Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units

Federal RegisterJun 18, 2014

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 60

[EPA-HQ-OAR-2013-0602; FRL-9911-86-OAR]

RIN 2060-AR33

Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Proposed rule.

SUMMARY:

In this action, the Environmental Protection Agency (EPA) is proposing emission guidelines for states to follow in developing plans to address greenhouse gas emissions from existing fossil fuel-fired electric generating units. Specifically, the EPA is proposing state-specific rate-based goals for carbon dioxide emissions from the power sector, as well as guidelines for states to follow in developing plans to achieve the state-specific goals. This rule, as proposed, would continue progress already underway to reduce carbon dioxide emissions from existing fossil fuel-fired power plants in the United States.

DATES:

Comments on the proposed rule.

Comments must be received on or before October 16, 2014.

Comments on the information collection request.

Under the Paperwork Reduction Act (PRA), since the Office of Management and Budget (OMB) is required to make a decision concerning the information collection request between 30 and 60 days after June 18, 2014, a comment to the OMB is best assured of having its full effect if the OMB receives it by July 18, 2014.

Public Hearing.

Four public hearings will be convened. On July 29, 2014, one public hearing will be held in Atlanta, Georgia, at the Sam Nunn Atlanta Federal Center Main Tower Bridge Conference Area, Conference Room B, 61 Forsyth Street SW., Atlanta, GA 30303, and one will be held in Denver, Colorado, at the EPA's Region 8 Building, 1595 Wynkoop Street, Denver, Colorado 80202. On July 30, 2014, a public hearing will be held in Washington, DC, at the William Jefferson Clinton East Building, Room 1152, 1201 Constitution Avenue NW., Washington, DC 20004. On July 31, 2014, a public hearing will be held in Pittsburgh, Pennsylvania at the William S. Moorhead Federal Building, Room 1310, 1000 Liberty Avenue, Pittsburgh, Pennsylvania 15222. The hearings in Pittsburgh, Pennsylvania, Atlanta, Georgia, and Washington, DC, will convene at 9:00 a.m. and end at 8:00 p.m. (Eastern Standard Time). The hearing in Denver, Colorado, will convene at 9:00 a.m. and end at 8:00 p.m. (Mountain Daylight Time). For all hearings there will be a lunch break from 12:00 p.m. to 1:00 p.m. and a dinner break from 5:00 p.m. to 6:00 p.m. Please contact Ms. Pamela Garrett at 919-541-7966 or at

garrett.pamela@epa.gov

to register to speak at one of the hearings. The last day to pre-register in advance to speak at the hearings will be Friday, July 25, 2014. Additionally, requests to speak will be taken the day of the hearings at the hearing registration desk, although preferences on speaking times may not be able to be fulfilled. If you require the service of a translator or special accommodations such as audio description, please let us know at the time of registration.

The hearings will provide interested parties the opportunity to present data, views or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who arrive and register. Because these hearings are being held at U.S. government facilities, individuals planning to attend the hearing should be prepared to show valid picture identification to the security staff in order to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress in 2005, established new requirements for entering federal facilities. These requirements will take effect July 21, 2014. If your driver's license is issued by Alaska, American Samoa, Arizona, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Montana, New York, Oklahoma, or the state of Washington, you must present an additional form of identification to enter the federal buildings where the public hearings will be held. Acceptable alternative forms of identification include: Federal employee badges, passports, enhanced driver's licenses and military identification cards. We will list any additional acceptable forms of identification at:

http://www2.epa.gov/cleanpowerplan/

. In addition, you will need to obtain a property pass for any personal belongings you bring with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs will be allowed in the building, cameras may only be used outside of the building and demonstrations will not be allowed on federal property for security reasons.

The EPA may ask clarifying questions during the oral presentations, but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearing. Commenters should notify Ms. Garrett if they will need specific equipment, or if there are other special needs related to providing comments at the hearings. Verbatim transcripts of the hearings and written statements will be included in the docket for the rulemaking. The EPA will make every effort to follow the schedule as closely as possible on the day of the hearing; however, please plan for the hearings to run either ahead of schedule or behind schedule. Additionally, more information regarding the hearings will be available at:

http://www2.epa.gov/cleanpowerplan/.

ADDRESSES:

Comments.

Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2013-0602, by one of the following methods:

Federal eRulemaking portal: http://www.regulations.gov.

Follow the online instructions for submitting comments.

Email: A-and-R-Docket@epa.gov.

Include docket ID No. EPA-HQ-OAR-2013-0602 in the subject line of the message.

Facsimile:

(202) 566-9744. Include docket ID No. EPA-HQ-OAR-2013-0602 on the cover page.

Mail:

Environmental Protection Agency, EPA Docket Center (EPA/DC), Mail code 28221T, Attn: Docket ID No. EPA-HQ-OAR-2013-0602, 1200 Pennsylvania Ave. NW., Washington, DC 20460. In addition, please mail a copy of your comments on the information collection provisions to the Office of Information and Regulatory Affairs, OMB, Attn: Desk Officer for the EPA, 725 17th St. NW., Washington, DC 20503.

Hand/Courier Delivery:

EPA Docket Center, Room 3334, EPA WJC West Building, 1301 Constitution Ave. NW., Washington, DC 20004, Attn: Docket ID No. EPA-HQ-OAR-2013-0602. Such deliveries are accepted only during the Docket Center's normal hours of operation (8:30 a.m. to 4:30 p.m., Monday through Friday, excluding federal holidays), and special arrangements should be made for deliveries of boxed information.

Instructions:

All submissions must include the agency name and docket ID number (EPA-HQ-OAR-2013-0602). The EPA's policy is to include all comments received without change, including any personal information provided, in the public docket, available online at

http://www.regulations.gov

, unless the comment includes information claimed to be Confidential

Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through

http://www.regulations.gov

or email. Send or deliver information identified as CBI only to the following address: Mr. Roberto Morales, OAQPS Document Control Officer (C404-02), Office of Air Quality Planning and Standards, U.S. EPA, Research Triangle Park, North Carolina 27711, Attention Docket ID No. EPA-HQ-OAR-2013-0602. Clearly mark the part or all of the information that you claim to be CBI. For CBI information on a disk or CD-ROM that you mail to the EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information you claim as CBI. In addition to one complete version of the comment that includes information claimed as CBI, you must submit a copy of the comment that does not contain the information claimed as CBI for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR Part 2.

The EPA requests that you also submit a separate copy of your comments to the contact person identified below (see

FOR FURTHER INFORMATION CONTACT

). If the comment includes information you consider to be CBI or otherwise protected, you should send a copy of the comment that does not contain the information claimed as CBI or otherwise protected.

The

www.regulations.gov

Web site is an “anonymous access” system, which means the EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an email comment directly to the EPA without going through

http://www.regulations.gov

, your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, the EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If the EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, the EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption and be free of any defects or viruses.

Docket:

All documents in the docket are listed in the

http://www.regulations.gov

index. Although listed in the index, some information is not publicly available (e.g., CBI or other information whose disclosure is restricted by statute). Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in

http://www.regulations.gov

or in hard copy at the EPA Docket Center, William Jefferson Clinton Building West, Room 3334, 1301 Constitution Ave. NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding federal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the Air Docket is (202) 566-1742. Visit the EPA Docket Center homepage at

http://www.epa.gov/epahome/dockets.htm

for additional information about the EPA's public docket.

In addition to being available in the docket, an electronic copy of this proposed rule will be available on the Worldwide Web (WWW). Following signature, a copy of this proposed rule will be posted at the following address:

http://www2.epa.gov/cleanpowerplan/

FOR FURTHER INFORMATION CONTACT:

Ms. Amy Vasu, Sector Policies and Programs Division (D205-01), U.S. EPA, Research Triangle Park, NC 27711; telephone number (919) 541-0107, facsimile number (919) 541-4991; email address:

vasu.amy@epa.gov

or Ms. Marguerite McLamb, Sector Policies and Programs Division (D205-01), U.S. EPA, Research Triangle Park, NC 27711; telephone number (919) 541-7858, facsimile number (919) 541-4991; email address:

mclamb.marguerite@epa.gov

SUPPLEMENTARY INFORMATION:

Acronyms.

A number of acronyms and chemical symbols are used in this preamble. While this may not be an exhaustive list, to ease the reading of this preamble and for reference purposes, the following terms and acronyms are defined as follows:

ACEEE American Council for an Energy Efficient Economy

AEO Annual Energy Outlook

AFL-CIO American Federation of Labor and Congress of Industrial Organizations

ASTM American Society for Testing of Materials

BSER Best System of Emission Reduction

Btu/kWh British Thermal Units per Kilowatt-hour

CAA Clean Air Act

CBI Confidential Business Information

CCS Carbon Capture and Storage (or Sequestration)

CEMS Continuous Emissions Monitoring System

CHP Combined Heat and Power

Carbon Dioxide

DOE Department of Energy

ECMPS Emissions Collection and Monitoring Plan System

EERS Energy Efficiency Resource Standard

EGU Electric Generating Unit

EIA Energy Information Administration

EM&V Evaluation, Measurement and Verification

EO Executive Order

EPA Environmental Protection Agency

Federal Register

GHG Greenhouse Gas

GW Gigawatt

HAP Hazardous Air Pollutant

HRSG Heat Recovery Steam Generator

IGCC Integrated Gasification Combined Cycle

IPCC Intergovernmental Panel on Climate Change

IPM Integrated Planning Model

IRP Integrated Resource Plan

ISO Independent System Operator

kW Kilowatt

kWh Kilowatt-hour

lb CO

/MWh Pounds of CO

per Megawatt-hour

LBNL Lawrence Berkeley National Laboratory

MMBtu Million British Thermal Units

MW Megawatt

MWh Megawatt-hour

NAAQS National Ambient Air Quality Standards

NAICS North American Industry Classification System Commissioners

NAS National Academy of Sciences

NGCC Natural Gas Combined Cycle

Nitrogen Oxides

NRC National Research Council

NSPS New Source Performance Standard

NSR New Source Review

NTTAA National Technology Transfer and Advancement Act

NYSERDA New York State Energy Research and Development Authority

OMB Office of Management and Budget

PM Particulate Matter

2.5

Fine Particulate Matter

PRA Paperwork Reduction Act

PSB Public Service Board

PUC Public Utilities Commission

REC Renewable Energy Credit

RES Renewable Energy Standard

RFA Regulatory Flexibility Act

RGGI Regional Greenhouse Gas Initiative

RIA Regulatory Impact Analysis

RPS Renewable Portfolio Standard

RTO Regional Transmission Operator

SBA Small Business Administration

SBC System Benefits Charge

SCC Social Cost of Carbon

SIP State Implementation Plan

Sulfur Dioxide

Tg Teragram (one trillion (10

) grams)

TSD Technical Support Document

TTN Technology Transfer Network

UMRA Unfunded Mandates Reform Act of 1995

UNFCCC United Nations Framework Convention on Climate Change

USGCRP U.S. Global Change Research Program

VCS Voluntary Consensus Standard

Organization of This Document.

The information presented in this preamble is organized as follows:

I. General Information

A. Executive Summary

B. Organization and Approach for This Proposed Rule

II. Background

A. Climate Change Impacts From GHG Emissions

B. GHG Emissions From Fossil Fuel-Fired EGUs

C. The Utility Power Sector

D. Statutory and Regulatory Requirements

III. Stakeholder Outreach and Conclusions

A. Stakeholder Outreach

B. Key Messages From Stakeholders

C. Key Stakeholder Proposals

D. Consideration of the Existing Range of Policies and Programs

E. Conclusions

IV. Rule Requirements and Legal Basis

A. Summary of Rule Requirements

B. Summary of Legal Basis

V. Authority To Regulate Carbon Dioxide and EGUs, Affected Sources, and Treatment of Categories

A. Authority To Regulate Carbon Dioxide

B. Authority To Regulate EGUs

C. Affected Sources

D. Implications for Tribes and U.S. Territories

E. Combined Categories and Codification in the Code of Federal Regulations

VI. Building Blocks for Setting State Goals and the Best System of Emission Reduction

A. Introduction

B. Building Blocks for Setting State Goals

C. Detailed Discussion of Building Blocks and Other Options Considered

D. Potential Combinations of the Building Blocks as Components of the Best System of Emission Reduction

E. Determination of the Best System of Emission Reduction

VII. State Goals

A. Overview

B. Form of Goals

C. Proposed Goals and Computation Procedure

D. State Flexibilities

E. Alternate Goals and Other Approaches Considered

F. Reliable Affordable Electricity

VIII. State Plans

A. Overview

B. Approach

C. Criteria for Approving State Plans

D. State Plan Components

E. Process for State Plan Submittal and Review

F. State Plan Considerations

G. Additional Factors That Can Help States Meet Their CO

Emission Performance Goals

H. Resources for States To Consider in Developing Plans

IX. Implications for Other EPA Programs and Rules

A. Implications for NSR Program

B. Implications for Title V Program

C. Interactions With Other EPA Rules

X. Impacts of the Proposed Action

A. What are the air impacts?

B. Comparison of Building Block Approaches

C. Endangered Species Act

D. What are the energy impacts?

E. What are the compliance costs?

F. What are the economic and employment impacts?

G. What are the benefits of the proposed action?

XI. Statutory and Executive Order Reviews

A. Executive Order 12866, Regulatory Planning and Review, and Executive Order 13563, Improving Regulation and Regulatory Review

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Unfunded Mandates Reform Act of 1995

E. Executive Order 13132, Federalism

F. Executive Order 13175, Consultation and Coordination With Indian Tribal Governments

G. Executive Order 13045, Protection of Children From Environmental Health Risks and Safety Risks

H. Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use

I. National Technology Transfer and Advancement Act

J. Executive Order 12898, Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations

XII. Statutory Authority

I. General Information

A. Executive Summary

1. Purpose of the Regulatory Action

Under the authority of Clean Air Act (CAA) section 111(d), the EPA is proposing emission guidelines for states to follow in developing plans to address greenhouse gas (GHG) emissions from existing fossil fuel-fired electric generating units (EGUs). In this summary, we outline the proposal; discuss its purpose; summarize its major provisions, including the EPA's approach to determining goals; describe the broad range of options available to states, including flexibility in timing requirements both for plan submission and compliance deadlines under those plans; and briefly describe the estimated CO

emission reductions, costs and benefits expected to result from full implementation of the proposal.

This rule, as proposed, would continue progress already underway to lower the carbon intensity of power generation in the United States (U.S.). Lower carbon intensity means fewer emissions of CO

, a potent greenhouse gas that contributes to climate change. This proposal is a significant step forward in the EPA and states partnering to reduce GHG emissions in the U.S. The proposal incorporates critical elements that reflect the information and views shared during the unprecedented effort that the EPA has undertaken, beginning in the summer of 2013, to interact directly with, and solicit input from, a wide range of states and stakeholders. This effort encompassed several hundred meetings across the country with state environmental and energy officials, public utility commissioners, system operators, utilities and public interest advocates, as well as members of the public. Many participants submitted written material and data to the EPA as well.

