Federal Plan Requirements for Greenhouse Gas Emissions From Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations

Federal RegisterOct 23, 2015

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 60, 62, and 78

[EPA-HQ-OAR-2015-0199; FRL 9930-67-OAR]

RIN 2060-AS47

Federal Plan Requirements for Greenhouse Gas Emissions From Electric Utility Generating Units Constructed on or Before January 8, 2014; Model Trading Rules; Amendments to Framework Regulations

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Proposed rule.

SUMMARY:

In this action, the Environmental Protection Agency (EPA) is proposing a federal plan to implement the greenhouse gas (GHG) emission guidelines (EGs) for existing fossil fuel-fired electric generating units (EGUs) under the Clean Air Act (CAA). The EGs were proposed in June 2014 and finalized on August 3, 2015 as the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (also known as the Clean Power Plan or EGs). This proposal presents two approaches to a federal plan for states and other jurisdictions that do not submit an approvable plan to the EPA: a rate-based emission trading program and a mass-based emission trading program. These proposals also constitute proposed model trading rules that states can adopt or tailor for implementation of the final EGs. The federal plan is an important measure to ensure that congressionally mandated emission standards under the authority of the CAA are implemented. The proposed federal plan is related to but separate from the final EGs. The final EGs establish the best system of emission reduction (BSER) for applicable fossil fuel-fired EGUs in the form of a carbon dioxide (CO

) emission performance rate for steam-fired EGUs and a CO

emission performance rate for natural gas-fired combined cycle (NGCC) units, and provide guidance and criteria for the development of approvable state plans. The purpose of the proposed federal plan is to establish requirements directly applicable to a state's affected EGUs that meet these emission performance levels, or the equivalent statewide goal, in order to achieve reductions in CO

emissions in the case where a state or other jurisdiction does not submit an approvable plan. The stringency of the emission performance levels established in the final EGs will be the same whether implemented through a state plan or a federal plan. The EPA is also proposing enhancements to the CAA section 111(d) framework regulations related to the process and timing for state plan submissions and EPA actions. The EPA intends to finalize both the rate-based and mass-based model trading rules in summer 2016.

DATES:

Comments.

Comments must be received on or before January 21, 2016.

Public Hearing.

The EPA will hold public hearings on the proposal. Details will be announced in a separate

Federal Register

document.

ADDRESSES:

Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2015-0199, to the Federal eRulemaking Portal:

http://www.regulations.gov.

Follow the online instructions for submitting comments. Once submitted, comments cannot be edited or withdrawn. The EPA may publish any comment received to its public docket. Do not submit electronically any information you consider to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. The EPA will generally not consider comments or comment contents located outside of the primary submission (

i.e.,

on the web, cloud, or other file sharing system). For additional submission methods, the full EPA public comment policy, information about CBI or multimedia submissions, and general guidance on making effective comments, please visit

http://www2.epa.gov/dockets/commenting-epa-dockets.

Instructions:

Direct your comments on the federal plan requirements proposed rule to Docket ID No. EPA-HQ-OAR-2015-0199. The EPA's policy is that all comments received will be included in the public docket and may be made available online at

http://www.regulations.gov,

including any personal information provided, 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. The

http://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:

The EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2015-0199. The EPA has previously established a docket for the January 8, 2014, Clean Power Plan proposal under Docket ID No. EPA-HQ-OAR-2009-0559. 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 form. Publicly available docket materials are available either electronically at

http://www.regulations.gov

or in hard copy at the EPA Docket Center EPA/DC, EPA WJC West Building, 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 holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the EPA Docket Center is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT:

Ms. Toni Jones, Fuels and Incineration Group, Sector Policies and Programs Division (E143-05), Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone number: (919) 541-0316; fax number: (919) 541-3470; email address:

jones.toni@epa.gov.

SUPPLEMENTARY INFORMATION:

Acronyms and Abbreviations.

The following acronyms and abbreviations are used in this document.

