Alternatives to BART Rule

1. Alternatives to BART Rule Discussion with WRAP Nov. 14-15, 2006

2. Overview: Purpose of Alternatives to BART Rule • Fix Regional Haze Rule (RHR) to enable use of alternatives to BART in light of CEED court ruling. • Establish minimum elements of cap and trade programs under section 308(e)(2) of RHR. • Enable western states/tribes to continue use of GCVTC/WRAP strategies -- Allow for Western states’ backstop SO2 provisions -309(d) of RHR

3. Source-by Source BART 1999 RHR: 308(e)(1) 2001 Guidelines proposed Incl. Trading section 2002 American Corn Growers 2004 Guidelines + 308(e)(1) revisions (re)proposed 2005 Guidelines Final 6/15 Detailed trading section omitted due to CEED. Instead, separate rule→ Contained CAIR “better than BART” determination Contained test for acceptability of alternative program Trading/alternatives 1999 RHR: 308(e)(2) & 309 2000 WRAP submits Annex 2003 Annex Rule 2005 CEED nixes Annex Rule 2005 (8/1) – Alternatives to BART Rule proposed 2006 (10/5) – Alternatives to BART rule final Historical Background

4. CEED v. EPAD.C. Circuit, Feb. 18, 2005 • Granted petition requesting that “Annex Rule” be vacated. • Basis of decision: BART methodology used in Annex was invalid under American Corn Growers • Result: • Rule which governed the 6 §309 SIPs vacated; • New deadlines and regulatory mechanism needed if GCVTC/WRAP strategies are to proceed; • Provisions governing how alternative trading programs are shown to be “better than BART” must be revised to comply with CEED decision.

5. Source-by-source BART vs. Trading / Alternative ID BART eligible sources Determine sources subject to BART source-by-source BART [308(e)(1)] trading or alternative to BART [308(e)(2)] Analyze & Decide Decide 309 or 308 BART determination Demonstrate trading/alternative achieves greater reasonable progress

6. Alternative Programs 309 Trading Program Requirements [40 CFR 51.309(d)(4)] for WRAP states 308(e)(2) Trading Program Requirements [40 CFR 51.308(e)(2)(vi)] For any States or

7. RHR Revisions to allow continued use of GCVTC/WRAP Strategies • “Annex” provisions repealed due to vacature • 309(f) (calling for Annex submittal) • 309(h) (codifying WRAP Annex) • Consequence: milestones and all program details must be resubmitted • E.g, new source & tribal set asides, allocation methodology, etc. • Basic requirements for backstop SO2 program SIP requirements provided in 309(d)(4) • Timing – 309 SIPs / TIPs now also due in December, 2007 • WRAP Annex process not repeated

8. 308 Final Rules • Applies to all states • States can choose trading/alternative measure to BART [40 CFR 51.308(e)(2)] • If alternative is cap & trade program, rule identifies essential elements of the cap and trade program which must be met [40 CFR 51.308(e)(2)(vi)]

9. Approvability of Trading Program If states choose cap and trade program in lieu of BART, then program must: • Demonstrate trading program achieves greater reasonable progress than source-by-source BART • Meet criteria in 40 CFR 51.308(e)(2)(vi) – essential elements of cap and trade programs • Trading program must include all necessary provisions to ensure emission reduction targets will be achieved • Be enforceable: clearly written, and if regional, then participating states must have essentially the same program to ensure program is practicably enforceable.

10. Test for “Greater Reasonable Progress” [i.e. “Better-than-BART”] • 308(e)(2) satisfied if: • Emission reductions are greater under alternative and geographic distribution of emissions not substantially different; OR • If geographic distribution is different: • Visibility does not decline at any “affected” Class I area; • Alternative program produces greater overall improvement based on average across all areas.

11. Test for “Greater Reasonable Progress” [i.e. “Better-than-BART”], con’t. • Where a requirement other than BART determines the level of emission reductions necessary, e.g. • CAIR • Reasonable progress • The BART benchmark is not forcing “invalid” reductions • Therefore, state may apply most-stringent BART assumptions in better than BART analysis

12. Universe of Sources in Program Applicability • Define sources subject to program • BART and non-BART • All sources in a category • Facility cap • BART and non-BART units at a facility; Program must be in place and established in SIP submitted December 2007. • Program must be in place and established in December, 2007 SIP submittal.

13. Elements Necessary in Trading Program • Allowances - Total tonnage value of allowances allocated do not exceed emissions cap • Monitoring • Consistent & accurate emissions measurements (“a ton is a ton”) • Those selling allowances: Boilers, combustion turbines, cement kilns: Part 75 Others source types: Part 75 equivalent (same precision, reliability, accessibility, timeliness)

14. Elements Necessary in Trading Program, con’t. • Recordkeeping • Ensure enforceability • Those selling allowances: Meet Part 75 • Reporting • Timely reporting with sufficient frequency to ensure enforceability, provide for audits • Sources selling allowances: comply with Part 75 or submit to TSA if EPA is not TSA

15. Elements Necessary in Trading Program, con’t. • Tracking System • Publicly available, secure, centralized • Tracking in consistent manner • Authorized Account Representative - Designate one individual authorized to represent source • Allowance Transfer - Uniform procedures for timely transfer & recording of allowances

16. Elements Necessary in Trading Program, con’t. • Compliance - Prohibit source from emitting more emissions than source’s allowance holdings • Penalty • Mandatory allowance deduction for excess emissions • Allowance deduction shall be at least 3 to 1

17. Elements Necessary in Trading Program, con’t. • Banking - If banking is allowed, specify any restrictions • Program Assessment - Periodic program assessment to determine if program is accomplishing goals, and determine if program modifications are needed