1. Cleaner Air Set-Asides (CASA) February 14, 2006 DRAFT Illinois Environmental Protection Agency / Bureau of Air

2. NOx Set-Asides Topics Allowance Calculation Allowance Distribution Period Look Back for Eligibility Over/Under Subscription Allowance Application Method Notes

3. Allowance Calculation Illinois proposed set-asides fall into four category types: 1. Energy Conservation Projects 2. Energy Generation Projects 3. Emission Reduction Projects 4. Timing

4. Energy Conservation Projects Demand Side Management (DSM) Energy Efficient New Const. (EENC) Supply Side Energy Efficiency (SSEE) Allowances u = Allowances u = ( MWhr conserved ) x ( 1.5 lb/MWhr ) / 2000 lb

5. Example: A large manufacturing facility under- takes a lighting and electric motor upgrade project. Expected energy savings are 10,000 MWhrs per year. The manufacturer would qualify under the DSM category. Allowances u = ( 10,000 MWhr conserved ) x ( 1.5 lb/MWhr ) / 2000 lb = 7.5

6. Energy Generation Projects Zero Emission Energy Units (ZEEU) Efficient Operators (EO) Integrated Gasification Com. Cycle (IGCC) Allowances u ZEEU= ( MWhr generated ) x ( 2.0 lb/MWhr ) / 2000 lb

7. Example An investor undertakes a hybrid wind and solar project. Combined, the plant achieves 525,000 MWhrs for a given year. The investor would qualify under the ZEEU category. Allowances u = ( 525,000 MWhr generated ) x ( 2.0 lb/MWhr ) / 2000 lb = 525

8. Energy Generation Projects Cont. Allowances u EO & IGCC= ( MWhr generated ) x ( 1.0 lb/MWhr – ER lb/MWhr ) / 2000 lb ER = Annual average emission rate based from CEM

9. Example A utility installs a fluidized bed combustion boiler, whose emission rate (ER), based from an annual average of CEM data, is 0.7 lb/MWhr. The plant generated 1.0 million MWhrs that year. The cooperative would qualify under the EO category for installing a FBC boiler. Allowances u = ( 1.0 M MWhr generated ) x ( 1.0 lb/MWhr – 0.7 lb/MWhr ) / 2000 lb = 150

10. Emission Reducing Projects Renewable Energy Emis. Units (REEU) Pollution Control Upgrades (PCU) Allowances u REEU = ( MWhr generated ) x ( 0.5 lb/MWhr ) / 2000 lb

11. Example A landfill that is required under federal law to abate methane emissions chooses to fire the methane in engine generator sets instead of flaring the gas. 100,000 MWhrs are generated. The landfill would qualify under the REEU category for combusting the landfill gas to generate electricity. Allowances u = ( 100,000 MWhr generated ) x ( 0.5 lb/MWhr ) / 2000 lb = 25

12. Emission Reducing Projects Cont. Allowances u PCU= ( MWhr generated ) x ( ER before lb/MWhr – ER after lb/MWhr ) / 2000 lb ER before = Baseline from recent 2 year average emission rate from CEM ER after = Annual average emission rate based from CEM

13. Example An existing coal-fired utility installs a SCR to control NOx emissions. Its baseline emissions rate, prior 2 year average based from CEM data, was 1.8 lb/MWhr, and after the upgrade became 0.9 lb/MWhr. The utility generated 2.8 million MWhrs in a given year. The utility would qualify under the PCU category for installing the SCR. Allowances u =( 2.8 M MWhr generated ) x ( 1.8 lb/MWhr – 0.9 lb/MWhr ) / 2000 lb = 1,260

14. Timing Early Adopter (EA) Allowances u = 1.0 + (1/10) x (A Σ the sum of other eligible allowances ) Eligible projects must commence by Dec. 31, 2012.

15. Example The prior wind and solar plant example is finished in 2009 and received 525 allowances. The investor would also qualify under the early adopter category for installing the wind and solar plant prior to 2012. Allowances u = 1.0+(1/10) x (525) = 53.5

16. Pro Rata and Rounding If the CASA category is sufficient for the number of requested allowances, rounding will be used. If the CASA category is insufficient for the number of requested allowances, a pro rata distribution will be used, and then rounded.