Nationwide, by 2030, this rule would achieve CO

emission reductions from the power sector of approximately 30 percent from CO

emission levels in 2005. This goal is achievable because innovations in the production, distribution and use of electricity are already making the power sector more efficient and sustainable while maintaining an affordable, reliable and diverse energy mix. This proposed rule would reinforce and continue this progress. The EPA projects that, in 2030, the significant reductions in the harmful carbon pollution and in other air pollution, to which this rule would lead, would result in net climate and health benefits of $48 billion to $82 billion. At the same time, coal and natural gas would remain the two leading sources of electricity generation in the U.S., with each providing more than 30 percent of the projected generation.

Based on evidence from programs already being implemented by many states as well as input received from stakeholders, the agency recognizes that the most cost-effective system of emission reduction for GHG emissions from the power sector under CAA section 111(d) entails not only improving the efficiency of fossil fuel-fired EGUs, but also addressing their utilization by taking advantage of opportunities for lower-emitting generation and reduced electricity demand across the electricity system's interconnecting network or grid.

The proposed guidelines are based on and would reinforce the actions already being taken by states and utilities to upgrade aging electricity infrastructure with 21st century technologies. The guidelines would ensure that these trends continue in ways that are consistent with the long-term planning and investment processes already used in this sector, to meet both region- and state-specific needs. The proposal provides flexibility for states to build upon their progress, and the progress of cities and towns, in addressing GHGs. It also allows states to pursue policies to reduce carbon pollution that: (1)

Continue to rely on a diverse set of energy resources, (2) ensure electric system reliability, (3) provide affordable electricity, (4) recognize investments that states and power companies are already making, and (5) can be tailored to meet the specific energy, environmental and economic needs and goals of each state. Thus, the proposed guidelines would achieve meaningful CO

emission reduction while maintaining the reliability and affordability of electricity in the U.S.

a. Proposal Elements

The proposal has two main elements: (1) State-specific emission rate-based CO

goals and (2) guidelines for the development, submission and implementation of state plans. To set the state-specific CO

goals, the EPA analyzed the practical and affordable strategies that states and utilities are already using to lower carbon pollution from the power sector. These strategies include improvements in efficiency at carbon-intensive power plants, programs that enhance the dispatch priority of, and spur private investments in, low emitting and renewable power sources, as well as programs that help homes and businesses use electricity more efficiently. In addition, in calculating each state's CO

goal, the EPA took into consideration the state's fuel mix, its electricity market and numerous other factors. Thus, each state's goal reflects its unique conditions.

While this proposal lays out state-specific CO

goals that each state is required to meet, it does not prescribe how a state should meet its goal. CAA section 111(d) creates a partnership between the EPA and the states under which the EPA sets these goals and the states take the lead on meeting them by creating plans that are consistent with the EPA guidelines. Each state will have the flexibility to design a program to meet its goal in a manner that reflects its particular circumstances and energy and environmental policy objectives. Each state can do so alone or can collaborate with other states on multi-state plans that may provide additional opportunities for cost savings and flexibility.

To facilitate the state planning process, this proposal lays out guidelines for the development and implementation of state plans. The proposal describes the components of a state plan, the latitude states have in developing compliance strategies, the flexibility they have in the timing for submittal of their plans and the flexibility they have in determining the schedule by which their sources must achieve the required CO

reductions. The EPA recognizes that each state has differing policy considerations—including varying emission reduction opportunities and existing state programs and measures—and that the characteristics of the electricity system in each state (e.g., utility regulatory structure, generation mix and electricity demand) also differ. Therefore, the proposed guidelines provide states with options for meeting the state-specific goals established by the EPA in a manner that accommodates a diverse range of state approaches. This proposal also gives states considerable flexibility with respect to the timeframes for plan development and implementation, providing up to two or three years for submission of final plans and providing up to fifteen years for full implementation of all emission reduction measures, after the proposal is finalized.

Addressing a concern raised by both utilities and states, the EPA is proposing that states could choose approaches in their compliance plans under which full responsibility for actions achieving reductions is not placed entirely upon emitting EGUs; instead, state plans could include measures and policies (e.g., demand-side energy efficiency programs and renewable portfolio standards) for which the state itself is responsible. Of course, individual states would also have the option of structuring programs (e.g., allowance-trading programs) under which full responsibility rests on the affected EGUs.

The EPA believes that, using the flexibilities inherent in CAA section 111(d), this proposal would result in significant reductions of GHG emissions that cause harmful climate change, while providing states with ample opportunity to design plans that use innovative, cost-effective strategies that take advantage of investments already being made in programs and measures that lower the carbon intensity of the power sector and reduce GHG emissions.

b. Policy Context and Industry Conditions

This proposal is an important step toward achieving the GHG emission reductions needed to address the serious threat of climate change. GHG pollution threatens the American public by leading to potentially rapid, damaging and long-lasting changes in our climate that can have a range of severe negative effects on human health and the environment. CO

is the primary GHG pollutant, accounting for nearly three-quarters of global GHG emissions

and 82 percent of U.S. GHG emissions.

The May 2014 report of the National Climate Assessment

concluded that climate change impacts are already manifesting themselves and imposing losses and costs. The report documents increases in extreme weather and climate events in recent decades, damage and disruption to infrastructure and agriculture, and projects continued increases in impacts across a wide range of communities, sectors, and ecosystems.

Intergovernmental Panel on Climate Change (IPCC) report, “Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change,” 2007. Available at

http://epa.gov/climatechange/ghgemissions/global.html.

Table ES-2 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012”, Report EPA 430-R-14-003, United States Environmental Protection Agency, April 15, 2014.

U.S. Global Change Research Program, Climate Change Impacts in the United States: The Third National Climate Assessment, May 2014. Available at

http://nca2014.globalchange.gov/.

The President's Climate Action Plan,

issued in June 2013, recognizes that climate change has far-reaching harmful consequences and real economic costs. The Climate Action Plan details a broad array of actions to reduce GHG emissions that contribute to climate change and affect public health and the environment. One of the plan's goals is to reduce CO

emissions from power plants. This is because fossil fuel-fired EGUs are, by far, the largest emitters of GHGs, primarily in the form of CO

, among stationary sources in the U.S. To accomplish this goal, President Obama issued a Presidential Memorandum

that recognized the importance of significant and prompt action. The Memorandum directed the EPA to complete carbon pollution standards, regulations or guidelines, as appropriate, for modified, reconstructed and existing power plants by June 1, 2015, and in doing so to build on state leadership in moving toward a cleaner power sector.

The President's Climate Action Plan, June 2013.

http://www.whitehouse.gov/sites/default/files/image/president27sclimateactionplan.pdf

Presidential Memorandum—Power Sector Carbon Pollution Standards, June 25, 2013.

http://www.whitehouse.gov/the-press-office/2013/06/25/presidential-memorandum-power-sector-carbon-pollution-standards

The way that power is produced, distributed and used is already changing due to advancements in innovative power sector technologies and in the availability and cost of low carbon fuel, renewable energy and energy efficient demand-side technologies, as well as economic conditions. In addition, the average age of the coal-fired generating fleet is increasing. In 2025, the average age of the coal-fired generating fleet is

projected to be 49 years old, and 20 percent of units would be more than 60 years old if they remained in operation at that time. Therefore, even in the absence of additional environmental regulation, states and utilities can be expected to be, and already are, making plans to address the changes necessitated by the aging of current assets and infrastructure. With change inevitably underway between now and 2030, a CAA section 111(d) rulemaking for CO

emissions is timely and can inform current and ongoing decision making by states and utilities, as well as private sector business and technology investments. As states develop their plans, they will make key decisions that will stimulate private sector investment and innovation associated with reducing GHG emissions. We expect that many states will consider the opportunities offered for their respective economies as a result of this investment.

The proposed guidelines are designed to build on and reinforce progress by states, cities and towns, and companies on a growing variety of sustainable strategies to reduce power sector CO

emissions. At the same time, the EPA believes that this proposal provides flexibility for states to develop plans that align with their unique circumstances, as well as their other environmental policy, energy and economic goals. All states will have the opportunity to shape their plans as they believe appropriate for meeting the proposed CO

goals. This includes states with long-established reliance on coal-fired generation, as well as states with a commitment to promoting renewable energy (including through sustainable forestry initiatives). It also includes states that are already participating in or implementing CO

reduction programs, such as the Regional Greenhouse Gas Initiative (RGGI), California's “Global Warming Solutions Act” and Colorado's “Clean Air, Clean Jobs Act”.

States would be able to rely on and extend programs they may already have created to address the power sector. Those states committed to Integrated Resource Planning (IRP) would be able to establish their CO

reduction plans within that framework, while states with a more deregulated power sector system could develop CO

reduction plans within that specific framework. Each state, including states without an existing program, would have the opportunity to take advantage of a wide variety of strategies for reducing CO

emissions from affected EGUs. The EPA and other federal entities, including the U.S. Department of Energy (DOE), the Federal Energy Regulatory Commission (FERC) and the U.S. Department of Agriculture, among others, are committed to sharing expertise with interested states as they develop and implement their plans.

States would be able to address the economic interests of their utilities and ratepayers by using the flexibilities in this proposed action to: (1) Reduce costs to consumers, minimize stranded assets, and spur private investments in renewable energy and energy efficiency technologies and businesses; and (2) if they choose, work with other states on multi-state approaches that reflect the regional structure of electricity operating systems that exists in most parts of the country and is critical to ensuring a reliable supply of affordable energy. The proposed rule gives states the flexibility to provide a broad range of compliance options that recognize that the power sector is made up of a diverse range of companies that own and operate fossil fuel-fired EGUs, including vertically integrated companies in regulated markets, independent power producers, rural cooperatives and municipally-owned utilities, all of which are likely to have different ranges of opportunities to reduce GHG emissions while facing different challenges in meeting these reductions.

Both existing state programs (such as RGGI, the California Global Warming Solutions Act program and the Colorado Clean Air, Clean Jobs Act program) and ideas suggested by stakeholders show that there are a number of different ways that states can design programs that achieve required reductions while working within existing market mechanisms used to dispatch power effectively in the short term and to ensure adequate capacity in the long term. These programs and programs for conventional pollutants, such as the Acid Rain Program under Title IV of the CAA, have demonstrated that compliance with environmental programs can be monetized such that it is factored into power sector economic decision making in ways that reduce the cost of controlling pollution, maintain electricity system reliability and work within the least cost dispatching principles that are key to operation of our electric power grid. The proposal would also allow states to work together with individual companies on potential specific challenges. These and other flexibilities are discussed further in Section VIII of the preamble.

a. CAA Section 111(d) Requirements

Under CAA section 111(d),

state plans must establish standards of performance that reflect the degree of emission limitation achievable through the application of the “best system of emission reduction” that, taking into account the cost of achieving such reduction and any non-air quality health and environmental impacts and energy requirements, the Administrator determines has been adequately demonstrated (BSER).

Consistent with CAA section 111(d), the EPA is proposing state-specific goals that reflect the EPA's calculation of the emission limitation that each state can achieve through the application of the BSER. This calculation reflects the degree of emission limitation that the state plan must achieve in order to implement the BSER that the EPA has determined has been adequately demonstrated and that, in turn, would be required to be, and via the calculation, has been, applied for the affected EGUs in each state. A CAA section 111(d) state plan will differ from a state implementation plan (SIP) for a criteria air pollutant national ambient air quality standard (NAAQS) in several respects, reflecting the significant differences between CAA sections 110 and 111. A CAA section 110 SIP must be designed to meet the NAAQS for a criteria air pollutant for a particular area—not for a source category—within a timeframe specified in the CAA. The NAAQS itself is based on the current body of scientific evidence and, by law, does not reflect consideration of cost. By contrast, a CAA section 111(d) state plan must be designed to achieve a specific level of emission performance that has been established for a particular source category within a timeframe determined by the Administrator and, to some extent, by each state. Moreover, the emission levels for the source category reflect a determination of the BSER, which incorporates consideration of cost, technical feasibility and other factors.

See also 40 CFR 60.22(b)(5).

Under CAA section 111(a)(1) and (d), the EPA is authorized to determine the BSER and to calculate the amount of emission reduction achievable through applying the BSER. The state is authorized to identify the standard or standards of performance that reflects that amount of emission reduction. In addition, the state is required to include in its state plan the standards of performance and measures to implement and enforce those standards. The state must submit the plan to the EPA, and the EPA must approve the plan if the standards of performance and implementing and enforcing measures are satisfactory. This is discussed in more detail in Sections IV, VI, VII and VIII of this preamble, as well as in the Legal Memorandum.

To determine the BSER for reducing CO

emissions at affected EGUs, the EPA considered numerous measures that are already being implemented and can be implemented more broadly to

improve emission rates and to reduce overall CO

emissions from fossil fuel-fired EGUs. Overall, the BSER proposed here is based on a range of measures that fall into four main categories, or “building blocks,” which comprise improved operations at EGUs, dispatching lower-emitting EGUs and zero-emitting energy sources, and end-use energy efficiency. All of these measures have been amply demonstrated via their current widespread use by utilities and states.

The proposed guidelines are structured so that states would not be required to use each and every one of the measures that the EPA determines constitute the BSER or to apply any one of those measures to the same extent that the EPA determines is achievable at reasonable cost. Instead, in developing its plan, each state will have the flexibility to select the measure or combination of measures it prefers in order to achieve its CO

emission reduction goal. Thus, a state could choose to achieve more reductions from one measure encompassed by the BSER and less from another, or it could choose to include measures that were not part of the EPA's BSER determination, as long as the state achieves the CO

reductions at affected EGUs necessary to meet the goal that the EPA has defined as representing the BSER.

As explained in further detail in Sections VI, VII and VIII of this preamble regarding the agency's determination of the BSER, the EPA is offering the opportunity via this proposal to comment on the proposed BSER, the proposed methodology for computing state goals based on application of the BSER, and the state-specific data used in the computations. Once the final goals have been promulgated, a state would no longer have an opportunity to request that the EPA adjust its CO

goal. The final state-specific CO

goals would reflect any adjustments as appropriate based on comments provided to the EPA to address any data errors in the analysis for the proposed goals. We expect that states will be able to meet the CO

goals because they will represent the application of the BSER for the states' affected sources.

This proposed rule sets forth the state goals that reflect the BSER and guidelines for states to use in developing their plans to reduce CO

from fossil fuel-fired EGUs. The preamble describes the proposed expectations for state plans and discusses options that the EPA has considered. It also explains the EPA's authority to define the BSER, as well as state goals, and each state's responsibility to develop and implement standards of performance that will achieve its CO

goal. Additional detail on various aspects of the proposal is included in several technical support documents (TSDs) and memoranda, which are available in the rulemaking docket.

The proposal was substantially informed by the extensive input from states and a wide range of stakeholders that the EPA sought and has received since the summer of 2013. The EPA invites further input through public comment on all aspects of this proposal.

