ALTERNATIVES TO BART -TRADING- Lily Wong USEPA – Region 9 September 1, 2005

Alternatives to BART - Trading Presentation Objective Background Proposed Rule and 308 Approvability of 309/308 Trading Programs

Alternatives to BART - Trading Objective: Provide overview of EPA requirements for alternatives to source-by-source BART, focusing on the trading program requirements

Alternative to BART - Trading BACKGROUND Where this discussion fits in process Primary elements of WRAP S02 program Structure & relationship of 308 & 309

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

This Presentation 309 Trading Program Requirements [40 CFR (d)(4)] 308(e)(2) Trading Program Requirements [40 CFR (e)(2)(vi)] or

Primary Elements of 309 SO2 Backstop Trading Program Regional SO2 milestones (emissions cap) If milestones not met voluntarily, triggers implementation of trading program “Pre-trigger” and “post-trigger” phases Backstop trading program is fully adopted

309 Proposed Rules Reinstates essential elements of Annex -SO2 pre-trigger phase requirements -Process for implementing SO2 trading program -Minimum requirements for the SO2 trading program -Include some provisions unique to Western Backstop SO2 Trading Program

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

309 Program: Cross-references 308(e)(2)(vi) 309 Western Backstop SO2 Trading Program Because backstop is cap & trade program, 309 rule at 40 CFR (d)(4)(v) requires compliance with 40 CFR (e)(2)(vi)

309 TRADING PROGRAM

40 CFR (d)(4) Milestone Milestones consistent with GCVTC goals Documentation of emission calculation methods Document base year calculation methods and any changes in methodology

40 CFR (d)(4) Pre-trigger Monitoring, Recordkeeping, Reporting -MRR sufficient to determine if milestone achieved -Incl. 10 yr record retention Criteria & Procedures -Annual comparison of emissions to milestone conducted within specified timeframes -Conduct program assessments in 2013 and 2018

40 CFR (d)(4) Market Trading Program -Timeline to activate program if milestone exceeded -Source compliance as soon as practicable -Program must be sufficient to achieve milestones -Be consistent with 40 CFR (e)(2)(vi)

40 CFR (d)(4) Provisions for 2018 Milestone -Until 2 nd planning period SIP is approved, emissions are prohibited from exceeding 2018 milestone -2 nd planning period SIP shall not be less stringent than 2018 milestone, unless milestone replaced by different program that meets BART & reasonable progress, and is EPA approved -Framework (incl. financial penalties for excess emissions) to ensure 2018 milestone will be met

40 CFR (d)(4) Provisions for stationary source NOx and PM -Plans must contain necessary long term strategies and BART requirements for stationary sources of NOx and PM

308 TRADING PROGRAM

40 CFR (e)(2)(vi) If states choose cap and trade program in lieu of BART: Program must meet criteria in 40 CFR (e)(2)(vi) – essential elements of cap and trade programs

40 CFR (e)(2)(vi) Applicability -Define sources subject to program -Address emission shifts from sources within program to sources outside program Allowances -Total tonnage value of allowances allocated do not exceed emissions cap

40 CFR (e)(2)(vi) 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)

40 CFR (e)(2)(vi) 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

40 CFR (e)(2)(vi) 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

40 CFR (e)(2)(vi) 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

40 CFR (e)(2)(vi) 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

APPROVABILITY OF TRADING PROGRAM AS ALTERNATIVE TO BART

Approvability of Trading Program as Alternative to BART Address specific 308 or 309 trading provisions Demonstrate trading program achieves greater reasonable progress than source-by-source BART Trading program must include all necessary provisions to ensure emission reduction targets will be achieved

Approvability of Trading Program as Alternative to BART Trading program must be enforceable -Clearly written; explicit language to implement intent -If trading program is regional, participating states must have essentially the same program to ensure program is practicably enforceable

Alternative to BART - Trading Questions? Contact: -Lily Wong, EPA Region 9 (415) Laurel Dygowski, EPA Region 8 (303)