ANSI American National Standards Institute

ARP Acid Rain Program

ATCS Allowance Tracking and Compliance System

BSER Best system of emission reduction

CAA Clean Air Act

CAIR Clean Air Interstate Rule

CARB California Air Resources Board

CBI Confidential Business Information

CEIP Clean Energy Incentive Program

CEMS Continuous emissions monitoring system

CFCs Chlorofluorocarbons

CISWI Commercial Industrial Solid Waste Incinerators

CFR Code of Federal Regulations

CHP Combined heat and power

Carbon dioxide

e Carbon dioxide equivalent

CSAPR Cross-state Air Pollution Rule

DOE U.S. Department of Energy

DOI U.S. Department of the Interior

DOL U.S. Department of Labor

DS-EE Demand-Side Energy Efficiency

EE Energy efficiency

EGs Emission Guidelines

EGU Electric generating unit

EIA Energy Information Administration

EJ Environmental justice

EM&V Evaluation, measurement, and verification

EPA Environmental Protection Agency

EO Executive Order

ERC Emission rate credit

FERC Federal Energy Regulatory Commission

FIP Federal implementation plan

FR Federal Register

GHG Greenhouse gas

GHGRP Greenhouse Gas Reporting Program

GJ/h Gigajoule per hour

HAP Hazardous air pollutants

ICR Information collection request

IGCC Integrated gasification combined cycle facility

IPM Integrated Planning Model

IPCC Intergovernmental Panel on Climate Change

ISO/RTO Independent System Operator/Regional Transmission Organization

lbs Pounds

LML Lowest measured PM

2.5

levels

MATS Mercury and Air Toxics Standards

M&V Measurement and verification

MMBtu/h Million British Thermal units per hour

MSW Municipal solid waste

MW Megawatts

MWh Megawatt-hours

NAAQS National Ambient Air Quality Standards

NAICS North American Industrial Classification System

NERC North American Electric Reliability Corporation

NGCC Natural gas combined cycle

NSPS New source performance standards

NSR New Source Review

NTTAA National Technology Transfer and Advancement Act

NODA Notice of data availability

Nitrogen oxides

OAP Office of Atmospheric Programs

OAQPS Office of Air Quality Planning and Standards

PRA Paperwork Reduction Act

PSD Prevention of significant deterioration

PUC Public Utility Commission

RCT Randomized control trials

RE Renewable energy

REC Renewable Energy Certificate

RFA Regulatory Flexibility Act

RGGI Regional Greenhouse Gas Initiative

RIA Regulatory impact analysis

RPS Renewable Portfolio Standard

SCT Stationary combustion turbine

SGU Steam generating unit

SIP State implementation plan

Sulfur dioxide

TRM Technical Reference Manual

TSD Technical support document

The Court U.S. Court of Appeals for the District of Columbia Circuit

TTN Technology Transfer Network

UMRA Unfunded Mandates Reform Act

UNFCCC United Nations Framework Convention on Climate Change

U.S. United States

WWW World Wide Web

Organization of This Document.

The following outline is provided to aid in locating information in this preamble.

I. General Information

A. Executive Summary

B. Organization and Approach for This Proposed Rule

1. The Rate-Based Approach

2. The Mass-Based Approach

3. Other Proposed Actions

C. Who does the proposed action apply to?

1. What is an affected electric utility generating unit?

2. How To Determine if a Unit Is Covered by an Approved and Effective State Plan

D. What should I consider as I prepare my comments?

II. Background Information

A. What is the regulatory development background for this proposed rule?

B. What is the purpose of this Proposed Rule?

1. Federal Plan

2. Model Trading Rule

C. Legal Authority

D. Timing of EPA Actions on the Model Trading Rules, Federal Plan, and Other Proposed Actions

E. Use of the Model Trading Rule as a Backstop

III. Federal Plan Structure To Achieve Reductions

A. Overview

1. Interactions With State Plans and Scope of Trading

2. Addressing Potential Leakage and Interstate Effects

3. Provisions To Encourage Early Action

B. Inventory of Emissions

C. Affected EGUs

D. Compliance Schedule

E. Addressing Reliability Concerns

F. Worker Certification

G. Remaining Useful Lives and Potential for “Stranded Assets”

H. Implications for Other EPA Programs and Rules

1. Title V Permitting

2. Implications for New Source Review Program

3. Interactions With Other EPA Rules

I. Administrative Appeals Process

J. Consistency of Program Structure With Clean Air Act Authority

1. General Section 111(d)(2) Authority

2. Use of Market Techniques To Implement Standards of Performance Under the Clean Air Act

IV. Rate-Based Implementation Approach

A. Overview

B. Rate Goals

C. Crediting Mechanism

1. ERCs Generated and Owed Against a Standard

2. Incremental NGCC ERCs

3. Eligible Emission Reduction Measures for ERC Generation

D. ERC Tracking and Compliance Operations

1. Designated Representatives and Alternate Designated Representatives

2. ERC Tracking and Compliance System

3. Tracking System Requirements

4. Compliance and General Accounts

5. Compliance Demonstration

6. Recordation of ERC Generation and ERC Issuance

7. Independent Verifiers

8. Evaluation, Measurement, and Verification (EM&V) Plans, Monitoring and Verification (M&V) Reports, and Verification Reports