2. Summary of the Proposal's Major Provisions

a. Approach

In developing this proposed rulemaking, the EPA is implementing statutory provisions that have been in place since Congress first enacted the CAA in 1970 and that have been implemented pursuant to regulations promulgated in 1975 and followed in subsequent CAA section 111(d) rulemakings. These provisions ensure that, in concert with the provisions of CAA sections 110 and 112, new and existing major stationary sources operate in ways that address their emissions of significant air pollutants that are harmful to public health and the environment. These requirements call on the EPA to develop emission guidelines, which reflect the EPA's determination of the BSER, for states to follow in formulating compliance plans to implement standards of performance to achieve emission reductions consistent with the BSER. In following these provisions, the EPA is proposing a BSER based on strategies currently being used by states and companies to reduce CO

emissions from EGUs.

The CAA, as interpreted by the courts, identifies several factors for the EPA to consider in a BSER determination. These include technical feasibility, costs, size of emission reductions and technology (e.g., whether the system promotes the implementation and further development of technology). In determining the BSER, the EPA considered the reductions achievable through measures that reduce CO

emissions from existing fossil fuel-fired EGUs either by (1) reducing the CO

emission rate at those units or (2) reducing the units' CO

emission total to the extent that generation can be shifted from higher-emitting fossil fuel-fired EGUs to lower- or zero-emitting options.

As the EPA has done in making BSER determinations in previous CAA section 111(d) rulemakings, the agency considered the types of strategies that states and owners and operators of EGUs are already employing to reduce the covered pollutant (in this case, CO

) from affected sources (in this case, fossil fuel-fired EGUs).

Across the nation, many states, cities and towns, and owners and operators of EGUs have shown leadership in creating and implementing policies and programs that reduce CO

emissions from the power sector while achieving other economic, environmental and energy benefits. Some of these activities, such as market-based programs and GHG performance standards, directly require CO

emission reductions from EGUs. Others reduce CO

emissions by reducing utilization of fossil fuel-fired EGUs through, for example, renewable portfolio standards (RPS) and energy efficiency resource standards (EERS). For example, currently 10 states have market-based GHG emission programs, 38 states have renewable portfolio standards or goals, and utilities in 47 states run demand-side energy efficiency programs. Many individual companies also have significant voluntary CO

emission reduction programs.

The final emission guidelines for landfill gas emissions from municipal solid waste landfills, published on March 12, 1996 and amended on June 16, 1998 (61 FR 9905 and 63 FR 32743, respectively) are one example, as they allow either of two approaches for controlling landfill gas—by recovering the gas as a fuel, for sale, and removing from the premises, or by destroying the organic content of the gas on the premises using a control device. Recovering the gas as a fuel source was a practice already being used by some affected sources prior to promulgation of the rulemaking.

Such strategies—and the proposed BSER determination—reflect the fact that, in almost all states, the production, distribution and use of electricity can be, and is, undertaken in ways that accommodate reductions in both pollution emission rates and total emissions. Specifically, electricity production, at least to some extent, takes place interchangeably between and among multiple generation facilities and different types of generation, a fact that Congress, the EPA and the states have long relied on in enacting or promulgating pollution reduction programs, such as Title IV of the CAA, the NO

SIP Call, the Cross State Air Pollution Rule (CSAPR) and RGGI.

As a result, the agency, in quantifying state goals, assessed what combination of electricity production or energy demand reduction across generation facilities can offer a reasonable-cost, technically feasible approach to achieving CO

emission reductions. States, in turn, will be able to look broadly at opportunities across their

electricity system in devising plans to meet their goals. Importantly, states may rely on measures that they already have in place, including renewable energy standards and demand-side energy efficiency programs, and the proposal details how such existing state programs can be incorporated into state plans. States will also be able to participate in multi-state programs that already exist or may create new ones.

Thus, to determine the BSER for reducing CO

emissions at affected EGUs and to establish the numerical goals that reflect the BSER, the EPA considered numerous measures that can and are being implemented to improve emission rates and to reduce or limit mass CO

emissions from fossil fuel-fired EGUs. These measures encompass two basic approaches: (1) Reducing the carbon intensity of certain affected EGUs by improving the efficiency of their operations, and (2) addressing affected EGUs' mass emissions by varying their utilization levels. For purposes of expressing the BSER as an emission limitation, in this case in the form of state-level goals, we propose to base these two approaches on measures grouped into four main categories, or “building blocks.” These building blocks can also be used as a guide to states for constructing broad-based, cost-effective, long-term strategies to reduce CO

emissions. The EPA believes that the application of measures from each of the building blocks can achieve CO

emission reductions at fossil fuel-fired EGUs such that, when combined with measures from other building blocks, the measures represent the “best system of emission reduction . . . adequately demonstrated” for fossil fuel-fired EGUs. The building blocks are:

1. Reducing the carbon intensity of generation at individual affected EGUs through heat rate improvements.

2. Reducing emissions from the most carbon-intensive affected EGUs in the amount that results from substituting generation at those EGUs with generation from less carbon-intensive affected EGUs (including NGCC units under construction).

3. Reducing emissions from affected EGUs in the amount that results from substituting generation at those EGUs with expanded low- or zero-carbon generation.

4. Reducing emissions from affected EGUs in the amount that results from the use of demand-side energy efficiency that reduces the amount of generation required.

The four building blocks are described in detail in Sections VI of this preamble. As explained in that section, the EPA evaluated each of the building blocks individually against the BSER criteria and found that each of the building blocks independently merits consideration as part of the BSER. The EPA also evaluated combinations of the building blocks against the BSER criteria—in particular, a combination of all four building blocks and a combination of building blocks 1 and 2.

Based on that evaluation, the EPA proposes that the combination of all four building blocks is the BSER. The combination of all four blocks best represents the BSER because it achieves greater emission reductions at a lower cost, takes better advantage of the wide range of measures that states, cities, towns and utilities are already using to reduce CO

from EGUs and reflects the integrated nature of the electricity system and the diversity of electricity generation technology. Section VI of this preamble also explains how the EPA considered more aggressive application of measures in each block. This includes consideration of more extensive application of measures that the EPA determined do represent a component of the BSER (such as more extensive or accelerated application of demand-side measures), as well as consideration of options in some blocks that the EPA determined would not represent the BSER for existing sources (such as the inclusion of retrofit carbon capture and storage or sequestration (CCS) on existing EGUs).

As part of the BSER determination, the EPA considered the impacts that implementation of the emission reductions based on the combination of the blocks would have on the cost of electricity and electricity system reliability. As the preamble details, the EPA believes that, both with respect to the overall proposed BSER and with respect to the individual building blocks, the associated costs are reasonable. Importantly, the proposed BSER, expressed as a numeric goal for each state, provides states with the flexibility to determine how to achieve the reductions (i.e., greater reductions from one building block and less from another) and to adjust the timing in which reductions are achieved, in order to address key issues such as cost to consumers, electricity system reliability and the remaining useful life of existing generation assets.

In sum, the EPA proposes that the BSER for purposes of CAA section 111(d), as applied to existing fossil fuel-fired EGUs, is based on a combination of measures that reduce CO

emissions and CO

emission rates and encompass all four building blocks.

We are also soliciting comment on application of only the first two building blocks as the basis for the BSER, while noting that application of only the first two building blocks achieves fewer CO

reductions at a higher cost.

The EPA notes that under the proposed BSER, some building blocks would apply to some, but not all, affected sources. Specifically, building block 1 would apply to affected coal-fired steam EGUs, building block 2 would apply to all affected steam EGUs (both coal-fired and oil/gas-fired), and building blocks 3 and 4 would apply to all affected EGUs.

In determining the BSER, we have considered the ranges of reductions that can be achieved by application of each building block, and we have identified goals that we believe reflect a reasonable degree of application of each building block consistent with the BSER criteria. Relying on all four building blocks to characterize the combination of measures that reduce CO

emissions and CO

emission rates at affected EGUs as the basis for the BSER is consistent with strategies, actions and measures that companies and states are already undertaking to reduce GHG emissions and with current trends in the electric power sector, driven by efforts to reduce GHGs as well as by other factors, such as advancements in technology. Reliance on all four building blocks in this way also supports the goals of achieving significant and technically feasible reductions of CO

at a reasonable cost, while also promoting technology and approaches that are important for achieving further reductions. Finally, the EPA believes that the diverse range of measures encompassed in the four building blocks allows states and sources to take full advantage of the inherent flexibility of the current regionally interconnected and integrated electricity system so as to achieve the CO

goals while continuing to meet the demand for electricity services in a reliable and affordable manner.

The EPA recognizes that states differ in important ways, including in their mix of existing EGUs and in their policy priorities. Consequently, opportunities and preferences for reducing emissions, as reflected in each of the building blocks, vary across states. While the state-specific goals that the EPA is proposing in this rule are based on consistent application of a single goal-setting methodology across all states, the goals account for these key differences. The state-specific CO

goals derived from application of the methodology vary because, in setting the goals for a state, the EPA used data specific to each state's EGUs and certain

other attributes of its electricity system (e.g., current mix of generation resources).

The proposed BSER and goal-setting methodology reflect information provided and priorities expressed during the EPA's recent, extensive public outreach process. The input we received ranged from the states' desires for flexibility and recognition of varying state circumstances to the success that states and companies have had in adopting a range of pollution—and demand-reduction strategies. The state-specific approach embodied in both CAA section 111(d) and this proposal recognizes that ultimately states are the most knowledgeable about their specific circumstances and are best positioned to evaluate and leverage existing and new generation capacity and programs to reduce CO

emissions.

To meet its goal, each state will be able to design programs that use the measures it selects, and these may include the combination of building blocks most relevant to its specific circumstances and policy preferences. States may also identify technologies or strategies that are not explicitly mentioned in any of the four building blocks and may use those technologies or strategies as part of their overall plans (e.g., market-based trading programs or construction of new natural combined cycle units or nuclear plants). Further, the EPA's approach allows multi-state compliance strategies.

The agency also recognizes the important functional relationship between the period of time over which measures are deployed and the stringency of emission limitations those measures can achieve in a practical and reasonable cost way. Because, for this proposal, the EPA is proposing a 10-year period over which to achieve the full required CO

reductions, a period that begins more than five years from the date of this proposal, a state could take advantage of this relationship in the design of its program by using relevant combinations of building blocks to achieve its state goal in a manner that provides for electricity system reliability, avoids the creation of stranded assets and has a reasonable cost.

b. State Goals and Flexibilities

In this action, the EPA is proposing state-specific rate-based goals that state plans must be designed to meet. These state-specific goals are based on an assessment of the amount of emissions that can be reduced at existing fossil fuel-fired EGUs through application of the BSER, as required under CAA section 111(d). The agency is proposing state-specific final goals that must be achieved by no later than the year 2030. The proposed final goals reflect the EPA's quantification of adjusted state-average emission rates from affected EGUs that could be achieved at reasonable cost by 2030 through implementation of the four building blocks described above.

The EPA recognizes that, with many measures, states can achieve emission reductions in the short-term, though the full effects of implementation of other measures, such as demand-side energy efficiency (EE) programs and the addition of renewable energy (RE) generating capacity, can take longer. Thus, the EPA is proposing interim goals that states must meet beginning in 2020. The proposed interim goals would apply over a 2020-2029 phase-in period. They reflect the level of reductions in CO

emissions and emission rates and the extent of the application of the building blocks that would be presumptively approvable in a state plan during the ramp-up to achieving the final goal.

The EPA is proposing to allow each state flexibility with regard to the form of the goal. A state could adopt the rate-based form of the goal established by the EPA or an equivalent mass-based form of the goal. A multi-state approach incorporating either a rate- or mass-based goal would also be approvable based upon a demonstration that the state's plan would achieve the equivalent in stringency, including compliance timing, to the state-specific rate-based goal set by the EPA.

We believe that this approach to establishing requirements for states in developing their plans responds both to the needs of an effectively implemented program and to the range of viewpoints expressed by stakeholders regarding the simultaneous need for both flexibility and clear guidance on what would constitute an approvable state plan. We likewise believe that this approach represents a reasonable balance between two competing objectives grounded in CAA section 111(d)—a need for rigor and consistency in calculating emission reductions reflecting the BSER and a need to provide the states with flexibility in establishing and implementing the standards of performance that reflect those emission reductions. The importance of this balance is heightened by the fact that the operations of the electricity system itself rely on the flexibility made available and achieved through dispatching between and among multiple interconnected EGUs, demand management and end-use energy efficiency. We view the proposed goals as providing rigor where required by the statute with respect to the amount of emission reductions, while providing states with flexibility where permitted by the statute, particularly with respect to the range of measures that a state could include in its plan. This approach recognizes that state plans for emission reductions can, and must, be consistent with a vibrant and growing economy and supply of reliable, affordable electricity to support that economy. It further reflects the growing trend, as exemplified by many state and local clean energy policies and programs, to shift energy production away from carbon-intensive fuels to a modern, more sustainable system that puts greater reliance on renewable energy, energy efficiency and other low-carbon energy options.

c. State Plans

i. Plan Approach

Each state will determine, and include in its plan, emission performance levels for its affected EGUs that are equivalent to the state-specific CO

goal in the emission guidelines, as well as the measures needed to achieve those levels and the overall goal. As part of determining these levels, the state will decide whether it will adopt the rate-based form of the goal established by the EPA or translate the rate-based goal to a mass-based goal. The state must then establish a standard, or set of standards, of performance, as well as implementing and enforcing measures, to achieve the emission performance level specified in the state plan. The state may choose the measures it will include in its plan to achieve its goal. The state may use the same set of measures as in the EPA's approach to setting the goals, or the state may use other or additional measures to achieve the required CO

reductions.

A state plan must include enforceable CO

emission limits that apply to affected EGUs. In doing so, a state plan may take a portfolio approach, which could include enforceable CO

emission limits that apply to affected EGUs as well as other enforceable measures, such as RE and demand-side EE measures, that avoid EGU CO

emissions and are implemented by the state or by another entity. The plan must also include a process for reporting on plan implementation, progress toward achieving CO

goals, and implementation of corrective actions, if necessary. No less frequently than every two rolling calendar years, beginning January 1, 2022, the state will be required to compare emission performance achieved by affected EGUs

in the state with the emissions performance projected in the state plan, and report that to the EPA.

In this action, the EPA is also proposing guidelines for states to follow in developing their plans. These guidelines include approvability criteria, requirements for state plan components, the process and timing for state plan submittal and the process and timing for demonstrating achievement of the CO

emission performance level in the state plan. The proposed guidelines provide states with options for meeting the state-specific goals established by the EPA in a flexible manner that accommodates a diverse range of state approaches. The plan guidelines provide the states with the ability to achieve the full reductions over a multi-year period, through a variety of reduction strategies, using state-specific or multi-state approaches that can be achieved on either a rate or mass basis. They also address several key policy considerations that states can be expected to contemplate in developing their plans.

