Clean Air Interstate Rule (CAIR)

1. Clean Air Interstate Rule (CAIR) CAIR Model Cap and Trade Rules: Common Elements Office of Air and Radiation March 2005

2. Overview of Presentation • Structure of CAIR model rules • General Provisions • Definitions, applicability, standard requirements • Designated Representative • Permits • Allocation of Allowances to Units • Allowances and Allowance Transfers • Compliance and Penalties • Allowance Trading • Monitoring and Reporting Emissions • Unit Opt-in Provisions

3. CAIR Model Rules • EPA has designed 3 model rules that States may choose to use to implement the mandated CAIR reductions • States can participate in one or more of the EPA-administered cap and trade programs • States that wish to participate in the EPA-administered cap and trade programs must use the model rules, with a few exceptions. These exceptions include: • Allocation of CAIR NOx allowances. (Subpart “E”s) • Choice to include the model rule individual unit opt-in provision. (Subpart “I”s) • The model rules parallel the existing NOx SIP Call structure

4. Structure of Model Rules

5. General Provisions Subpart “A”s – General Provisions • Definitions • “Designated Representative” must be the same person for Acid Rain and all CAIR rules. • “Excess emissions” is defined as any ton or portion of a ton (in SO2). • Standard Requirements • Condensed version of rule included in permit

6. Applicability Subpart “A”s – General Provisions • EGUs > 25 MW (nameplate capacity) that burn fossil-fuel and sell electricity unless EGU qualifies for the cogeneration unit exemption. • Fossil fuel means any amount of fossil fuel use (same as ARP but different than SIP Call). • No exemption for Independent Power Producers (different than ARP but same as SIP Call). • Non-EGUs are not affected units although non-EGUs in NOx SIP Call can be brought into CAIR ozone season program.

7. Applicability Subpart “A”s – General Provisions • Cogen exemption applies to cogeneration units that sell 1/3 or less of their potential electrical output or sell 25 MW or less annually (219,000 kwhr)(same as ARP). • Sell defined on a “net” basis - simultaneous purchase and sales do not count as electricity sold (same as ARP and SIP Call) • Cogeneration unit definition - includes efficiency standard for all fossil fuels including coal (different than ARP and SIP Call which only had efficiency standard for oil and gas units). • 1/3 or less determined on individual year basis as opposed to three-year rolling average used in ARP and SIP Call.

8. Designated Representatives Subpart “B”s – Designated Representatives • Same individual for all CAIR rules and Acid Rain. • Certification statement aligns with other rules. • No newspaper notice required. • Certificate of Representation submitted directly to EPA.

9. Permits and Compliance Certification Subpart “C”s – Permits • CAIR permit required for: • Sources required to have a Title V permit • Opt-in sources • Permit application and permit to/from permitting authority • Permit term set by permitting authority Subpart “D”s – Compliance Certification • Used in the NOx SIP Call but reserved in the CAIR model rules and eliminated in Acid Rain.

10. Allocation of Allowances to Units Subpart “E”s – Allowance Allocations • No allocations for SO2 • Some flexibility in NOx rules (to be covered later)

11. Compliance and Accounts Subpart “F”s – Allowance Tracking System • General accounts allowed for each CAIR program. • Separate compliance for each CAIR program. • Compliance accounts: • Source level compliance accounts established when source submits Certificate of Representation. • 2010 and beyond allocations transferred into source level accounts by EPA following the establishment of such accounts. • Compliance • Compliance ratios in SO2 (to be discussed later) • Allowance transfer deadline March 1. • Automatic penalties for sources with excess emissions • 3 for 1 penalty • Discretionary penalties may be assessed by the States. • Unrestricted banking in each CAIR program

12. Allowances and Allowance Transfers Subpart “G”s – Allowance Transfers • Unrestricted trading of allowances within each CAIR program • Allowance transactions • SO2 transfers require signatures of both parties • NOx transfers require only seller signature • EPA-administered electronic data systems • Used in Acid Rain Program and NOx SIP Call. • Undergoing re-engineering prior to CAIR compliance deadlines • “Interpollutant trading” not permitted. • Complexity in determining “trading ratios” • Assuring environmental goals are met.

13. Monitoring and Reporting Subpart “H”s – Emissions Monitoring and Reporting • Requires Part 75 monitoring for NOx and SO2 • Monitoring and reporting begins one year in advance of the implementation dates. • NOx annual January 1, 2008 • NOx ozone-season May 1, 2008 • SO2 annual January 1, 2009 • Reporting is consolidated. One quarterly report containing all information for applicable programs.

14. Individual Unit Opt-in Provisions Subpart “I”s – Opt-Ins • States have flexibility to choose to include individual unit opt-in mechanism. • States wishing to include an opt-in mechanism must use the model rule opt-in provisions. • States may choose to allow opt-ins in the annual program, ozone season program, or both. • Applicability: • Boilers, turbines, or other fossil fuel-fired combustion devices that vent all emissions through a stack, and • Meet part 75 emission monitoring and reporting requirements. .

15. Individual Unit Opt-in Provision • Two approaches units can choose from: • General approach: • Requires 30% reduction from baseline in SO2 and NOx by 2010. No additional reductions required beyond 2010. • Unit may opt-in for one or both pollutants. • Unit may opt-in for different pollutants at different times. • Unit may withdraw after 5 years. • Baselines = average of most recent three-year period of part 75 monitored data or, if not available, one year of part 75 monitored data from the year prior to entering the program. • Allocation method: • NOx = baseline heat input x lesser of 70% of baseline NOx emission rate or most stringent state or federal NOx emission rate applicable in the year unit is being allocated for (the permit limit). • SO2 = baseline heat input x lesser of 70% of baseline SO2 emission rate or the permit limit.

16. Individual Unit Opt-in Provision • Alternative approach: • Limited to units that repower with qualifying technology, e.g., circulating fluidized bed, IGCC, and others. • Requires no reduction from 2010 - 2014, but requires deeper reductions starting in 2015 than general approach. • Unit may opt-in for one or both pollutants. • Unit may opt-in for different pollutants at different times. • Unit may not withdraw. • Baselines = average of most recent three-year period of part 75 monitored data or, if not available, one year of part 75 monitored data from the year prior to entering the program. • Allocation method: • Through 2014 unit allocated at baseline levels. • 2015 and beyond: • NOx = baseline heat input x lesser of 0.15 lb/mmbtu, the baseline NOx emission rate, or the permit limit. • SO2 = baseline heat input x lesser of the baseline SO2 emission rate x 0.1 (90% reduction), or the permit limit.

17. Summary • The CAIR model rules mirror the NOx SIP Call rule • Ease transition for sources and regulators • States must use the CAIR model rules if they wish to participate in the regionwide, EPA-administered cap and trade programs. • Regionwide consistency promotes simplicity, efficiency, and transparency • Some flexibility for specified elements of the programs. • Unit-level allocation of NOx allowances. • Inclusion of opt-in mechanism.