9. ERC Transfers and Trading

10. Compliance With Emissions Standards

11. Other ERC Tracking and Compliance Operations Provisions

12. Banking of ERCs

13. Emissions Monitoring and Reporting

E. Federal Plan and State Plan Interactions

1. Interstate Trading

2. Treatment of States Entering or Exiting the Trading Program

V. Mass-Based Implementation Approach

A. Trading Program Overview

B. Statewide Mass-Based Emissions Goals

C. Compliance Timing and Allowance Banking

D. Initial Distribution of Allowances

1. Proposed Allocation Approach and Alternatives

2. Timing of Allowance Recordation

3. Allowance Set-Asides To Address Leakage to New Sources

4. Provisions To Encourage Early Action

5. Allocations to Units That Change Status

E. State-Determined Allowance Distribution

F. Treatment of States Entering or Exiting the Trading Program

G. Allowance Tracking, Compliance Operations, and Penalties

1. Designated Representatives and Alternate Designated Representatives

2. Allowance Tracking and Compliance System

3. Compliance and General Accounts

4. Recordation of Allowance Allocations and Transfers

5. Compliance With Emissions Limitations

6. Other Allowance Tracking and Compliance Operations Provisions

H. Emissions Monitoring and Reporting Requirements

VI. Implementation of the Federal Plan and Delegation

A. Delegation of the Federal Plan and Retained Authorities

B. Mechanisms for Transferring Authority

1. Federal Plan Becomes Effective Prior To Approval of a State or Tribal Plan

2. State or Tribe Takes Delegation of the Federal Plan

C. Implementing Authority

D. Necessary or Appropriate Finding for Affected EGUs in Indian Country

VII. Amendments To Process for Submittal and Approval of State Plans and EPA Actions

A. Partial Approvals/Disapprovals

B. Conditional Approvals

C. Calls for Plan Revisions

D. Error Corrections

E. Completeness Criteria

F. Update to Deadlines for EPA Actions

G. Proposed Interpretation Regarding Existing Sources That Modify or Reconstruct

H. Separate Finalization of These Changes

VIII. Impacts of This Action

A. Endangered Species Act

B. What are the Air Impacts?

C. What are the Energy Impacts?

D. What are the Compliance Costs?

E. What are the Economic and Employment Impacts?

F. What are the Benefits of the Proposed Action?

IX. Community and Environmental Justice Considerations

A. Proximity Analysis

B. Community Engagement in This Rulemaking Process

C. Providing Communities With Access to Additional Resources

D. Federal Programs and Resources Available to Communities

E. Co-Pollutants

F. Assessing Impacts of Federal Plan Implementation

G. The EPA's Continued Engagement

X. 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 (PRA)

C. Regulatory Flexibility Act (RFA)

D. Unfunded Mandates Reform Act (UMRA)

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 That Significantly Affect Energy Supply, Distribution, or Use

I. National Technology Transfer and Advancement Act (NTTAA) and 1 CFR Part 51

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

I. General Information

A. Executive Summary

In the CAA, Congress created a partnership between the EPA and the states. Under section 111(d) of the CAA, the EPA establishes emission performance levels based on its determination of the BSER for existing sources of air pollution and provides guidelines for state plans to apply standards of performance to their sources that meet the BSER level of performance. The EPA promulgated EGs under CAA section 111(d) which set source-level CO

emission performance rates for the EGUs at certain large fossil fuel-fired power plants (“affected EGUs”). States then apply these EGs to their sources in developing state plans to achieve these emission performance levels for EPA approval, or initial submittals, by September 6, 2016. The amount of reductions in CO

that the EPA determined to be achievable for these sources is based on its determination of what constitutes the BSER. This determination is finalized in the EGs, which are designed to maximize the flexibility of both states and affected EGUs in meeting CO

emissions performance rates. While states may impose the emission rates directly on their affected EGUs, states also have the option of submitting more tailored plans that meet state-specific emissions goals. The EGs also provide flexibility by allowing for emissions trading and multi-state compliance options.