With respect to the structure of the state plans, the EPA, in its extensive outreach efforts, heard from a wide range of stakeholders that the EPA should authorize state plans to include a portfolio of actions that encompass a diverse set of programs and measures that achieve either a rate-based or mass-based emission performance level for affected EGUs but that do not place legal responsibility for achieving the entire amount of the emission performance level on the affected EGUs. In view of this strong sentiment from stakeholders, the EPA is proposing that state plans that take this portfolio approach would be approvable, provided that they meet other key requirements such as achieving the required emission reductions over the appropriate timeframes. Plans that do directly assure that affected EGUs achieve all of the required emission reductions (such as the mass-based programs being implemented in California and the RGGI states) would also be approvable provided that they meet other key requirements, such as achieving the required emission reductions over the appropriate timeframes.

ii. State Plan Components

The EPA is proposing to evaluate and approve state plans based on four general criteria: (1) Enforceable measures that reduce EGU CO

emissions; (2) projected achievement of emission performance equivalent to the goals established by the EPA, on a timeline equivalent to that in the emission guidelines; (3) quantifiable and verifiable emission reductions; and (4) a process for reporting on plan implementation, progress toward achieving CO

goals, and implementation of corrective actions, if necessary. In addition, each state plan must follow the EPA framework regulations at 40 CFR 60.23. The proposed components of states plans are:

• Identification of affected entities

• Description of plan approach and geographic scope

• Identification of state emission performance level

• Demonstration that plan is projected to achieve emission performance level

• Identification of emission standards

• Demonstration that each emission standard is quantifiable, non-duplicative, permanent, verifiable, and enforceable

• Identification of monitoring, reporting, and recordkeeping requirements

• Description of state reporting

• Identification of milestones

• Identification of backstop measures

• Certification of hearing on state plan

• Supporting material

iii. Process for State Plan Submittal and Review

Recognizing the urgent need for actions to reduce GHG emissions, and in accordance with the Presidential Memorandum,

the EPA expects to finalize this rulemaking by June 1, 2015. The Presidential Memorandum also calls for a deadline of June 30, 2016, for states to submit their state plans. The EPA is proposing that each state must submit a plan to the EPA by June 30, 2016. However, the EPA recognizes that some states may need more than one year to complete all of the actions needed for their final state plans, including technical work, state legislative and rulemaking activities, coordination with third parties, and coordination among states involved in multi-state plans. Therefore, the EPA is proposing an optional two-phased submittal process for state plans. Each state would be required to submit a plan by June 30, 2016, that contains certain required components. If a state needs additional time to submit a complete plan, then the state must submit an initial plan by June 30, 2016 that documents the reasons the state needs more time and includes commitments to concrete steps that will ensure that the state will submit a complete plan by June 30, 2017 or 2018, as appropriate. To be approvable, the initial plan must include specific components, including a description of the plan approach, initial quantification of the level of emission performance that will be achieved in the plan, a commitment to maintain existing measures that limit CO

emissions, an explanation of the path to completion, and a summary of the state's response to any significant public comment on the approvability of the initial plan, as described in Section VIII.E of this preamble.

Presidential Memorandum—Power Sector Carbon Pollution Standards, June 25, 2013.

http://www.whitehouse.gov/the-press-office/2013/06/25/presidential-memorandum-power-sector-carbon-pollution-standards

If the initial plan includes those components and if the EPA does not notify the state that the initial plan does not contain the required components, the extension of time to submit a complete plan will be deemed granted and a state would have until June 30, 2017, to submit a complete plan if the geographic scope of the plan is limited to that state. If the state develops a plan that includes a multi-state approach, it would have until June 30, 2018 to submit a complete plan. Further, the EPA is proposing that states participating in a multi-state plan may submit a single joint plan on behalf of all of the participating states.

Following submission of final plans, the EPA will review plan submittals for approvability. Given the diverse approaches states may take to meet the emission performance goals in the emission guidelines, the EPA is proposing to extend the period for EPA review and approval or disapproval of plans from the four-month period provided in the EPA framework regulations to a twelve-month period.

iv. Timing of Compliance

As states, industry groups and other stakeholders have made clear, the EPA recognizes that the measures states have been and will be taking to reduce CO

emissions from existing EGUs can take time to implement. Thus, we are proposing that, while states must begin to make reductions by 2020, full compliance with the CO

emission performance level in the state plan must be achieved by no later than 2030. Under this proposed option, a state would need to meet an interim CO

emission performance level on average over the 10-year period from 2020-2029, as well as achieve its final CO

emission performance level by 2030 and maintain that level subsequently. This proposed option is based on the application of a range of measures from all four building blocks, and the agency believes that this approach for compliance timing is reasonable and appropriate and would best support the optimization of overall

reductions. The agency is also requesting comment on an alternative option, a 5-year period for compliance, in combination with a less stringent set of CO

emission performance levels. These options are fully described in Section VIII of this preamble, and the state goals associated with the alternative option are described in Section VII.E of this preamble. The EPA is also seeking comment on different combinations of building blocks and different levels of stringency for each building block.

The EPA is also proposing that measures that a state takes after the date of this proposal, or programs already in place, which result in CO

emission reductions during the 2020-2030 period, would apply toward achievement of the state's 2030 CO

emission goal. Thus, states with currently existing programs and policies, and states that put in place new programs and policies early, will be better positioned to achieve the goals.

v. Resources for States

To respond to requests from states for methodologies, tools and information to assist them in designing and implementing their plans, the EPA, in consultation with the U.S. Department of Energy and other federal agencies, as well as states, is collecting and developing available resources and is making those resources available to the states via a dedicated Web site.

As we and others continue to develop tools, templates and other resources, we will update the Web site. We intend, during the public comment period, to work actively with the states on resources that will be helpful to them in both developing and implementing their plans.

www2.epa.gov/cleanpowerplantoolbox

3. Projected National-Level Emission Reductions

Under the proposed guidelines, the EPA projects annual CO

reductions of 26 to 30 percent below 2005 levels depending upon the compliance year. These guidelines will also result in important reductions in emissions of criteria air pollutants, including sulfur dioxide (SO

), nitrogen oxides (NO

) and directly emitted fine particulate matter (PM

2.5

). A thorough discussion of the EPA's analysis is presented in Section X.A of this preamble and in Chapter 3 of the Regulatory Impact Analysis (RIA) included in the docket for this rulemaking.

4. Costs and Benefits

Actions taken to comply with the proposed guidelines will reduce emissions of CO

and other air pollutants, including SO

, NO

and directly emitted PM

2.5

, from the electric power industry. States will make the ultimate determination as to how the emission guidelines are implemented. Thus, all costs and benefits reported for this action are illustrative estimates. The EPA has calculated illustrative costs and benefits in two ways: One based on an assumption of individual state plans and another based on an assumption that states will opt for multi-state plans. The illustrative costs and benefits are based upon compliance approaches that reflect a range of measures consisting of improved operations at EGUs, dispatching lower-emitting EGUs and zero-emitting energy sources, and increasing levels of end-use energy efficiency.

Assuming that states comply with the guidelines collaboratively (referred to as the regional compliance approach), the EPA estimates that, in 2020, this proposal will yield monetized climate benefits of approximately $17 billion (2011$) using a 3 percent discount rate (model average) relative to the 2020 base case, as shown in Table 1.

The air pollution health co-benefits associated with reducing exposure to ambient PM

2.5

and ozone through emission reductions of precursor pollutants in 2020 are estimated to be $16 billion to $37 billion using a 3 percent discount rate and $15 billion to $34 billion (2011$) using a 7 percent discount rate relative to the 2020 base case. The annual compliance costs are estimated using the Integrated Planning Model (IPM) and include demand-side energy efficiency program and participant costs as well as monitoring, reporting and recordkeeping costs. In 2020, total compliance costs of this proposal are approximately $5.5 billion (2011$). The quantified net benefits (the difference between monetized benefits and compliance costs) in 2020 are estimated to be $28 billion to $49 billion (2011$) using a 3 percent discount rate (model average). As reflected in Table 2, climate benefits are approximately $30 billion in 2030 using a 3 percent discount rate (model average, 2011$) relative to the 2030 base case assuming a regional compliance approach for the proposal. Health co-benefits are estimated to be approximately $25 to $59 billion (3 percent discount rate) and $23 to $54 billion (7 percent discount rate) relative to the 2030 base case (2011$). In 2030, total compliance costs for the proposed option regional approach are approximately $7.3 billion (2011$). The net benefits for this proposal increase to approximately $48 billion to $82 billion (3 percent discount rate model average, 2011$) in 2030 for the proposed option regional compliance approach.

The EPA has used social cost of carbon (SCC) estimates—i.e., the monetary value of impacts associated with a marginal change in CO

emissions in a given year—to analyze CO

climate impacts of this rulemaking. The four SCC estimates are associated with different discount rates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95th percentile at 3 percent), and each increases over time. In this summary, the EPA provides the estimate of climate benefits associated with the SCC value deemed to be central: The model average at 3 percent discount rate.

In comparison, if states choose to comply with the guidelines on a state-specific basis (referred to as state compliance approach), the climate benefits in 2020 are expected to be approximately $18 billion (3 percent discount rate, model average, 2011$), as Table 1 shows. Health co-benefits are estimated to be $17 to $40 billion (3 percent discount rate) and $15 to $36 billion (7 percent discount rate). Total compliance costs are approximately $7.5 billion annually in 2020. Net benefits in 2020 are estimated to be $27 to $50 billion (3 percent model average discount rate, 2011$). In 2030, as shown on Table 2, climate benefits are approximately $31 billion using a 3 percent discount rate (model average, 2011$) relative to the 2030 base case assuming a state compliance approach. Health co-benefits are estimated to be approximately $27 to $62 billion (3 percent discount rate) and $24 to $56 billion (7 percent discount rate) relative to the 2030 base case (2011$). In 2030, total compliance costs for the state approach are approximately $8.8 billion (2011$). In 2030, these net benefits are estimated to be approximately $49 to $84 billion (3 percent discount rate, 2011$) assuming a state compliance approach.

Table 1—Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the Proposed Guidelines in 2020

[Billions of 2011$]

3% Discount rate

7% Discount rate

Proposed Guidelines Regional Compliance Approach

Climate benefits

$17.

Air pollution health co-benefits

$16 to $37

$15 to $34.

Total Compliance Costs

$5.5

$5.5.

Net Monetized Benefits

$28 to $49

$26 to $45.

Non-monetized Benefits

Direct exposure to SO

and NO

1.3 tons of Hg.

Ecosystem Effects.

Visibility impairment.

Proposed Guidelines State Compliance Approach

Climate benefits

$18

Air pollution health co-benefits

$17 to $40

$15 to $36.

Total Compliance Costs

$7.5

$7.5.

Net Monetized Benefits

$27 to $50

$26 to $46.

Non-monetized Benefits

Direct exposure to SO

and NO

1.5 tons.

Ecosystem effects.

Visibility impairment.

All estimates are for 2020, and are rounded to two significant figures, so figures may not sum.

The climate benefit estimate in this summary table reflects global impacts from CO

emission changes and does not account for changes in non-CO

GHG emissions. Also, different discount rates are applied to SCC than to the other estimates because CO

emissions are long-lived and subsequent damages occur over many years. The benefit estimates in this table are based on the average SCC estimated for a 3% discount rate, however we emphasize the importance and value of considering the full range of SCC values. As shown in the RIA, climate benefits are also estimated using the other three SCC estimates (model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95th percentile at 3 percent). The SCC estimates are year-specific and increase over time.

The air pollution health co-benefits reflect reduced exposure to PM

2.5

and ozone associated with emission reductions of directly emitted PM

2.5

, SO

and NO

. The range reflects the use of concentration-response functions from different epidemiology studies. The reduction in premature fatalities each year accounts for over 90 percent of total monetized co-benefits from PM

2.5

and ozone. These models assume that all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality because the scientific evidence is not yet sufficient to allow differentiation of effect estimates by particle type.

Total costs are approximated by the illustrative compliance costs estimated using the Integrated Planning Model for the proposed guidelines and a discount rate of approximately 5%. This estimate includes monitoring, recordkeeping, and reporting costs and demand side energy efficiency program and participant costs.

The estimates of net benefits in this summary table are calculated using the global social cost of carbon at a 3 percent discount rate (model average). The RIA includes combined climate and health estimates based on these additional discount rates.

Table 2—Summary of the Monetized Benefits, Compliance Costs, and Net Benefits for the Proposed Guidelines in 2030

[Billions of 2011$]

3% Discount rate

7% Discount rate

Proposed Guidelines Regional Compliance Approach

Climate benefits

$30.

Air pollution health co-benefits

$25 to $59

$23 to $54.

Total Compliance Costs

$7.3

$7.3.

Net Monetized Benefits

$48 to $82

$46 to $77.

Non-monetized Benefits

Direct exposure to SO

and NO

1.7 tons of Hg and 580 tons of HCl.

Ecosystem Effects.

Visibility impairment.

Proposed Guidelines State Compliance Approach

Climate benefits

$31.

Air pollution health co-benefits

$27 to $62

$24 to $56.

Total Compliance Costs

$8.8

$8.8.

Net Monetized Benefits

$49 to $84

$46 to $79.

Non-monetized Benefits

Direct exposure to SO

and NO

2.1 tons of Hg and 590 tons of HCl.

Ecosystem effects.

Visibility impairment.

All estimates are for 2030, and are rounded to two significant figures, so figures may not sum.

The climate benefit estimate in this summary table reflects global impacts from CO

emission changes and does not account for changes in non-CO

GHG emissions. Also, different discount rates are applied to SCC than to the other estimates because CO

The air pollution health co-benefits reflect reduced exposure to PM

2.5

and ozone associated with emission reductions of directly emitted PM

2.5

, SO

and NO

2.5

There are additional important benefits that the EPA could not monetize. These unquantified benefits include climate benefits from reducing emissions of non-CO

greenhouse gases (e.g., nitrous oxide and methane)

and co-benefits from reducing direct exposure to SO

, NO

and hazardous air pollutants (e.g., mercury and hydrogen chloride), as well as from reducing ecosystem effects and visibility impairment.

Although CO

is the predominant greenhouse gas released by the power sector, electricity generating units also emit small amounts of nitrous oxide and methane. See RIA Chapter 2 for more detail about power sector emissions and the U.S. Greenhouse Gas Reporting Program's power sector summary,

http://www.epa.gov/ghgreporting/ghgdata/reported/powerplants.html.

In addition to the cost and benefits of the rule, the EPA projects the employment impacts of the guidelines. We project job gains and losses relative to base case for the electric generation, coal and natural gas production, and demand side energy efficiency sectors. In 2020, we project job growth of 25,900 to 28,000 job-years

in the power production and fuel extraction sectors, and we project an increase of 78,800 jobs in the demand-side energy efficiency sector.

A job-year is not an individual job; rather, a job-year is the amount of work performed by the equivalent of one full-time individual for one year. For example, 20 job-years in 2020 may represent 20 full-time jobs or 40 half-time jobs.

