan and Model Rules

• Proposed Federal Plan and Model Trading Rules:• Docket ID Number EPA-HQ-OAR-2015-0199 • Deadline: January 21, 2016

Be sure to reference the docket number.• Go to www.regulations.gov and follow the on-line instructions for

submitting comments.• Send comments by e-mail to a-and-r-Docket@epa.gov.• Fax your comments to: (202) 566-9744.• Mail your comments to:

EPA Docket Center,Environmental Protection Agency, Mail Code: 28221T1200 Pennsylvania Ave., NWWashington, DC 20460

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Contacts at EPA Headquarters

Toni Jones, Federal Plan/Model Rule Project Lead, Office of Air Quality Planning and Standards, jones.toni@epa.gov, 919-541-0316

Tina Ndoh, CEIP Project Lead, Office of Air Quality Planning and Standards, ndoh.tina@epa.gov, 919-541-2750

Cate Hight, CEIP, Office of Atmospheric Programs, hight.cate@epa.gov, 202-343-9230

Laura McKelvey, Group Leader for Community and Tribal Programs Group, Office of Air Quality Planning and Standards, mckelvey.laura@epa.gov, 919-541-5497

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Contacts at EPA Region 9

Amy Zimpfer, Associate Director, zimpfer.amy@epa.gov, 415-947-4146

Ben Machol, Office Chief, machol.ben@epa.gov, 415-972-3770

Ray Saracino, saracino.ray@epa.gov, 415-972-3361 (lead for California)

Anita Lee, lee.anita@epa.gov, 415-972-3958 (lead for Arizona, Navajo Nation, and Fort Mojave)

Lisa Beckham, beckham.lisa@epa.gov, 415 972-3811 (lead for Nevada, Hawaii, and Guam)

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States and Tribes are evaluating options

Navajo NationApril Quinn, NNDOJ: aquinn@nndoj.org

Eugenia Quintana, NNEPA: eugeniaquintana@navajo-nsn.gov

Arizona Department of Environmental Quality:Steve Burr: burr.steve@azdeq.gov

California Air Resources Board:Chris Gallenstein: cgallens@arb.ca.govCraig Segall: craig.segall@arb.ca.gov

Nevada Department of Environmental ProtectionSig Jaunarajs: sjaunara@ndep.nv.gov

Information and Resources

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For more information and to access a copy of the rule, visit the Clean Power Plan website: http://www2.epa.gov/cleanpowerplan/clean-power-plan-existing-power-plants

Through graphics and interactive maps, the Story Map presents key information about the final Clean Power Plan. See: http://www2.epa.gov/cleanpowerplan

For community-specific information and engagement opportunities, see the Clean Power Plan Community Page: http://www2.epa.gov/cleanpowerplan/clean-power-plan-community-page

For more information on the Clean Energy Incentive Program, see the CEIP page: http://www2.epa.gov/cleanpowerplan/clean-energy-incentive-program

EPA provides webinars and training on CPP related topics at the air pollution control learning website. See: http://www.apti-learn.net/Ims/cpp/plan/

Federal programs and activities to support renewable energy and energy efficiency in low- and moderate-income communities:

https://www.whitehouse.gov/sites/default/files/low-income_and_energy_efficiency_programs.pdf

Federal initiative to increase solar access for all Americans:https://www.whitehouse.gov/the-press-office/2015/07/07/fact-sheet-administration-announces-new-initiative-increase-solar-access

Appendix

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CPP and Selected States and Territories

• Vermont and Washington, DC• Because Vermont and the District of Columbia (DC) do not have affected EGUs,

they will not be required to submit a state plan.• RE and EE projects located in Vermont and DC may participate in the trading

provisions of the final rule and can provide ERCs to states to help them meet their goals, as long as they meet requirements for eligibility.

• Alaska, Hawaii, Guam and Puerto Rico• EPA did not set CO2 emission performance goals for Alaska, Hawaii, Guam and

Puerto Rico in the final CPP.• Because the EPA lacks appropriate information and analytic tools for these states

and territories with otherwise affected EGUs, the CPP does not apply to these states and territories at this time, and Alaska, Hawaii, Guam and Puerto Rico will not be required to submit state plans.

• The agency intends to continue to consider these issues for these areas. As part of that effort, EPA is investigating appropriate sources of information and types of analysis.

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The Clean Power Plan

• Alabama Example:

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Overview

Mass-Based Trading Approach in the Federal Plan Proposal

• EPA will develop allowance tracking and compliance system• All states/tribes that have mass-based state/tribal/federal

plan can trade together, as long as they:• Are “trading ready”• Use same compliance instrument (short tons)• Use EPA-administered tracking system

• A plan using mass-based trading must address potential incentives to shift generation from lower-emitting existing sources to new sources (“leakage” or “equivalence”)

• A mass-based goal caps emissions in a state/tribe from existing EGUs that are subject to the CPP

• Generating MORE power at new sources that are not part of the CPP in order to free up allowances from existing EGUs would be “gaming the system”

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Mass-Based: Allowance Set-Asides in Federal Plan proposal

Interim period Final period

1st Compliance Period

2022-2024

2nd Compliance Period

2025-2027

3rd Compliance Period

2028-2029

2030-2031 and thereafter

Clean Energy Incentive Program

andRenewable

Energy

Output-Based Allocation

andRenewable

Energy

Output-Based Allocation

andRenewable

Energy

Output-Based Allocation

andRenewable

Energy

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How Rate-based Trading Works

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• Each power plant must meet its emissions rate, either actually or after adjusting generation with Emission Rate Credits (ERCs)

• ERCs are the instruments that can be generated, traded, and used to demonstrate compliance in a rate-based trading system

• ERCs represent 1 MWh with zero deemed emissions (0 lbs CO2 / 1 MWh)

Tracking of CO2 emission performance rates

Generation of ERCs representing clean MWhs

Adjusted Emission Rate=PoundsCO2 Emitted

MWhGenerated+ERCs

Mass-Based : Emission Budget

1 Ton

1 Ton

1 Ton

1 Ton

1 Ton

Affected Sources

States (or EPA) distribute

allowances, which can be bought,

sold, or banked for future use

Add new source complement if

covering new plants

1 allowance = 1 ton of CO2 emissions

1 Ton

1 Ton

Emission Budget is the total number of tons that can be

emitted from affected sources

State’s Emission Budget