While it has been the EPA's longstanding view that the statute identifies states as the preferred implementers of CAA programs, the agency makes clear in the EGs that states cannot and will not be penalized for failing to participate in this program. However, if a state does not submit an approvable plan under section 111(d) of the CAA, the EPA will develop, implement, and enforce a federal plan to reduce CO

from the fossil fuel-fired power plants in that state. This is wholly consistent with the “cooperative federalism” structure of the CAA and many of our nation's other environmental laws. In addition, we have heard from states and other stakeholders that it would be helpful for the agency to present model designs for state plans, and a federal plan would be an appropriate means of doing that.

Accordingly, the EPA proposes a federal plan under section 111(d) of the CAA for the control of CO

, a GHG pollutant, from certain emitting fossil fuel-fired power plants, in the event that some states do not adopt their own plans. Specifically, the EPA is proposing approaches in the form of mass- and rate-based trading options that provide flexibility in implementing emission standards for a state's affected EGUs. Both proposed approaches to the federal plan would require affected EGUs to meet emission standards set using the CO

emission performance rates in the EGs. The federal plan will achieve the same levels of emissions performance as required of state plans under the EGs. The EPA will promulgate a final federal plan for only the affected EGUs in states that the EPA determines did not submit an approvable plan.

At the same time, these two proposed options offer states model trading rules that the states can follow in developing their own plans in order to capitalize on the flexibility built into the final EGs. Thus, this document proposes four discrete actions: (1) A rate-based federal plan for each state with affected EGUs; (2) a mass-based federal plan for each state with affected EGUs; (3) a rate-based model trading rule for potential use by any state; and (4) a mass-based model trading rule for potential use by any state. The regulatory text of each federal plan and corresponding model trading rule is identical, except as indicated otherwise within the text of the model rule (for instance, the EPA is providing model rule text for states to use related to the crediting of a broader set of clean energy resources than is being proposed in the federal plan).

The EPA intends to finalize both the rate-based and mass-based model trading rules in summer 2016. The EPA will finalize a federal plan for only a given state in the event that the state does not submit an approvable plan by the deadlines specified in the final EGs and the EPA takes action finding that the state has failed to submit a plan, or disapproving a submitted plan because it does not meet the requirements of the EGs.

Indeed, states may simply choose to accept a federal plan for their sources rather than undertake the development of a plan of their own by not submitting a state plan. Under this proposed rule, a federal plan promulgated for a particular state would take the form of either the mass-based model trading rule or the rate-based model trading rule. The EPA currently intends to finalize a single approach (

i.e.,

either the mass-based or rate-based approach) for every state in which it promulgates a federal plan, given the benefits of a broad trading program, as discussed in

section I.B of this preamble. We invite comment on which approach,

i.e.,

either mass-based or rate-based trading, should be selected if we opt to finalize a single approach.

For simplicity, at times this document may refer to the co-proposed federal plans as “the federal plan.” (It may refer to the model trading rules in the singular as well.) Even though the singular is used, this term is meant to encompass both the rate-based approach and the mass-based approach. The use of the singular when referring to this proposed federal plan also is intended to encompass all state-specific federal plans. In other words, the EPA intends to finalize “the federal plan” as a series of state-specific “federal plans.” This is consistent with the agency's prior practice in other multi-state trading programs such as the NO

Budget Trading Program, the Clean Air Interstate Rule (CAIR), and the Cross-State Air Pollution Rule (CSAPR), where a single rule promulgated multiple FIPs.

It is the EPA's intention to give the states as much opportunity as possible to set their own course for carrying out the EGs. Even where a federal plan is put in place for a particular state, that state will still be able to submit a plan, which, upon approval, will allow the state and its sources to exit the federal plan. In addition, as discussed in section VI.A of this preamble, states may take delegation of administrative aspects of the federal plan in order to become the primary implementers. And as discussed in sections V.E and VII.A of this preamble, states may submit partial state plans in order to take over the implementation of a portion of a federal plan. For instance, in a mass-based trading program, the agency proposes to allow states to submit partial state plans to replace the federal plan allowance-distribution provisions with their own allowance-distribution provisions, similar to the approach we have taken in prior trading programs. Finally, even in states in which the affected EGUs are operating under a federal plan, the agency recognizes that states may adopt complementary measures outside of CAA programming to facilitate compliance and lower costs that could benefit power generators and consumers, directly or indirectly.

A state program that adheres to the model trading rule provisions specified in this rulemaking would be presumptively approvable. States may submit means of meeting the EGs' requirements that differ from the model trading rule provisions, so long as the state demonstrates to the EPA's satisfaction in the state plan submittal that such alternative means of addressing requirements are at least as stringent as the presumptively approvable approach described here.