Based upon the foregoing, it is clear that the monetized benefits of this proposal are substantial and far outweigh the costs.

B. Organization and Approach for This Proposed Rule

This action presents the EPA's proposed emission guidelines for states to consider in developing plans to reduce GHG emissions from the electric power sector. Section II provides background on climate change impacts from GHG emissions, GHG emissions from fossil fuel-fired EGUs and the utility power sector and CAA section 111(d) requirements. Section III presents a summary of the EPA's stakeholder outreach efforts, key messages provided by stakeholders, state policies and programs that reduce GHG emissions, and conclusions. In Section IV of the preamble, we present a summary of the rule requirements and the legal basis for these. Section V explains the EPA authority to regulate CO

and EGUs, identifies affected sources, and describes the proposed treatment of source categories. Section VI describes the use of building blocks for setting state goals and key considerations in doing so. Sections VII and VIII provide explanations of the proposed state-specific goals and the proposed requirements for state plans, respectively. Implications for the new source review and Title V programs and potential interactions with other EPA rules are described in Section IX. Impacts of the proposed action are then described in Section X, followed by a discussion of statutory and executive order reviews in Section XI and the statutory authority for this action in Section XII.

We note that this rulemaking overlaps in certain respects with two other related rulemakings: The January 2014 proposed rulemaking that the EPA published on January 8, 2014 for CO

emissions from newly constructed affected sources,

and the rulemaking for modified and reconstructed sources that the EPA is proposing at the same time as this rulemaking. Each of these three rulemakings is independent of the other two, and each has its own rulemaking docket. Accordingly, commenters who wish to comment on any aspect of this rulemaking, including a topic that overlaps an aspect of one or both of the other two related rulemakings, should make those comments on this rulemaking.

79 FR 1430.

II. Background

In this section, we discuss climate change impacts from GHG emissions, both on public health and public welfare, present information about GHG emissions from fossil fuel fired EGUs, and summarize the statutory and regulatory requirements relevant to this rulemaking.

A. Climate Change Impacts From GHG Emissions

In 2009, the EPA Administrator issued the document known as the Endangerment Finding under CAA section 202(a)(1).

In the Endangerment Finding, which focused on public health and public welfare impacts within the United States, the Administrator found that elevated concentrations of GHGs in the atmosphere may reasonably be anticipated to endanger public health and welfare of current and future generations. We summarize these adverse effects on public health and welfare briefly here.

“Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act,” 74 FR 66,496 (Dec. 15, 2009) (“Endangerment Finding”).

1. Public Health Impacts Detailed in the 2009 Endangerment Finding

Climate change caused by human emissions of GHGs threatens public health in multiple ways. By raising average temperatures, climate change

increases the likelihood of heat waves, which are associated with increased deaths and illnesses. While climate change also increases the likelihood of reductions in cold-related mortality, evidence indicates that the increases in heat mortality will be larger than the decreases in cold mortality in the United States. Compared to a future without climate change, climate change is expected to increase ozone pollution over broad areas of the U.S., including in the largest metropolitan areas with the worst ozone problems, and thereby increase the risk of morbidity and mortality. Other public health threats also stem from projected increases in intensity or frequency of extreme weather associated with climate change, such as increased hurricane intensity, increased frequency of intense storms, and heavy precipitation. Increased coastal storms and storm surges due to rising sea levels are expected to cause increased drownings and other health impacts. Children, the elderly, and the poor are among the most vulnerable to these climate-related health effects.

2. Public Welfare Impacts Detailed in the 2009 Endangerment Finding

Climate change caused by human emissions of GHGs also threatens public welfare in multiple ways. Climate changes are expected to place large areas of the country at serious risk of reduced water supplies, increased water pollution, and increased occurrence of extreme events such as floods and droughts. Coastal areas are expected to face increased risks from storm and flooding damage to property, as well as adverse impacts from rising sea level, such as land loss due to inundation, erosion, wetland submergence and habitat loss. Climate change is expected to result in an increase in peak electricity demand, and extreme weather from climate change threatens energy, transportation, and water resource infrastructure. Climate change may exacerbate ongoing environmental pressures in certain settlements, particularly in Alaskan indigenous communities. Climate change also is very likely to fundamentally rearrange U.S. ecosystems over the 21st century. Though some benefits may balance adverse effects on agriculture and forestry in the next few decades, the body of evidence points towards increasing risks of net adverse impacts on U.S. food production, agriculture and forest productivity as temperature continues to rise. These impacts are global and may exacerbate problems outside the U.S. that raise humanitarian, trade, and national security issues for the U.S.

3. New Scientific Assessments

As outlined in Section VIII.A. of the 2009 Endangerment Finding, the EPA's approach to providing the technical and scientific information to inform the Administrator's judgment regarding the question of whether GHGs endanger public health and welfare was to rely primarily upon the recent, major assessments by the U.S. Global Change Research Program (USGCRP), the Intergovernmental Panel on Climate Change (IPCC), and the National Research Council (NRC) of the National Academies. These assessments addressed the scientific issues that the EPA was required to examine, were comprehensive in their coverage of the GHG and climate change issues, and underwent rigorous and exacting peer review by the expert community, as well as rigorous levels of U.S. government review. Since the administrative record concerning the Endangerment Finding closed following the EPA's 2010 Reconsideration Denial, a number of such assessments have been released. These assessments include the IPCC's 2012 “Special Report on Managing the Risks of Extreme Events and Disasters to Advance Climate Change Adaptation” (SREX) and the 2013-2014 Fifth Assessment Report (AR5), the USGCRP's 2014 “Climate Change Impacts in the United States” (Climate Change Impacts), and the NRC's 2010 “Ocean Acidification: A National Strategy to Meet the Challenges of a Changing Ocean” (Ocean Acidification), 2011 “Report on Climate Stabilization Targets: Emissions, Concentrations, and Impacts over Decades to Millennia” (Climate Stabilization Targets), 2011 “National Security Implications for U.S. Naval Forces” (National Security Implications), 2011 “Understanding Earth's Deep Past: Lessons for Our Climate Future” (Understanding Earth's Deep Past), 2012 “Sea Level Rise for the Coasts of California, Oregon, and Washington: Past, Present, and Future”, 2012 “Climate and Social Stress: Implications for Security Analysis” (Climate and Social Stress), and 2013 “Abrupt Impacts of Climate Change” (Abrupt Impacts) assessments.

The EPA has reviewed these new assessments and finds that the improved understanding of the climate system they present strengthens the case that GHGs endanger public health and welfare.

In addition, these assessments highlight the urgency of the situation as the concentration of CO

in the atmosphere continues to rise. Absent a reduction in emissions, a recent National Research Council of the National Academies assessment projected that concentrations by the end of the century would increase to levels that the Earth has not experienced for millions of years.

In fact, that assessment stated that “the magnitude and rate of the present greenhouse gas increase place the climate system in what could be one of the most severe increases in radiative forcing of the global climate system in Earth history.”

National Research Council, Understanding Earth's Deep Past, p. 1.

Id., p.138.

What this means, as stated in another NRC assessment, is that:

Emissions of carbon dioxide from the burning of fossil fuels have ushered in a new epoch where human activities will largely determine the evolution of Earth's climate. Because carbon dioxide in the atmosphere is long lived, it can effectively lock Earth and future generations into a range of impacts, some of which could become very severe. Therefore, emission reductions choices made today matter in determining impacts experienced not just over the next few decades, but in the coming centuries and millennia.

National Research Council, Climate Stabilization Targets, p. 3.

Moreover, due to the time-lags inherent in the Earth's climate, the Climate Stabilization Targets assessment notes that the full warming from any given concentration of CO

reached will not be realized for several centuries.

The recently released USGCRP “Climate Change Impacts” assessment

emphasizes that climate change is already happening now and it is happening in the United States. The assessment documents the increases in some extreme weather and climate events in recent decades, the damage and disruption to infrastructure and agriculture, and projects continued increases in impacts across a wide range of peoples, sectors, and ecosystems.

U.S. Global Change Research Program, Climate Change Impacts in the United States: The Third National Climate Assessment, May 2014 Available at

http://nca2014.globalchange.gov/.

These assessments underscore the urgency of reducing emissions now: Today's emissions will otherwise lead to raised atmospheric concentrations for thousands of years, and raised Earth system temperatures for even longer. Emission reductions today will benefit the public health and public welfare of current and future generations.

Finally, it should be noted that the concentration of carbon dioxide in the atmosphere continues to rise dramatically. In 2009, the year of the Endangerment Finding, the average concentration of carbon dioxide as

measured on top of Mauna Loa was 387 parts per million.

The average concentration in 2013 was 396 parts per million. And the monthly concentration in April of 2014 was 401 parts per million, the first time a monthly average has exceeded 400 parts per million since record keeping began at Mauna Loa in 1958, and for at least the past 800,000 years according to ice core records.

ftp://aftp.cmdl.noaa.gov/products/trends/co2/co2_annmean_mlo.txt.

http://www.esrl.noaa.gov/gmd/ccgg/trends/.

B. GHG Emissions From Fossil Fuel-Fired EGUs

Fossil fuel-fired electric utility generating units (EGUs) are by far the largest emitters of GHGs, primarily in the form of CO

, among stationary sources in the U.S., and among fossil fuel-fired units, coal-fired units are by far the largest emitters. This section describes the amounts of those emissions and places those amounts in the context of the national inventory of GHGs.

The EPA prepares the official U.S. Inventory of Greenhouse Gas Emissions and Sinks

(the U.S. GHG Inventory) to comply with commitments under the United Nations Framework Convention on Climate Change (UNFCCC). This inventory, which includes recent trends, is organized by industrial sectors. It provides the information in Table 3 below, which presents total U.S. anthropogenic emissions and sinks

of GHGs, including CO

emissions, for the years 1990, 2005 and 2012.

“Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012”, Report EPA 430-R-14-003, United States Environmental Protection Agency, April 15, 2014.

Sinks are a physical unit or process that stores GHGs, such as forests or underground or deep sea reservoirs of carbon dioxide.

Table 3—U.S. GHG Emissions and Sinks by Sector

[Teragram carbon dioxide equivalent (Tg CO

Eq.)]

Sector

1990

2005

2012

Energy

5,260.1

6,243.5

5,498.9

Industrial Processes

316.1

334.9

334.4

Solvent and Other Product Use

4.4

Agriculture

473.9

512.2

526.3

Land Use, Land-Use Change and Forestry

13.7

25.5

37.8

Waste

165.0

133.2

124.0

Total Emissions

6,233.2

7,253.8

6,525.6

Land Use, Land-Use Change and Forestry (Sinks)

(831.3)

(1,030.7)

(979.3)

Net Emissions (Sources and Sinks)

5,402.1

6,223.1

5,546.3

From Table ES-4 of “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012, Report EPA 430-R-14-003, United States Environmental Protection Agency, April 15, 2014.

Total fossil energy-related CO

emissions (including both stationary and mobile sources) are the largest contributor to total U.S. GHG emissions, representing 77.7 percent of total 2012 GHG emissions.

In 2012, fossil fuel combustion by the electric power sector—entities that burn fossil fuel and whose primary business is the generation of electricity—accounted for 38.7 percent of all energy-related CO

emissions.

Table 4 below presents total CO

emissions from fossil fuel-fired EGUs, for years 1990, 2005 and 2012.

From Table ES-2 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012”, Report EPA 430-R-14-003, United States Environmental Protection Agency, April 15, 2014.

From Table 3-1 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012”, Report EPA 430-R-14-003, United States Environmental Protection Agency, April 15, 2014.

Table 4—U.S. GHG Emissions From Generation of Electricity From Combustion of Fossil Fuels

[Tg CO

]

GHG emissions

1990

2005

2012

Total CO

from fossil fuel combustion EGUs

1,820.8

2,402.1

2,022.7

—from coal

1,547.6

1,983.8

1,511.2

—from natural gas

175.3

318.8

492.2

—from petroleum

97.5

99.2

18.8

From Table 3-5 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2012”, Report EPA 430-R-14-003, United States Environmental Protection Agency, April 15, 2014.

C. The Utility Power Sector

Electricity in the United States is generated by a range of sources—from power plants that use fossil fuels like coal, oil, and natural gas, to non-fossil sources, such as nuclear, solar, wind and hydroelectric power. In 2013, over 67 percent of power in the U.S. was generated from the combustion of coal, natural gas, and other fossil fuels, over 40 percent from coal and over 26 percent from natural gas.

In recent years, though, the proportion of new renewable generation coming on line has increased dramatically. For instance, over 38 percent of new generating capacity (over 5 GW out of 13.5 GW) built in 2013 used renewable power generation technologies.

U.S. Energy Information Administration (EIA), “Table 7.2b Electricity Net Generation: Electric Power Sector Electric Power Sector,” data from April 2014 Monthly Energy Review, release date April 25, 2014. Available at:

http://www.eia.gov/totalenergy/data/browser/xls.cfm?tbl=T07.02B&freq=m.

Based on Table 6.3 (New Utility Scale Generating Units by Operating Company, Plant, Month, and Year) of the U.S. Energy Information Administration (EIA) Electric Power Monthly, data for December 2013, for the following renewable

energy sources: solar, wind, hydro, geothermal, landfill gas, and biomass. Available at:

http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_6_03.

This range of different power plants generates electricity that is transmitted and distributed through a complex system of interconnected components to industrial, business, and residential consumers.

The utility power sector is unique in that, unlike other sectors where the sources operate independently and on a local scale, power sources operate in a complex, interconnected grid system that typically is regional in scale. In addition, the U.S. economy depends on this sector for a reliable supply of power at a reasonable cost.

In the U.S., much of the existing power generation fleet in the infrastructure is aging. There has been, and continues to be, technological advancement in many areas, including energy efficiency, solar power generation, and wind power generation. Advancements and innovation in power sector technologies provide the opportunity to address CO

emission levels at affected power plants while at the same time improving the overall power system in the U.S. by lowering the carbon intensity of power generation, and ensuring a continued reliable supply of power at a reasonable cost.

D. Statutory and Regulatory Requirements

Clean Air Act section 111, which Congress enacted as part of the 1970 Clean Air Act Amendments, establishes mechanisms for controlling emissions of air pollutants from stationary sources. This provision requires the EPA to promulgate a list of categories of stationary sources that the Administrator, in his or her judgment, finds “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.”

The EPA has listed more than 60 stationary source categories under this provision.

Once the EPA lists a source category, the EPA must, under CAA section 111(b)(1)(B), establish “standards of performance” for emissions of air pollutants from new sources in the source categories.

These standards are known as new source performance standards (NSPS), and they are national requirements that apply directly to the sources subject to them.

CAA § 111(b)(1)(A).

See 40 CFR 60 subparts Cb-OOOO.

CAA § 111(b)(1)(B), 111(a)(1).