17. Combination of Set-Asides The proposed IEPA rule allows an entity to undertake in separate simultaneous qualified projects. For example, while installing various generation upgrades to an existing coal-fired utility, the utility may also install wind generation. The utility would qualify under both the SSEE category and ZEEU.

18. Combination of Set-Asides Ex. An efficient new plant could receive multiple incentives. Assuming construction after Jan. 1, 2006 but before Dec. 31, 2012, and energy conscious support buildings; the new utility could receive allowances from: New Unit Set-Aside (NUSA) Efficient Operator (EO) Energy Efficient New Construction (EENC) Early Adopter (EA)

19. Allowance Distribution Period Years Demand Side Management (DSM) 8 Energy Efficient New Const. (EENC) 8 Supply Side Energy Efficiency (SSEE) 8 Zero Emission Energy Units (ZEEU) * Efficient Operators (EO) * Integrated Gasification Com. Cycle (IGCC) * Renewable Energy Emis. Units (REEU) * Pollution Control Upgrades (PCU) 15 Early Adopter (EA) 10 * = Allowances given to the source so long as the source is generating.

20. Look Back for Eligibility Years Demand Side Management (DSM) 2003 Energy Efficient New Const. (EENC) 2003 Supply Side Energy Efficiency (SSEE) 2003 Zero Emission Energy Units (ZEEU) 2001 Efficient Operators (EO) 2001 Integrated Gasification Com. Cycle (IGCC) 0 Renewable Energy Emis. Units (REEU) 2001 Pollution Control Upgrades (PCU)* 0 Early Adopter (EA) 0 * = specifically not allowed for those entities required to install controls

21. Under Subscription Allowances from under subscribed category(s) shall be allowed to bank until an individual CASA category doubles. The excess of the doubled CASA category will be distributed to other categories as necessary, banked further, or retired by 50-100%, as determined by the Agency, to ensure continual progress toward or maintenance of attainment.

22. Over Subscription After an individual CASA category doubles, its excess will be used, as necessary, to supplement any over subscribed categories. No over subscription: The entity will be eligible for the number of allowances determined by that categories calculation. Over subscription: The entity will be eligible for the prorated number of allowances determined by that categories calculation.

23. Allowance Application Method Application based. Subject to IEPA review and approval. IEPA will review in accordance with established DOE calculation and metering/monitoring methods; possibly other acceptable methods. Final determination of an individual project allocation is the sole discretion of IEPA.

24. Notes Calculation weight choices for X lb/MWhr : 0.5 = Ex. REEU. These sources are considered renewable, however they generate some NOx. 1.0 = Ex. EO & IGCC. Approximately equal to the 0.1 lb/mmBtu emission rate that is believed necessary for attainment goals. 1.5 = Ex. DSM & SSEE. Standard weighting choice per guidance as well as other States. 2.0 = Ex. ZEEU. Renewable energy source with no associated emissions. Extra incentive also provided to help attain the Governor's SEP goal.

25. Notes Cont. The CASA category lists are for the most part not all inclusive due to the vast number of potential projects. The pollution control upgrade (PCU) category is intended to be used only for existing plants. For the purpose of the CASA, existing will be established as commercially generating for 5 years.

26. Notes Cont. Existing coal-fired utilities are able to participate in any category of the 25% CASA. Only they may participate in the Supply Side Energy Efficiency (SSEE) and Pollution Control Upgrades (PCU) categories, 7%, that account for almost 30% of the total CASA. Early adoption could account for up to an additional 2%, or almost 40% of the total CASA.

27. Notes Cont. Comment: Allowances given to a wind farm do not reduce pollution as the wind farm in turn sells it to a utility – therefore any set- aside is of virtually no environmental benefit. Response: Every MWhr of power that is offset through increased efficiency or alternative means reduces our need for increased generation and capacity from coal- fired plants. Effectively, we can produce twice the power per ton of NOx: once from the EE/RE and then a second from the utility.