Additionally, there are stand-alone portions of the model trading rules, such as the evaluation, measurement, and verification (EM&V) procedures, that would be approvable even if a state adopted an approach that differs from the federal plan. The model trading rules serve as a mechanism to facilitate larger trading markets since consistency with the federal plan allows trading across both the state and federal programs. The EPA expects a larger trading region is likely to result in lower overall costs. These and other aspects of the model trading rules and federal plan provide additional support for this rule as proposed. Thus, the proposed rule would ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented, either by the states in the first instance, or by the EPA where needed.

For example, in the context of a mass- or rate-based trading program, a state may submit a plan with alternative components other than those described, so long as the program includes each of the requirements and the state satisfactorily demonstrates in the state plan submittal that such alternative means of addressing the requirements are as stringent as the presumptively approvable approach as described, and therefore provide for the implementation of the state plan's emission standards.

The agency is proposing a finding that it is necessary or appropriate to implement a CAA section 111(d) federal plan for the affected EGUs located in Indian country. CO

emission performance rates for these facilities were finalized in the EGs. Tribes generally may seek “treatment as a state” (TAS) and submit a tribal plan to implement CAA programs, including programs under CAA section 111(d), and this proposed finding does not preclude tribes from doing that. However, tribes are not subject to the deadlines applicable to state action under the EGs and in the absence of a federal plan, CO

emissions from these EGUs could go unregulated. Therefore, as discussed in section VI.D of this preamble, we are proposing a necessary or appropriate finding.

This document also proposes certain enhancements to the process and timing for state submittals and EPA action in the CAA section 111(d) framework regulations of 40 CFR part 60, subpart B (these proposals are not a part of the federal plan or model trading rules). These changes, if finalized, would be applicable under the Clean Power Plan and other CAA section 111(d) rules. These changes clarify the availability of certain procedural mechanisms similar to those available under CAA section 110 (such as calls for plan revisions and the availability of “conditional approvals,” etc.). They also extend the deadlines for EPA action, in part to conform with the timelines in the EGs. These changes do not alter the timelines for state action under the EGs and do not alter the submission requirements established in the EGs. Finally, the agency proposes to clarify and request comment on an interpretive issue raised in the Clean Power Plan proposal regarding whether a reconstruction or modification that is subject to a CAA section 111(b) standard moves an existing source out of a CAA section 111(d) program. These proposed changes are discussed in section VII of this preamble. The agency intends to finalize these changes earlier than the finalization of the model trading rules.

In proposing a federal plan, the EPA considered a variety of potential impacts that its action might have on the environment, on businesses, particularly in the energy sector, and on the reliability of the electrical grid. The agency gave extensive consideration to impacts on vulnerable communities, particularly low-income communities, communities of color, and indigenous communities. These considerations are discussed in sections III, VIII, IX, and X of this preamble.

The agency convened a Small Business Advocacy Review Panel under the Regulatory Flexibility Act and has completed an Initial Regulatory Flexibility Analysis (IRFA). Various recommendations from the Panel are found reflected throughout this proposal. In section X of this preamble, the agency explains how it has conducted or intends to conduct all other statutory or executive order (EO) reviews that apply to this proposed action. The EPA also explains in this document how it proposes to take into consideration the “remaining useful lives” of affected EGUs in the design of the proposed federal plan, as discussed below in section III.G of this preamble.

The agency considered the impacts this action could have on the electricity grid and developed options for compliance that are cost-effective and that provide substantial flexibility for the affected EGUs that will accommodate the parties charged with maintaining the reliability of electrical power. A key feature of the proposed federal plan and model trading rule is that the flexibility inherent in both of the two approaches (

i.e.,

rate-based or mass-based trading) enables the EPA and the states to create a level of flexibility for affected EGUs that allows owners and operators to determine the best way to achieve emission reductions, at the EGU-, state-, multi-state-, regional-, or national level. As a result, compliance strategies can mirror, or be integrated with, the ongoing operations of the current electricity grid as it continues to serve its primary critical function of ensuring an uninterrupted supply of affordable and reliable electricity. This flexibility is especially valuable whenever the need to address specific reliability concerns arises. It allows owners and operators of reliability-critical EGUs to continue to meet their compliance obligations while operating to maintain electric reliability.

The EPA outlined and initiated the Clean Energy Incentive Program (CEIP) in the final EGs (see section VIII of the final EGs). The program is designed to

incentivize investment in certain types of renewable energy (RE) projects, as well as demand-side energy efficiency (EE) projects implemented in low-income communities, that generate MWh or reduce end-use energy demand during 2020 and/or 2021. The EPA proposes to apply the CEIP in all states subject to either a rate-based or mass-based federal plan.