When the EPA establishes NSPS for new sources in a particular source category, the EPA is also required, under CAA section 111(d)(1), to prescribe regulations for states to submit plans regulating existing sources in that source category for any air pollutant that, in general, is not regulated under the CAA section 109 requirements for the NAAQS or regulated under the CAA section 112 requirements for hazardous air pollutants (HAP). CAA section 111(d)'s mechanism for regulating existing sources differs from the one that CAA section 111(b) provides for new sources because CAA section 111(d) contemplates states submitting plans that establish “standards of performance” for the affected sources and that contain other measures to implement and enforce those standards.

“Standards of performance” are defined under CAA section 111(a)(1) as standards for emissions that reflect the emission limitation achievable from the “best system of emission reduction,” considering costs and other factors, that “the Administrator determines has been adequately demonstrated.” CAA section 111(d)(1) grants states the authority, in applying a standard of performance to particular sources, to take into account the source's remaining useful life or other factors.

Under CAA section 111(d), a state must submit its plan to the EPA for approval, and the EPA must approve the state plan if it is “satisfactory.”

If a state does not submit a plan, or if the EPA does not approve a state's plan, then the EPA must establish a plan for that state.

Once a state receives the EPA's approval for its plan, the provisions in the plan become federally enforceable against the entity responsible for noncompliance, in the same manner as the provisions of an approved SIP under CAA section 110. Although affected EGUs located in Indian country operate as part of the interconnected system of electricity production and distribution, those EGUs would not be encompassed within a state's CAA section 111(d) plan. Instead, a tribe that has one or more affected EGUs located in its area of Indian country

would have the opportunity, but not the obligation, to establish a plan that establishes standards of performance for CO

emissions from affected EGUs for its tribal lands.

CAA section 111(d)(2)(A).

The EPA is aware of at least four affected sources located in Indian Country: Two on Navajo lands—the Navajo Generating Station and the Four Corners Generating Station; one on Ute lands—the Bonanza Generating Station; and one on Fort Mojave lands, the South Point Energy Center. The affected EGUs at the first three plants are coal-fired EGUs. The fourth affected EGU is an NGCC facility.

The EPA issued regulations implementing CAA section 111(d) in 1975,

and has revised them in the years since.

(We refer to the regulations generally as the implementing regulations, and we refer to the 1975 rulemaking as the framework regulations.) These regulations provide that, in promulgating requirements for sources under CAA section 111(d), the EPA first develops regulations known as “emission guidelines,” which establish binding requirements that states must address when they develop their plans.

The implementing regulations also establish timetables for state and EPA action: States must submit state plans within 9 months of the EPA's issuance of the guidelines,

and the EPA must take final action on the state plans within 4 months of the due date for those plans,

although the EPA has authority to extend those deadlines.

In the present rulemaking, the EPA is following the requirements of the implementing regulations, and is not re-opening them, except that the EPA is extending the timetables, as described below.

“State Plans for the Control of Certain Pollutants From Existing Facilities,” 40 FR 53,340 (Nov. 17, 1975).

The most recent amendment was in 77 FR 9304 (Feb. 16, 2012).

40 CFR 60.22. In the 1975 rulemaking, the EPA explained that it used the term “emissions guidelines”—instead of emissions limitations—to make clear that guidelines would not be binding requirements applicable to the sources, but instead are “criteria for judging the adequacy of State plans.” 40 FR at 53,343.

40 CFR 60.23(a)(1).

40 CFR 60.27(b).

See 40 CFR 60.27(a).

Over the last forty years, under CAA section 111(d), the agency has regulated four pollutants from five source categories (i.e., sulfuric acid plants (acid mist), phosphate fertilizer plants (fluorides), primary aluminum plants (fluorides), Kraft pulp plants (total reduced sulfur), and municipal solid waste landfills (landfill gases)).

In addition, the agency has regulated additional pollutants under CAA section 111(d) in conjunction with CAA

section 129.

The agency has not previously regulated CO

or any other greenhouse gas under CAA section 111(d).

See

“Phosphate Fertilizer Plants; Final Guideline Document Availability,” 42 Fed. Reg. 12,022 (Mar. 1, 1977); “Standards of Performance for New Stationary Sources; Emission Guideline for Sulfuric Acid Mist,” 42 FR 55,796 (Oct. 18, 1977); “Kraft Pulp Mills, Notice of Availability of Final Guideline Document,” 44 FR 29,828 (May 22, 1979); “Primary Aluminum Plants; Availability of Final Guideline Document,” 45 FR 26,294 (Apr. 17, 1980); “Standards of Performance for New Stationary Sources and Guidelines for Control of Existing Sources: Municipal Solid Waste Landfills, Final Rule,” 61 FR 9905 (Mar. 12, 1996).

See, e.g.,

“Standards of Performance for New Stationary Sources and Emission Guidelines for Existing Sources: Sewage Sludge Incineration Units, Final Rule,” 76 FR 15,372 (Mar. 21, 2011).

The EPA's previous CAA section 111(d) actions were necessarily geared toward the pollutants and industries regulated. Similarly, in this proposed rulemaking, in defining CAA section 111(d) emission guidelines for the states and determining the BSER, the EPA believes that taking into account the particular characteristics of carbon pollution, the interconnected nature of the power sector and the manner in which EGUs are currently operated is warranted. Specifically, the operators themselves treat increments of generation as interchangeable between and among sources in a way that creates options for relying on varying utilization levels, lowering carbon generation, and reducing demand as components of the overall method for reducing CO

emissions. Doing so results in a broader, forward-thinking approach to the design of programs to yield critical CO

reductions that improve the overall power system by lowering the carbon intensity of power generation, while offering continued reliability and cost-effectiveness. These opportunities exist in the power sector in ways that were not relevant or available for other industries for which the EPA has established CAA section 111(d) emission guidelines.

See

“Phosphate Fertilizer Plants; Final Guideline Document Availability,” 42 FR 12,022 (Mar. 1, 1977); “Standards of Performance for New Stationary Sources; Emission Guideline for Sulfuric Acid Mist,” 42 FR 55,796 (Oct. 18, 1977); “Kraft Pulp Mills, Notice of Availability of Final Guideline Document,” 44 FR 29,828 (May 22, 1979); “Primary Aluminum Plants; Availability of Final Guideline Document,” 45 FR 26,294 (Apr. 17, 1980); “Standards of Performance for New Stationary Sources and Guidelines for Control of Existing Sources: Municipal Solid Waste Landfills, Final Rule,” 61 F R 9905 (Mar. 12, 1996).

In this action, the EPA is proposing emission guidelines for states to follow in developing their plans to reduce emissions of CO

from the electric power sector.

III. Stakeholder Outreach and Conclusions

A. Stakeholder Outreach

1. The President's Call for Engagement

Following the direction of the Presidential Memorandum to the Administrator (June 25, 2013),

this proposed rule was developed after extensive and vigorous outreach to stakeholders and the general public. The Presidential Memorandum instructed the Administrator to inaugurate the process for developing standards through direct engagement with the states and a full range of stakeholders:

Presidential Memorandum—Power Sector Carbon Pollution Standards, June 25, 2013.

http://www.whitehouse.gov/the-press-office/2013/06/25/presidential-memorandum-power-sector-carbon-pollution-standards.

Launch this effort through direct engagement with States, as they will play a central role in establishing and implementing standards for existing power plants, and, at the same time, with leaders in the power sector, labor leaders, non-governmental organizations, other experts, tribal officials, other stakeholders, and members of the public, on issues informing the design of the program.

2. Educating the Public and Stakeholder Outreach

To carry out this stakeholder outreach, the EPA embarked on an unprecedented pre-proposal outreach effort. From consumer groups to states to power plant owner/operators to technology innovators, the EPA sought input from all perspectives.

The EPA began the outreach efforts with a webinar and associated teleconferences to establish a common understanding of the basic requirements and process of CAA section 111(d). The August 27, 2013 overview presentation was offered as a webinar for state and tribal officials, “Building a Common Understanding: Clean Air Act and Upcoming Carbon Pollution Guidelines for Existing Power Plants.”

The EPA followed up on the presentation by offering four national teleconference calls with representatives from states, tribes, industry, environmental justice organizations, community organizations and environmental representatives. The teleconferences offered a venue for stakeholders to ask questions of the EPA about the overview presentation and for the EPA to gather initial reactions from stakeholders. Stakeholders and members of the public continued to view and refer to the overview presentation throughout the outreach process. By May 2014, the presentation had been viewed more than 5,600 times.

The agency also provided mechanisms for anyone from the public to provide input during the pre-proposal development of this action. The EPA set up two user-friendly options to accept input during the pre-proposal period—email and a web-based form. The EPA has received more than 2,000 emails offering input into the development of these guidelines.

These emails and other materials provided to the EPA are posted on line as part of a non-regulatory docket, EPA Docket ID No. EPA-HQ-OAR-2014-0020, at

www.regulations.gov

. All of the documents on which this proposal is based are available at Docket ID No. EPA-HQ-OAR-2013-0602, at

www.regulations.gov

. However, while the information collected through extensive outreach helped the agency formulate this proposal, we are not relying on all of the documents, emails, and other information included in the informational docket that was established as a part of that outreach effort, nor will the EPA be responding to specific comments or issues raised during the outreach effort. Rather, we have included in the docket for this proposal all of the information we relied on for this action.

The agency has encouraged, organized, and participated in hundreds of meetings about CAA section 111(d) and reducing carbon pollution from existing power plants. Attendees at these various meetings have included states and tribes, members of the public, and representatives from multiple industries, labor leaders, environmental groups and other non-governmental organizations. The direct engagement has brought together a variety of states and stakeholders to discuss a wide range of issues related to the electricity sector and the development of emission guidelines under CAA section 111(d). The meetings occurred in Washington, DC, and at locations across the country. The meetings were attended by the EPA Regional Administrators, managers and staff and who are playing or will play key roles in developing and implementing the rule.

Part of this effort included the agency's holding of 11 public listening sessions; one national listening session in Washington, DC and 10 listening sessions in locations in the EPA regional offices across the country. All of the outreach meetings were designed to solicit policy ideas, concerns and technical information from stakeholders about using CAA section 111(d).

This outreach process has produced a wealth of information which has informed this proposal significantly. The pre-proposal outreach efforts far exceeded what is required of the agency in the normal course of a rulemaking process, and the EPA expects that the dialog with states and stakeholders will continue throughout the process and even after the rule is finalized. The EPA recognizes the importance of working with all stakeholders, and in particular with the states, to ensure a clear and common understanding of the role the

states will play in addressing carbon pollution from power plants.

3. Public Listening Sessions

More than 3,300 people attended the public listening sessions held in 11 cities across the country. Holding the listening sessions at the EPA's regional offices offered thousands of people from different parts of the country the opportunity to provide input to EPA officials in accessible venues. In addition to being well located, holding the sessions in regional offices also allowed the agency to use resources prudently and enabled a variety of the EPA staff involved in the development and ultimate implementation of this upcoming rule to attend and learn from the views expressed.

More than 1,600 people spoke at the 11 listening sessions. Speakers included Members of Congress, other public officials, industry representatives, faith-based organizations, unions, environmental groups, community groups, students, public health groups, energy groups, academia and concerned citizens. Participants shared a range of perspectives. Many were concerned by the impacts of climate change on their health and on future generations, others worried about the impact of regulations on the economy. Their support for the agency's efforts varied.

Summaries of these 11 public listening sessions are available at

www.regulations.gov

at EPA Docket ID No. EPA-HQ-OAR-2014-0020.

4. State Officials

Since fall 2013, the agency provided multiple opportunities for the states to inform this proposal. In addition, the EPA organized, encouraged and attended meetings to discuss multi-state planning efforts. Because of the interconnectedness of the power sector, and the fact that electricity generated at power plants crosses state lines, states, utilities and ratepayers may benefit from states working together to address the requirements of this rulemaking implementation. The meetings provided state leaders, including governors, environmental commissioners, energy officers, public utility commissioners, and air directors, opportunities to engage with the EPA officials.

Agency officials listened to ideas, concerns and details from states, including from states with a wide range of experience in reducing carbon pollution from power plants. The agency has collected policy papers from states with overarching energy goals and technical details on the states' electricity sector. The agency has engaged, and will continue to engage with, all of the 50 states throughout the rulemaking process.

5. Tribal Officials

The EPA conducted significant outreach to tribes, who are not required to—but may—develop or adopt Clean Air Act programs. The EPA is aware of three coal-fired power plants and one natural gas-fired EGU located in Indian country but is not aware of any EGUs that are owned or operated by tribal entities.

The EPA conducted outreach to tribal environmental staff and offered consultation with tribal officials in developing this action. Because the EPA is aware of tribal interest in this proposed rule, the EPA offered consultation with tribal officials early in the process of developing the proposed regulation to permit tribes to have meaningful and timely input into its development.

The EPA sent consultation letters to 584 tribal leaders. The letters provided information regarding the EPA's development of emission guidelines for existing power plants and offered consultation. None have requested consultation. Tribes were invited to participate in the national informational webinar held August 27, 2013. In addition, a consultation/outreach meeting was held on September 9, 2013, with tribal representatives from some of the 584 tribes. The EPA representatives also met with tribal environmental staff with the National Tribal Air Association, by teleconference, on December 19, 2013. In those teleconferences, the EPA provided background information on the GHG emission guidelines to be developed and a summary of issues being explored by the agency.

In addition, the EPA held a series of listening sessions prior to development of this proposed action. Tribes participated in a session on September 9, 2013 with the state agencies, as well as in a separate session with tribes on September 26, 2013.

6. Industry Representatives

Agency officials have engaged with industry leaders and representatives from trade associations in scores of one-on-one and national meetings. Many meetings occurred at the EPA headquarters and in the EPA's Regional Offices and some were sponsored by stakeholder groups. Because the focus of the standard is on the electricity sector, many of the meetings with industry have been with utilities and industry representatives directly related to the electricity sector. The agency has also met with energy industries such as coal and natural gas interests, as well as companies that offer new technology to prevent or reduce carbon pollution, including companies that have expertise in renewable energy and energy efficiency. Other meetings have been held with representatives of energy intensive industries, such as the iron and steel and aluminum industries to help understand the issues related to large industrial users of electricity.

7. Electric Utility Representatives

Agency officials participated in many meetings with utilities and their associations. The meetings focused on the importance of the utility industry in reducing carbon emissions from power plants. Power plant emissions are central to this rulemaking. The EPA encouraged industry representatives to work with state environmental and energy officers.

The electric utility representatives included private utilities or investor owned utilities. Public utilities and cooperative utilities were also part of in-depth conversations about CAA section 111(d) with EPA officials.

The conversations included meetings with the EPA headquarters and Regional offices. State officials were included in many of the meetings. Meetings with utility associations and groups of utilities were held with key EPA officials. The meetings covered technical, policy, and legal topics of interest and utilities expressed a wide variety of support and concerns about CAA section 111(d).

8. Electricity Grid Operators

The EPA had a number of conversations with the Independent System Operators and Regional Transmission Organizations (ISOs and RTOs) to discuss the rule and issues related to grid operations and reliability. EPA staff met with the ISO/RTO Council on several occasions to collect their ideas. The EPA Regional Offices also met with the ISOs and RTOs in their regions. System operators have offered suggestions in using regional approaches to implement CAA section 111(d) while maintaining reliable, affordable electricity.

