Proposed “BART Trading” Rule Bill Grantham September 1, 2005

Overview: Purposes of Proposal Fix RHR to enable use of alternatives to BART in light of CEED. 308(e)(2)(i) Enable western states/tribes to continue use of GCVTC/WRAP strategies 309(a), (c) (g). Establish minimum elements of: -- Backstop SO2 provisions for west -309(d) -- Cap and trade programs (WRAP and otherwise) -308(e)(2)(vi)

Historical Background 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 Trading section omitted due to CEED. Instead, separate rule → Trading/alternatives 1999 RHR: 308(e)(2) & WRAP submits Annex 2003 Annex Rule 2005 CEED nixes Annex Rule 2005 (8/1) – Trading Rule proposed

CEED v. EPA D.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 Specifically, the 4 non-visibility factors* were applied source-by-source, but visibility was only applied on a “group” basis. Role EPA “coercion” in court’s reasoning not entirely clear. *4 factors are cost of compliance, remaining useful life of source, energy and nonair environmental impacts, and existing controls.

CEED v. EPA D.C. Circuit, Feb. 18, 2005 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.

Fix to “Group BART” Flaw 308(e)(2)(i) Key: Change directive for estimating “what BART is” by replacing bifurcated approach with cross-reference to 308(e)(1) i.e., state is simply directed to calculate emissions reductions/visibility benefits under source-by- source BART. Potential for flexibility in methodology is discussed in preamble

308(e)(2)(i) As Proposed (A) list all BART-eligible sources (B) list source categories in alt. Program (C) analysis of vis. Improvement at each affected C1 area from application of BART (per (e)(1)) to each source subject to BART in each affected category (D) analysis of emiss. reduction & vis. improvement under alt. Program (E) show that (D) makes greater progress than (C) per 308(e)(3).

308(e)(3): Finalized 6/15/05 Cross referenced by 308(e)(2)(i)(E) [previous slide] 308(e)(2) satisfied if: Emission reductions are greater under alternative and geographic distribution of emissions not substantially different; Or, if distribution is different: Visibility does not decline at any Class I area; Alternative program produces greater overall improvement based on average across all areas.

Other notes on “Better than BART” Provisions [308(e)(2)(i)] Sources “subject to BART” in benchmark: state has same discretion as in source-by- source BART May assume “all in” or make determination per guidelines – 0.5 dv, etc. Presumptive EGU standards apply to same extent as in (e)(1) BART Apply presumptions unless other control levels shown appropriate on unit-specific basis.

Other notes on “Better than BART” Provisions [308(e)(2)(i)] Demonstration to be made at “affected” Class I areas (not necessarily all 156) EPA seeks comment on whether methodology of 308(e)(3) should be sole means of demonstration, or whether other factors could be considered

Options under 308(e)(2)(i)(C): [1] Source-by-source Do BART analysis based on source-by-source visibility modeling Using CALPUFF Using a regional model with source tracing –e.g., CAMx with PSAT Most obviously legally defensible method Resource prohibitive?

Options under 308(e)(2)(i)(C): [2] State discretion to do group BART Court was clear that EPA may not require “group BART” even in context of an optional program: “... EPA cannot under §309 require states to exceed invalid emissions reductions (or, to put it more exactly, limit them to a §309 alternative defined by an unlawful methodology.” (emph. added) Not clear whether states barred from using group BART as long as EPA doesn’t require such. EPA believes states retain that discretion. Therefore, could use “group” approach or some hybrid

Options under 308(e)(2)(i)(C): [3] Use most-stringent case BART Where a requirement other than BART determines the level of emission reductions necessary... CAIR Reasonable progress as related but separate requirement than BART: where alt. program covers larger universe of sources the concerns of CEED do not apply – BART benchmark is not forcing “invalid” reductions Therefore, state may apply most-stringent BART assumptions in better than BART analysis.

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) Lily Wong to discuss in detail

RHR Revisions to allow continued use of GCVTC/WRAP Strategies Timing – 309 SIPs due at same time as 308: 12/17/07 [309(c)] TIPs may be submitted later “Annex” process not to be repeated – go directly to SIPs/TIPs Default to 308 – moved to “purpose” provision [309(a)] Because 308/309 due at same time, no longer a need to provide default trigger for failure to submit 309 by a date certain

RHR Revisions to allow continued use of GCVTC/WRAP Strategies No degradation as minimum element of reasonable progress under 309 Preamble: projection of visibility improvement [309(d)(2)] and periodic SIP revisions [309(d)(10)] must show no degradation on best and worst 20% days

RHR Revisions to allow continued use of GCVTC/WRAP Strategies Additional Class I Areas [309(g)] As before, may build on 309 strategy to cover other areas, based on a 308 reasonable progress analysis. Eliminating requirement to declare 308/309 choice ahead of time (no longer relevant)

Contacts Bill Grantham, NTEC (on IPA to EPA) x 116 Kathy Kaufman, EPA OAQPS Todd Hawes, EPA OAQPS