1. Market Trading Forum Update
WRAP Board Meeting
July 24-25, 2002

2. Overview
Information needed to help states and tribes make the 308/309 decision
Overview of studies completed this year
Communication – Annex provisions
Material needed for 2003 SIPs
Future work for 2008 SIP updates and 308 SIPs

3. Critical Mass Study

4. Critical Mass Study
Is there a minimum number of states and tribes needed for the market to be effective?
Are there any other effects if not all states and tribes in the GCVTC region participate?
ICF hired to conduct evaluation
Based on economic analysis of the Annex conducted by ICF in 2000
Only assesses cost of compliance to sources

5. ICF estimated potential annual cost savings of $90 million with participation of all GCVTC states and tribes

6. Design of Study
Full participation of states and tribes in §309 is unlikely
CA, ID & NV were assumed to opt-out
CA & NV already have expressed intentions
ID has few SO2 emissions
MTF participants selected scenarios for modeling

7. Alternative Trading Scenarios
CA, ID & NV were
treated as opting out
in all scenarios
Remainder of States and
Tribes vary in particip-
ation.
AZ, UT & Uinta-Ouray
Were treated as opting
in for all scenarios

8. Scenario 1 Command & Control: Source- Specific BART Opt-in to §309:
Cap & Trade

9. Scenario 2 Command & Control: Source- Specific BART Opt-in to §309:
Cap & Trade

10. Scenario 3 Command & Control: Source- Specific BART Opt-in to §309:
Cap & Trade

11. Scenario 4 Command & Control: Source- Specific BART Opt-in to §309:
Cap & Trade

12. Scenario 5 Command & Control: Source- Specific BART Opt-in to §309:
Cap & Trade

13. Scenario 6 Command & Control: Source- Specific BART Opt-in to §309:
Cap & Trade

14. Alternative Scenarios
T = Trading; Opt-in to §309
CC = Command & Control; Source-specific BART

15. Summary of Key Results
Program with all states and tribes participating results in the highest gains from trading ($90 million in 2018)
Though opt out decision of states/tribes can reduce the gains from trading, no single state/tribe can fully erase the gains from trading by opting out
WY and CO are likely to have the largest impact on regional compliance cost if they opt out
Impact of NM, OR and Tribal areas on regional compliance cost is likely to be small if they opt out
Allowance trading will be important
Sources in WY, CO, AZ and OR will likely be the buyers of allowances
Tribal areas, NM and UT will likely be the sellers of allowances

16. Estimated Command-and-Control Reductions by State/Tribe
17,006
37,855
7,192
35,222
51,629
10,357
8,655
Estimated Command-and-Control Reductions by State/Tribe
(in tons of SO2)

17. Gains from trading range from $15 million - $90 million in 2018

18. CO and WY are important to the trading program2%
-1% 0%
-3%
51%
21%
19% 6%
Since WY and CO account for 72% of the regional compliance cost under full command-and-control, it has the greatest potential for savings from trading
Trading allows these states to avoid the expensive investment in pollution control required under command-and-control
Tribal Areas 1%

19. OR, NM, UT and Tribal Areas
NM, UT, OR and Tribal areas are unlikely to significantly affect the regional compliance cost
Because compliance cost of these states/tribes represent a small fraction of the regional compliance cost
Role as suppliers of allowances is important to the trading program

20. Participation affects CA, regardless
Changes in this slide are described relative to Alternative Trading Scenario I (and not the BAU scenario which is used a the reference case for comparison in other parts of the analysis. Alternative Trading Scenario I was selected as the reference case in this slide for clarity in exposition.

