Proposed Federal Plan & Model Trading Rules Training for Tribal Communities Farmington, 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 Deadline: January 21, 2016 Be sure to reference the docket number. Go to and follow the on-line instructions for submitting comments. Send comments by to Fax your comments to: (202) Mail your comments to: EPA Docket Center, Environmental Protection Agency, Mail Code: 28221T 1200 Pennsylvania Ave., NW Washington, DC

The Clean Power Plan – Quick Re-cap 3  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 4

Definitions 5 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 6 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

7 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 (1 st 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

Final Goals for Select States and Tribes Rate Goal (lb/MWh) 2030 Mass Goal (short tons) 2012 Rate (lb/MWh) 2012 Mass (short tons) Arizona1, million1, million Nevada million1, million New Mexico1, million1, million Fort Mojave million million Navajo Nation1, million2, million Uintah and Ouray 1, million2, million

Federal Plan and Model Rules Timeline 9 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 – 1 st 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 10

Mass-Based Model Rule/Federal Plan 11 Mass Goal = total tons of CO 2 that can be emitted by all affected EGUs in the state/tribe = total “allowances” in the state/tribe One “allowance” = one short ton of CO 2 # 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 12 Every plant must measure, monitor and report its CO 2 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 AllowanceCO 2

13 How Mass-based Trading Works Example Assumptions: 1) a total budget of 15 tons of CO 2 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 Tons CO 2 emitted 3 Tons CO 2 7 Tons CO 2 Plant B has two allowances (2 tons) available to trade with Plant C Plant A Plant C Plant 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 14

Navajo Nation and proposed Mass Allowances in 2030 if Mass-based Federal Plan Applies 15 Proposed 2030 Allowances in Proposed Federal Plan (short tons) 2012 Emissions (short tons) Actions taken or scheduled for Regional Haze BART Four Corners 1 781,2811,230,899Retire Four Corners 2 817,4241,234,121Retire Four Corners 3 1,037,8071,911,875Retire Four Corners 4 3,192,1835,012,381Install SCR Four Corners 5 3,621,4675,102,038Install SCR NGS 1 3,649,0406,184,134 Retire or Curtail MW and install SCR on 2 units NGS 2 3,607,0155,306,560 NGS 3 3,909,3405,434,864 Proposed RE Set-aside 1,085,029 Total 21,700,58631,416,873 Requesting comment on allocations to retired units

What You Need to Know about the Proposed Rate-Based Federal Plan 16

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 17

Rate-Based Approach What 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 CO 2 emissions and power generation 18 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 19

Rate vs. Mass for Navajo Nation 20 Rate Goal in 2030 Mass Goal in ,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: 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 Deadline: January 21, 2016 Be sure to reference the docket number. Go to and follow the on-line instructions for submitting comments. Send comments by to Fax your comments to: (202) Mail your comments to: EPA Docket Center, Environmental Protection Agency, Mail Code: 28221T 1200 Pennsylvania Ave., NW Washington, DC

23 Contacts at EPA Headquarters Toni Jones, Federal Plan/Model Rule Project Lead, Office of Air Quality Planning and Standards, 919- Tina Ndoh, CEIP Project Lead, Office of Air Quality Planning and Standards, Cate Hight, CEIP, Office of Atmospheric Programs, Laura McKelvey, Group Leader for Community and Tribal Programs Group, Office of Air Quality Planning and Standards,

24 Contacts at EPA Region 9 Amy Zimpfer, Associate Director, 415- Ben Machol, Office Chief, Ray Saracino, (lead for California) Anita Lee, (lead for Arizona, Navajo Nation, and Fort Mojave) Lisa Beckham, 415 (lead for Nevada, Hawaii, and Guam)

25 States and Tribes are evaluating options Navajo Nation April Quinn, NNDOJ: Eugenia Quintana, NNEPA: Arizona Department of Environmental Quality: Steve Burr: California Air Resources Board: Chris Gallenstein: Craig Segall: Nevada Department of Environmental Protection Sig Jaunarajs:

Information and Resources 26  For more information and to access a copy of the rule, visit the Clean Power Plan website:  Through graphics and interactive maps, the Story Map presents key information about the final Clean Power Plan. See:  For community-specific information and engagement opportunities, see the Clean Power Plan Community Page:  For more information on the Clean Energy Incentive Program, see the CEIP page:  EPA provides webinars and training on CPP related topics at the air pollution control learning website. See:  Federal programs and activities to support renewable energy and energy efficiency in low- and moderate-income communities:  Federal initiative to increase solar access for all Americans: announces-new-initiative-increase-solar-access

Appendix 27

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. 28

The Clean Power Plan Alabama Example: 29 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” 30

Mass-Based: Allowance Set-Asides in Federal Plan proposal Interim periodFinal period 1 st Compliance Period nd Compliance Period rd Compliance Period and thereafter Clean Energy Incentive Program and Renewable Energy Output-Based Allocation and Renewable Energy Output-Based Allocation and Renewable Energy Output-Based Allocation and Renewable Energy 31

How Rate-based Trading Works 32 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 CO 2 / 1 MWh ) Tracking of CO 2 emission performance rates Generation of ERCs representing clean MWhs

Mass-Based : Emission Budget 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 CO 2 emissions 1 Ton Emission Budget is the total number of tons that can be emitted from affected sources State’s Emission Budget