9. Representatives From Non-Governmental Organizations

Agency officials engaged with representatives of environmental justice organizations during the outreach effort, for example, we engaged with the National Environmental Justice Advisory Council members in September 2013. The NEJAC is composed of stakeholders, including environmental justice leaders and other

leaders from state and local government and the private sector.

The EPA has also met with a number of environmental groups to provide their ideas on how to reduce carbon pollution from existing power plants using section 111(d) of the CAA.

Many environmental organizations discussed the need for reducing carbon pollution. Meetings were technical, policy and legal in nature and many groups discussed specific state policies that are already in place to reduce carbon pollution in the states.

A number of organizations representing religious groups have reached out to the EPA on several occasions to discuss their concerns and ideas regarding this rule.

Public health groups discussed the need for protection of children's health from harmful air pollution. Doctors and health care providers discussed the link between reducing carbon pollution and air pollution and public health. Consumer groups representing advocates for low income electricity customers discussed the need for affordable electricity. They talked about reducing electricity prices for consumers through energy efficiency and low cost carbon reductions.

10. Labor

EPA senior officials and staff met with a number of labor union representatives about reducing carbon pollution using CAA section 111(d). Those unions included: The United Mine Workers of America; the Sheet Metal, Air, Rail and Transportation Union (SMART); the International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers and Helpers (IBB); United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada; the International Brotherhood of Electrical Workers (IBEW): And the Utility Workers Union of America. In addition, agency leaders met with the Presidents of several unions and the President of the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) at the AFL-CIO headquarters.

EPA officials, when invited, attended meetings sponsored by labor unions to give presentations and engage in discussions about reducing carbon pollution using CAA section 111(d). These included meetings sponsored by the IBB and the IBEW.

B. Key Messages From Stakeholders

Many stakeholders stated that opportunities exist to reduce the carbon emissions from existing power generation through a wide range of measures, from measures that are implementable via physical changes at the source to those that also are implementable across the broader power generation system. Opinions varied about how broader system measures could factor into programs to reduce carbon pollution. Some stakeholders recommended that system-wide measures be allowed for compliance, but not factored into the carbon improvement goals the EPA establishes, while others recommended that system-wide measures be factored into the goals. Among the arguments and information offered by stakeholders who suggested that states be encouraged to incorporate system-wide measures into their state plans and that EGU operators be encouraged to rely on such measures were examples and discussions of the significant extent to which dispatch, end use energy efficiency and renewable energy had already proven to be successful strategies for reducing EGU CO

emissions. Some state and industry representatives favored goals that they described as based on measures implementable only within the facility “fence line” (i.e., measures implementable only at the source). Many stakeholders stated that the EPA should not require the state plans to impose on the affected EGUs legal responsibility for the full amount of required CO

emissions reductions, and instead, the EPA should authorize the state plans to include requirements on entities other than the affected EGUs that would have the effect of reducing utilization and, therefore, emissions from the affected EGUs.

Views on the form and stringency of the goal or guidelines varied. Some stakeholders preferred a rate-based form of the goal, while others preferred a mass-based form. In addition, some stakeholders recommended that the EPA let the states have the flexibility to either choose among multiple forms of the goals or to set their own goals. With regard to the stringency of the goal, some stakeholders recommended that the stringency of the goals vary by state, to account for differences in state circumstances.

Many stakeholders recognized the value of allowing states flexibility in implementing the goals the EPA establishes. For example, states highlighted the importance of the EPA recognizing existing state and regional programs that address carbon pollution, including market-based programs, and allowing credit for prior accomplishments in reducing CO

emissions. Many states and other stakeholders noted the importance of the EPA allowing flexibility in compliance options such that states could use approaches such as demand-side management to attain the goals.

Many stakeholders recommended that states be allowed to develop multi-state programs. It was frequently noted that such regional approaches could offer cost-effective carbon pollution solutions.

There was broad agreement that most states would need more than one year to develop and submit their complete plans to the EPA. For some states, more time is necessary because of the state legislative schedule and/or regulatory process. In some cases, approval of a plan through a state's legislative or regulatory process could take one year or more after the plan has already been developed. Additional time would also allow and encourage multi-state and regional partnerships and programs.

Many stakeholders also supported flexibility in the timing of implementation of the state plans and power sector compliance with the goals in the state plans. Such flexibility, some stakeholders asserted, would accommodate the diverse GHG mitigation potential of states and support more cost-effective approaches to achieving CO

reductions.

During the outreach process, some stakeholders raised general concerns that the rulemaking could have a negative impact on jobs and ratepayers. Some stakeholders also expressed concerns about potential adverse effects on electric system reliability. Some stakeholders were concerned that meeting the goals could potentially result in stranded generation assets. To prevent this from occurring, some stakeholders suggested varying the stringency of standards to account for individual state circumstances and variation.

The EPA has given stakeholder input careful consideration during the development of this proposal and, as a result, this proposal includes features that are intended to be responsive to many stakeholder concerns.

C. Key Stakeholder Proposals

During the EPA's public outreach in advance of this proposal, a number of ideas were put forward that are not fully reflected in this proposal. We invite public comment on these ideas, some of which are outlined below.

1. Model Rule on Interstate Emissions Credit Trading and Price Ceiling

Some groups thought that the EPA should put forward a model rule for an interstate emissions credit trading program that could be easily adopted by states who wanted to use such a

program for its plan. One group suggested the model rule should include a provision to allow the state to compensate merchant generators as well as retail rate payers. Another group specified that the model rule would also include a ceiling-price called an alternative compliance payment that would fund state directed clean technology investment. Facilities that face costs that exceed the ceiling price could opt to pay into the fund as a way of complying.

2. Equivalency Tests

One group recommended that state programs be allowed to demonstrate equivalency using one of three tests: Rate-based equivalency via a demonstration that the state program achieves equivalent or better carbon intensity for the regulated sector; mass-based equivalency via a demonstration that the program achieves equal or greater emission reductions relative to what would be achieved by the federal approach; or a market price-based equivalency via a demonstration that the program reflects a carbon price comparable to or greater than the cost-effectiveness benchmark used by the EPA in designing the program. The EPA is proposing a way to demonstrate equivalency and that is discussed in Section VIII of this preamble.

3. Power Plant-Specific Assessment

Other stakeholders suggested that an “inside the fence” plant- or unit-specific assessment linked to the availability of control at the source such as heat rate improvements should be considered. They indicated that once plant-specific goals are established based on on-site CO

reduction opportunities, the source should have the flexibility to look “outside the fence” for the means to achieve the goals, including the use of emissions trading, and averaging.

The EPA invites comment on these suggestions.

D. Consideration of the Range of Existing State Policies and Programs

Across the nation, many states and regions have shown strong leadership in creating and implementing policies and programs that reduce GHG emissions from the power sector while achieving other economic, environmental, and energy benefits. Some of these activities, such as market-based programs and GHG performance standards, directly require GHG emission reductions from EGUs. Others reduce GHG emissions by reducing utilization of fossil fuel-fired EGUs through, for example, renewable portfolio standards (RPS) and energy efficiency resource standards (EERS), which alter the mix of energy supply and reduce energy demand. States have developed their policies and programs with stakeholder input and tailored them to their own circumstances and priorities. Their leadership and experiences provided the EPA with important information about best practices to build upon in this proposed rule. As directed by the Presidential Memorandum, the EPA is, with this proposal to reduce power plant carbon pollution, building on actions already underway in states and the power sector.

1. Market-Based Emission Limits

Nine states actively participate in the Regional Greenhouse Gas Initiative (RGGI), a market-based CO

emission reduction program addressing EGUs that was established in 2009.

Through RGGI, the participating states are implementing coordinated CO

emission budget trading programs. In aggregate, these programs establish an overall limit on allowable CO

emissions from affected EGUs in the participating states. Participating states issue CO

allowances in an amount up to the number of allowances in each state's annual emission budget. At the end of each three-year compliance period, affected EGUs must submit CO

allowances equal to their reported CO

emissions. CO

allowances may be traded among both regulated and non-regulated parties, creating a market for emission allowances. This market creates a price signal for CO

emissions, which factors into the dispatch of affected EGUs. A price signal for CO

emissions also allows sources flexibility to make emission reductions where reduction costs are lowest, and encourages innovation in developing emission control strategies.

The nine states include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

Approximately 90 percent of CO

allowances are distributed by the RGGI participating states through auction.

From 2009 through 2012, the nine RGGI states invested auction proceeds of more than $700 million in programs that lower costs for energy consumers and reduce CO

emissions.

Through 2012, for example, the RGGI states invested approximately $460 million of proceeds into energy efficiency programs.

The participating RGGI states estimate that those investments are providing benefits to energy consumers in the region of more than $1.8 billion in lifetime energy savings.

Regional Greenhouse Gas Initiative 2013 Allowance Allocation

http://rggi.org/design/overview/allowance-allocation/2013-allocation

Regional Investments of RGGI CO

Allowance Proceeds, 2012 (2014), available at

http://www.rggi.org/docs/Documents/2012-Investment-Report.pdf.

Of the $707 million in auction proceeds invested by RGGI participating states through 2012, 65 percent supported end-use energy efficiency programs. See Regional Greenhouse Gas Initiative, “Regional Investments of RGGI CO

Allowance Proceeds, 2012” (2014). Available at

http://www.rggi.org/docs/Documents/2012-Investment-Report.pdf.

Id.

Between 2005, when an agreement to implement RGGI was announced, and 2012, power sector CO

emissions in the RGGI participating states fell by more than 40 percent.

RGGI was not the primary driver for these reductions but the reductions led RGGI-participating states to later adjust the CO

emission limits downward.

In January 2014, the participating states lowered the overall allowable CO

emission level in 2014 by 45 percent, setting a multi-state CO

emission limit for affected EGUs of 91 million short tons of CO

in 2014 and 78 million short tons of CO

in 2020, more than 50 percent below 2008 levels.

Regional Greenhouse Gas Initiative, Report on Emission Reduction Efforts of the States Participating in the Regional Greenhouse Gas Initiative and Recommendations for Guidelines under Section 111(d) of the Clean Air Act (2013).

The first three-year control period under RGGI, establishing CO

emission limits for EGUs, began on January 1, 2009.

RGGI Press Release, January 13, 2014,

http://www.rggi.org/docs/PressReleases/PR011314_AuctionNotice23.pdf

Similarly, California established an economy-wide market-based GHG emissions trading program under the authority of its 2006 Global Warming Solutions Act, which requires the state to reduce its 2020 GHG emissions to 1990 levels.

While California's emission trading program, like its state emission limit, is multi-sector in scope, the state projects that the emissions trading program and related complementary measures will reduce power sector GHG emissions to less than 80 million metric tons of CO

equivalent by 2025, a 25 percent reduction from 2005 power sector emission levels.

Prior to the implementation of the emission trading program, California reports that it reduced CO

power sector emissions by 16 percent from 2005 to a 2010-2012

averaging period, a reduction of 16 million metric tons of CO

equivalent.

State of California Global Warming Solutions Act of 2006, Assembly Bill 32, Chapter

http://www.leginfo.ca.gov/pub/05-06/bill/asm/ab_0001-0050/ab_32_bill_20060927_chaptered.pdf.

Preliminary California Air Resources Board analyses, based in part on CARB 2008 to 2012 Emissions for Mandatory GHG reporting Summary (2013), cited in Letter to the EPA Administrator, “States' Roadmap on Reducing Carbon Pollution,” December 16, 2013. Available at

http://www.georgetownclimate.org/sites/default/files/EPA_Submission_from_States-FinalCompl.pdf.

Id.

2. GHG Performance Standards

Four states, California, New York, Oregon and Washington, have enacted GHG emission standards that impose enforceable emission limits on new and/or expanded electric generating units. For example, since 2012, New York requires new or expanded baseload plants that are greater than 25 Megawatts (MW) to meet an emission rate of either 925 pounds CO

/Megawatt hour (MWh) (based on output) or 120 pounds of CO

/Million British Thermal Units (MMBtu) (based on input). Similarly, non-baseload plants in New York of at least 25 MW or larger must meet an emission rate of either 1450 pounds CO

/MWh (based on output) or 160 pounds of CO

/MMBtu (based on input).

6 New York Codes, Rules & Regulations. Part 251 (Adopted June 28, 2012).

Three states, California, Oregon and Washington, have enacted GHG emission performance standards that set an emission rate for electricity purchased by electric utilities. In both Oregon and Washington, for example, electric utilities may enter into long term power purchase agreements for baseload power only if the electric generator supplying the power has a CO

emission rate of 1,100 pounds of CO

per MWh or less.

OR SB 101 (2000); Washington Revised Code ch.80.80 (2013); Wash SB 6001 (2007).

3. Utility Planning Approaches

Two states, Minnesota and Colorado, have worked collaboratively with their investor-owned utilities to develop multi-pollutant emission reduction plans on a utility-wide basis. This multi-pollutant, collaborative approach enables utilities to determine the least cost way to meet long term and comprehensive energy and environmental goals.

Colorado's Clean Air, Clean Jobs Act of 2010, for example, required Colorado investor-owned utilities with coal plants to develop a multi-pollutant plan to meet existing and reasonably foreseeable federal CAA requirements.

The utilities were not required to adopt a specific plan set by the state but were, instead, required to work collaboratively with the Colorado Department of Public Health and Environmental and Colorado Public Utility Commission to develop an acceptable plan. Xcel Energy, Colorado's largest investor-owned utility, submitted a plan that was approved in 2010. With this plan, Xcel Energy is projected to reduce its CO

emissions from generation in Colorado by 28 percent by 2020.

Colorado Clean Air, Clean Jobs Act, HB1365.

Xcel Energy, Colorado Clean Air-Clean Jobs Plan, available at

http://www.xcelenergy.com/Environment/Doing_Our_Part/Clean_Air_Projects/Colorado_Clean_Air_Clean_Jobs_Plan

4. Renewable Portfolio Standards

More than 25 states have mandatory renewable portfolio standards that require retail electricity suppliers to supply a minimum percentage or amount of their retail electricity load with electricity generated from eligible sources of renewable energy.

These standards have been established via utility regulatory commissions, legislatures and citizen ballots and requirements vary from state to state. State RPS typically specify the types of renewable energy, or other energy sources, that qualify for use toward achievement of the standard, and often allow for the use of qualifying renewable energy resources located outside of the state. They reduce utilization of fossil fuel-fired EGUs and, thereby, lead to reductions in GHG emissions by meeting a portion of the demand for electricity through renewable or other energy sources.

http://www.dsireusa.org/.

