Alternatives to BART Rule Discussion with WRAP Nov , 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 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 –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) & 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

4 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 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 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

6 Alternative Programs 309 Trading Program Requirements [40 CFR (d)(4)] for WRAP states 308(e)(2) Trading Program Requirements [40 CFR (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7 RHR Revisions to allow continued use of GCVTC/WRAP Strategies “Annex” provisions repealed due to vacature –309(f) (calling for Annex submittal) –309(h) (codifying WRAP Annex) Consequence: milestones and all program details must be resubmitted –E.g,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 (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)]

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 (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 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