21. Compliance cost in 2018 under the alternative trading scenarios
Million 1997 $

22. Allowance trading will be important to the trading program
These states will be buyers of allowances 8 5 19 11
Representative levels of allowance trading if only CA, ID and NV opt-out (thousand tons) 2 3 23
These states and tribal areas will be sellers of allowances
Tribal Areas

23. Net Flow of Allowances
Does not describe in-state allowance transactions but provides an estimate of out-of-state allowance transactions needed

24. Key Conclusions
Trading program with all states/tribes participating is the most efficient program
States with high compliance cost for command-and-control will be most important to keeping the regional compliance cost low (WY, CO, AZ)
These states also likely to be primary buyers of allowances from sources outside the state
Tribal areas, NM and UT likely to be more important as suppliers of allowances
Impact on any state/tribe will depend on what everyone else does
Cannot fully insulate against regional impacts

25. Other Considerations
Analysis did not examine importance of market forces (e.g. market power, transaction barriers, etc) to realizing the gains from trading
No assessment of uncertainty in
Gas prices
Demand
Cost and performance of abatement technologies
Implications of AZ or UT opt-out
No assessment of secondary impacts
All costs recovered in electricity sales

26. Allocations
Annex establishes a formula to determine allocations for individual sources
Estimate is needed to help understand how individual sources will be affected
Allocations will be finalized through the SIP process

27. Allocations Regional Allocation Source-Specific Allocation
Tribal Set-aside
New source set-aside
Source-Specific Allocation
Renewable energy sources
Floor allocation
Reducible allocation

28. Allocations Draft report – Estimate of non-utility floor allocations
Currently under review
Policy issues have been highlighted that need to be addressed by the MTF
Intended to provide estimates, not final determinations for sources

29. Allocations Next steps Review allocation methodology
Finalize utility floor allocation
Estimate reducible allocations through 2018
Develop examples that show how different circumstances will affect allocations
Review allocation methodology
May need up-front state and tribal budgets for existing sources

30. Reasonably Attributable Visibility Impairment (RAVI)
Remains as a remedy for source-specific impairment under §309
Issues:
Interface with milestones and backstop program
Uniform procedures and certainty
Primacy of states and tribes in attribution & BART analyses

31. Reasonably Attributable Visibility Impairment (RAVI)
WESTAR case study of source attribution and retrofit processes and outcomes
Each case was unique
Actual or planned retrofits resulted, but none were “BART”
WESTAR draft report, “Recommendations for Making Attribution Determinations in the Context of RA BART”

32. Reasonably Attributable Visibility Impairment (RAVI)
Recommendations on Making Attribution Determinations
General Procedures and Approaches
Technical Criteria
Examples
Not “Guidance”; Does not suggest standards or thresholds

33. Reasonably Attributable Visibility Impairment (RAVI)
Recommendations on Making Attribution Determinations
Currently under review by MTF and stakeholders
Discussions continue regarding outstanding issues

34. Other Class I Areas Modeling
RH Rule requires a demonstration that the backstop trading program provides greater reasonable progress that RH BART
Annex made this demonstration for the 16 Class I areas
Need to expand the demonstration to cover all Class I areas
Don’t want to revisit SO2 control strategy in 308 SIPs/TIPs

35. Other Class I Areas Modeling
Annex Demonstration
Trading is not expected to concentrate emissions reductions or increases in one area of the region
Visibility modeling using GCVTC model showed equal or better improvement with Annex compared to Command & Control
Other factors are important such as the limits of future growth, and inclusion of all SO2 sources

36. Other Class I Areas Modeling
New modeling results show equal or better improvement throughout 13 state WRAP region (excludes AK)

37. Communication – Annex Provisions
Review of EPA’s proposed approval of the Annex
Comments submitted on July 3, 2002
Requests from states that are involved in stakeholder processes and the development of SIPs
Tribal outreach
4 tribes that have major sources

38. Material Needed for 309 SIPs/TIPs
Model Rule and MOU
Air Managers Committee contracted with WESTAR to review and recommend changes
Focus is on implementation and enforceability issues related to the model rule and MOU
Draft will go back to AMC and MTF for review
Approve changes
Address any new policy issues

39. Material Needed for 309 SIPs/TIPs
Report on NOx and PM
Evaluate need to develop a trading program to address growth in these pollutants
Evaluate control options
Evaluate potential impact on visibility impairment
Monitoring Protocols – Trading program
Needed for all non-utility source categories