In 2007, the Minnesota legislature amended the state's 2001 renewable energy objective and established a renewable energy standard (RES) requiring at least 25 percent of all electricity generated or purchased in Minnesota to come from renewable energy by 2025. The standard sets requirements and timetables, beginning in 2010, that vary based on the provider. For example, in 2011, Xcel Energy had a requirement to generate or purchase 15 percent of its total retail sales from renewable energy while all other utilities had a target of 7 percent of total retail sales. According to the latest Minnesota Department of Commerce report to the legislature on progress, all utilities subject to the standard met it for 2011 and were on track to meet their 2012 goals.

The 2012 requirement increased to 18 percent of total retail sales for Xcel Energy and 12 percent for all other utilities.

In 2013, the Minnesota legislature expanded the RES with solar incentives and a specific solar energy standard requiring Minnesota utilities to ensure that at least 1.5 percent of their retail electricity sales in 2020 come from solar energy.

Report to the Minnesota Legislature: Progress on Compliance By Electric Utilities With The Minnesota Renewable Energy Objective and the Renewable Energy Standard, Prepared by: The Minnesota Department of Commerce, Division of Energy Resources January 14, 2013;

http://mn.gov/commerce/energy/images/2013RESLegReport.pdf.

Id.

Minnesota Statutes 2013, Section 216B.1691, Subdivision 2f. Solar Energy Standard

https://www.revisor.mn.gov/statutes/?id=216b.1691.

The Oregon Renewable Portfolio Standard (RPS) is another example of a state requirement for renewables. Originally enacted in 2007, it requires that all utilities serving Oregon meet a percentage of their retail electricity needs with qualified renewable resources. Like in Minnesota, the percentage varies across utilities with the three largest utilities required to reach five percent from renewable energy sources starting in 2011, 15 percent in 2015, 20 percent in 2020, and 25 percent in 2025. Other electric utilities in the state are required to reach levels of five percent or ten percent by 2025, depending on their size. According to the latest RPS compliance reports submitted by the largest utilities for the state, each had achieved the five percent target as of the end of 2012.

Eugene Water Electric Board Oregon Renewable Portfolio Standard 2012 Compliance Report and 2013-2030 Implementation Plan, June 1, 2013. PacifiCorp's Renewable Portfolio Standard Oregon Compliance Report for 2012, May 31, 2013. PGE 2012 Renewable Portfolio Standard Compliance Report, June 1, 2013.

5. Demand-Side Energy Efficiency Programs

Many electric utilities, third-party administrators, and states implement demand-side energy efficiency programs to reduce generation from EGUs by reducing electricity use, including peak demand. When these programs reduce fossil fuel electricity generation, they also reduce CO

emissions. Demand-side energy efficiency programs use a variety of energy efficiency measures to target a variety of end uses and are often driven by existing state standards and programs, such as policies requiring utilities to obtain “all cost-effective energy efficiency” through long-term integrated resource planning (IRP), renewable portfolio standards (RPS) that include efficiency as a qualifying resource, energy efficiency resource standards (EERS), public benefit funds, and other demand-side planning requirements.

The purposes of demand-side energy efficiency programs vary; goals include to reduce GHG emissions by reducing fossil-fired generation, help states achieve energy savings goals, save energy and money for consumers and improve electricity reliability. They are typically funded through a small fee or surcharge on customer electricity bills, but can also be funded by other sources, such as from RGGI CO

allowance auction proceeds mentioned above.

Nationally, total spending on electric ratepayer-funded energy efficiency programs was about $5 billion in 2012.

Based on Lawrence Berkeley National Laboratory (LBNL) projections, spending is projected to reach $8.1 billion in 2025.

Consortium for Energy Efficiency Annual Industry Report: 2013 State of the Efficiency Program Industry—Budgets, Expenditures and Impacts, 2014.

Lawrence Berkeley National Laboratory (LBNL) The Future of Utility Customer-Funded Energy Efficiency Programs in the United States: Projected Spending and Savings to 2025 (

http://emp.lbl.gov/sites/all/files/lbnl-5803e.pdf

Electricity savings from energy efficiency programs are also growing. In 2011, electricity savings from these programs totaled approximately 22.9 million MWh, a 22 percent increase from the previous year.

American Council for an Energy Efficient Economy (ACEEE) 2013 State Scorecard

http://www.aceee.org/sites/default/files/publications/researchreports/e13k.pdf.

California has been advancing energy efficiency through utility-run demand-side energy efficiency programs for decades and considers energy efficiency “the bedrock upon which climate policies are built.”

It requires its investor-owned utilities to meet electricity load “through all available energy efficiency and demand reduction resources that are cost-effective, reliable and feasible.”

The California Public Utility Commission works with the California Energy Commission to determine the amount of cost-effective reduction potential and establishes efficiency targets. A recent energy efficiency potential study found that, even after years of running programs, California can still tap “tens of thousands of GWh in potential savings . . . over the next decade.”

Investor-owned utilities use demand-side energy efficiency programs to achieve their targets and currently “save about 3,000 GW per year, enough savings to power about 600,000 households.”

Between 2010 and 2011, these programs are estimated to have reduced CO

by 3.8 million tons.

December 27, 2013 Letter from Mary D. Nichols, Chairman of California Air Resources Board, to EPA Administrator Gina McCarthy.

Cal Pub. Utility Code § 454.5 (a)(9)(C).

Cited in December 27, 2013 Letter from Mary D. Nichols, Chairman of California Air Resources Board, to EPA Administrator Gina McCarthy.

Id.

In Vermont, for example, the Vermont Legislature and the Vermont Public Service Board (PSB) established the first statewide “energy efficiency utility” in 1999 to provide energy efficiency services to residences and businesses throughout the state.

Vermont law requires that the energy efficiency utility budgets be set at a level to achieve “all reasonably available, cost-effective energy efficiency” and then specific energy (kWh) and peak demand (kW) savings levels are negotiated every three years.

In 2013, Efficiency Vermont, the PSB-appointed energy efficiency utility, achieved annual savings of 1.66 percent of the state's electricity sales, at a cost of 4.1 cents per kilowatt‐hour, lower than the cost of comparable electric supply in the same year, which was 8.4 cents per kWh.

Efficiency Vermont projects a net lifetime economic value to Vermont of more than $60 million from the 2013 energy efficiency investments.

State of Vermont Public Service Board, Energy Efficiency Utility Creation and Structure.

http://psb.vermont.gov/utilityindustries/eeu/generalinfo/ creationandstructure

Vermont Statute, Title 30: Public Service, 30 V.S.A. § 209 (d)3(B).

http://www.leg.state.vt.us/statutes/fullsection.cfm?Title=30&Chapter=005&Section=00209.

Efficiency Vermont Savings Claim Summary 2013, Reported to the Vermont Public Service Board and to the Vermont Public Service Department, 2014,

https://www.efficiencyvermont.com/docs/about_efficiency_vermont/annual_summaries/2013_savingsclaim_summary.pdf

Id.

6. Energy Efficiency Resource Standards

More than 20 states have energy efficiency resource standards (EERS) that require utilities to save a certain amount of energy each year or cumulatively.

They are typically multi-year requirements expressed as a percentage of annual retail electricity sales or as specific electricity savings amounts over a long term period relative to a baseline of retail sales. Over the compliance period, an EERS reduces fossil fuel-fired EGU generation through reductions in electricity demand, thereby reducing CO

emissions from the power sector.

State Energy Efficiency Resource Standards: Policy Design, Status, and Impacts, DC Steinberg, O. Zinaman, NREL Technical Report NREL/TP-6A20-61023, April 2014.

In Arizona, for example, the Arizona Corporation Commission (ACC) adopted rules in 2010 requiring all investor-owned utilities to achieve 22 percent cumulative electricity savings by 2020, making it one of the highest standards in the nation.

The rule required utilities to achieve 1.25 percent electricity savings in 2011 compared to electricity sales in the previous year, ramping up the savings each year until 2020 according to a designated timetable.

In 2012, for example, investor-owned utilities were required to achieve energy savings equivalent to 1.75 percent of the 2011 sales, leading to a cumulative savings requirement of 3 percent by the end of 2012 (an average of 1.5% annually over the 2 year period).

Utilities can meet the energy savings requirements through a variety of means, including cost-effective energy efficiency programs, as well as load management and demand response programs.

Arizona Public Service Company (APS), the largest utility in Arizona, achieved cumulative energy savings equivalent to 3.2 percent of retail sales from 2011 to 2012, exceeding the 3 percent savings target, and reported a net benefit to consumers of more than $200 million for the year 2012 alone.

Arizona Corporation Commission, Docket RE-OOOOOC-09-0427, August 2010. Available at

http://images.edocket.azcc.gov/docketpdf/0000116125.pdf.

Id.

Arizona Corporation Commission, Docket RE-OOOOOC-09-0427, August 2010. Available at

http://images.edocket.azcc.gov/docketpdf/0000116125.pdf.

Id.

Arizona Public Service Company 2012 Demand Side Management Annual Progress Report, March 1, 2013 Web site,

http://www.aps.com/en/ourcompany/aboutus/energyefficiency/Pages/home.aspx.

E. Conclusions

States have taken a leadership role in mitigating GHG emissions and have demonstrated the potential for national application of a number of approaches. Throughout the development of this proposed rule, the EPA considered the states' experiences and lessons learned regarding the design and implementation of successful GHG mitigation programs. The agency also fully considered input from stakeholders during the development of this proposed rulemaking.

Considering all input from stakeholders, the agency recognizes that the most cost-effective approach to reducing GHG emissions from the power sector under CAA section 111(d) is to follow the lead of numerous states and not only to identify improvements in the efficiency of fossil fuel-fired EGUs as a component of the BSER, but also include in the BSER determination the EGU-emissions-reduction opportunities that states have already demonstrated to be successful in relying on lower- and zero-emitting generation and reduced electricity demand.

CAA section 111(d) sets up a partnership between the EPA and the states. In the context of that partnership, the EPA recognizes the importance of each state having the flexibility to design a cost-effective program tailored to its own specific circumstances. The agency also recognizes, as many states

have, the value of regional planning in designing approaches to achieve cost-effective GHG reductions. To support state flexibility and encourage multi-state coordination in the development of multi-state and regional programs and policies, the EPA recognizes that flexibility in both the timing of plan submittal and the timing of CO

emission reductions will be necessary.

IV. Rule Requirements and Legal Basis

A. Summary of Rule Requirements

The EPA is proposing emission guidelines for each state to use in developing plans to address greenhouse gas emissions from existing fossil fuel-fired electric generating units. The emission guidelines are based on the EPA's determination of the “best system of emission reduction . . . adequately demonstrated” (BSER) and include state-specific goals, general approvability criteria for state plans, requirements for state plan components, and requirements for the process and timing for state plan submittal and compliance.

Under CAA section 111(d), the states must establish standards of performance that reflect the degree of emission limitation achievable through the application of the “best system of emission reduction” that, taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements, the Administrator determines has been adequately demonstrated. Consistent with CAA section 111(d), the EPA is proposing state-specific goals that reflect the EPA's calculation of the BSER.

Under CAA section 111(d), each state must develop, adopt, and then submit its plan to the EPA. To do so, the state would determine, and include in its plan, an emission performance level that is equivalent to the state-specific CO

goal in the emission guidelines. As part of determining this level, the state would decide whether to adopt the rate-based form of the goal established by the EPA or translate the rate-based goal to a mass-based goal. The state would then establish a standard of performance or set of standards of performance (known as emission standards under the existing CAA section 111(d) framework regulations), along with implementing and enforcing measures, that will achieve a level of emission performance that equals or exceeds the level specified in the state plan.

The EPA is proposing to determine the BSER as the combination of emission rate improvements and limitations on overall emissions at affected EGUs that can be accomplished through any combination of one or more measures from the following four sets of measures or building blocks:

1. Reducing the carbon intensity of generation at individual affected EGUs through heat rate improvements.

3. Reducing emissions from affected EGUs in the amount that results from substituting generation at those EGUs with expanded low- or zero-carbon generation.

4. Reducing emissions from affected EGUs in the amount that results from the use of demand-side energy efficiency that reduces the amount of generation required.

The EPA has reviewed information about the current and recent performance of affected EGUs and states' implementation of programs that reduce CO

emissions from these sources. Based on our analysis of that information, the proposed state goals reflect the following stringency of application of the measures in each of the building blocks: Block 1, improving average heat rate of coal-fired steam EGUs by six percent; block 2, displacing coal-fired steam and oil/gas-fired steam generation in each state by increasing generation from existing NGCC capacity in that state toward a 70 percent target utilization rate; block 3, including the projected amounts of generation achievable by completing all nuclear units currently under construction, avoiding retirement of about six percent of existing nuclear capacity, and increasing renewable electric generating capacity over time through the use of state-level renewable generation targets consistent with renewable generation portfolio standards that have been established by states in the same region; and block 4, increasing state demand-side energy efficiency efforts to reach 1.5 percent annual electricity savings in the 2020-2029 period.

Based on the EPA's application of the BSER to each state, the EPA is proposing to establish, as part of the emission guidelines, state-specific goals, expressed as average emission rates for fossil fuel-fired EGUs. Each state's goals comprise the EPA's determination of the emission limitation achievable through application of the BSER in that state. For each state, the EPA is proposing an interim goal for the phase-in period from 2020 to 2029 and the final goal that applies beginning in 2030. The proposed goals for each state are listed in Section VII, below. The EPA is proposing that measures that a state takes after the date of this proposal, and that result in CO

emission reductions during the plan period, would apply toward achievement of the state's CO

goal.

The EPA is further proposing, as part of the plan guidelines, timetables for states to submit their plans. The agency expects to finalize this rulemaking by June 2015, and we are proposing to require that each state submit its plan to the EPA by June 30, 2016. However, if a state needs additional time to submit a complete plan, the state must submit an initial plan by June 30, 2016, that documents the reasons why more time is needed to submit a complete plan and includes commitments to take concrete steps that will ensure that the state will submit a complete plan by June 30, 2017, or June 30, 2018, as appropriate. If such a state is developing a plan limited in geographical scope to the individual state, then the state would have until June 30, 2017, to submit a complete plan. A state that is developing a plan that includes a multi-state approach would have until June 30, 2018, to submit a complete plan.

The EPA is further proposing, as part of the emission guidelines, to allow states the option of translating the EPA-determined goal, which will be rate-based, to a mass-based goal. For states participating in a multi-state approach, the individual state performance goals in the emission guidelines would be replaced with an equivalent multi-state performance goal. The EPA is also proposing that in their plans, whether single state or multi-state, states may not adjust the stringency of the goals set by the EPA.

Under CAA section 111(d)(1) and the implementing regulations, with the state emission performance level in place, the state must adopt a state plan that establishes a standard of performance or set of standards of performance, along with implementing and enforcing measures, that will achieve that emission performance level. The EPA is further proposing, as part of the guidelines, to authorize the state to submit either of two types of measures to achieve the performance level: (1) A set of measures that we refer to as “portfolio” measures, which include a combination of emission limitations that apply directly to the affected sources and other measures that have the effect of limiting generation by, and therefore emissions from, the affected sources; or (2) solely emission limitations that apply directly to the affected sources.

The EPA is also proposing, as

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