We also reviewed impacts that this action could have on the environment and the need to ensure environmental integrity of the program as well as avoid unintended environmental impacts. We took measures to ensure that the reductions in carbon emissions this plan will achieve are real, and not just apparent. As in the EGs, in both the rate- and mass-based approaches, the EPA has incorporated components to address the concern that the dynamics of either a rate- or mass-based trading program could incentivize shifting generation from existing units in ways that would result in more CO

emissions than would otherwise be expected, or that undermine the purpose of the CAA section 111(d) program.

We considered whether compliance choices under a federal plan could lead to an unintended concentration of other air pollutants in certain overburdened communities, particularly low-income communities and communities of color. As discussed below, our analysis shows why we do not expect this to occur at any significant level. In general, as in the EGs, we anticipate that the federal plan will result in overall reductions of co-pollutants, in addition to reductions in CO

, with corresponding co-benefits to public health. We also reviewed whether this action could trigger an obligation to consult with other agencies responsible for implementing the Endangered Species Act, and propose to conclude that it will not.

In the final EGs, the EPA emphasized the importance of state actions to ensure that in developing their respective compliance plans the states addressed the concerns and priorities of vulnerable communities. In the process of developing a final federal plan, the EPA will take actions to address those concerns as well. In addition to the public hearings that the EPA will be holding for all members of the American public on this proposed rulemaking, we will also be conducting a national webinar and outreach meeting(s) in all ten regions on this proposed rulemaking for communities. The goal of these outreach activities is to provide communities with the information they need to understand how the proposed rulemaking will potentially impact their respective communities. At the same time, this information will be useful in helping communities engage the EPA during our comment period, as well as with their states during the state plan development process. We will also be providing other outreach and support activities for vulnerable communities, which are outlined in the community and environmental justice (EJ) considerations in section IX.B of this preamble.

B. Organization and Approach for This Proposed Rule

In this action, the EPA is proposing a federal plan to implement the Clean Power Plan EGs for affected fossil fuel-fired EGUs operating in states that do not have approved state plans. Specifically, the EPA is co-proposing two different approaches to a federal plan to implement the Clean Power Plan EGs—a rate-based trading approach and a mass-based trading approach. While establishing emission standards for affected EGUs that would be directly enforceable against the owners and operators of the source, both approaches would grant EGUs substantial flexibility in meeting their compliance obligations. For this reason, among others, these proposed approaches also serve as two proposed model trading rules that states may adopt or tailor in designing their own plans.

The EGs provide that states have until September 6, 2016 (or upon making an initial submittal, until September 6, 2018) to submit state plans, and the EPA does not intend to finalize and implement the federal plan for any states prior to the agency's action of determining a failure to submit a state plan or disapproving a state plan. At the same time, in order to support states' consideration of adoption of one of the model trading rules as an approvable state plan, the agency intends to finalize either or both model rule options presented in this proposed rule by summer 2016, prior to the deadline for state submittals.

The EPA currently intends to finalize a single approach—

i.e.,

either a rate-based or a mass-based approach—in all promulgated federal plans for particular states in order to enhance the consistency of the federal trading program, achieve economies of scale through a single, broad trading program, ensure efficient administration of the program, and simplify compliance planning for affected EGUs. The EPA recognizes that the mass-based trading approach would be more straightforward to implement compared to the rate-based trading approach, both for industry and for the implementing agency. The EPA, industry, and many state agencies have extensive knowledge of and experience with mass-based trading programs. The EPA has more than two decades of experience implementing federally-administered mass-based emissions budget trading programs including the Acid Rain Program (ARP) sulfur dioxide (SO

) trading program, the Nitrogen Oxides (NO

) Budget Trading Program, CAIR, and CSAPR. The tracking system infrastructure exists and is proven effective for implementing such programs. The EPA requests comment on which approach—mass-based or rate-based trading—is preferred for the federal plan. Some stakeholders have suggested there could be utility in the availability of both approaches based on the unique circumstances of particular states. The EPA recognizes that it remains potentially possible to finalize a different approach to a federal plan in some circumstances, but believes that in general, and consistent with prior federal trading programs such as CSAPR, creating a single, broad program has the most advantages.

The stringency of the proposed federal plan is the same as the CO

emission performance rates established for affected EGUs in the EGs. As explained in the final EGs, the EPA determined the CO

emission performance rates through the application of the BSER. In the EGs, the EPA has taken final action on the BSER for CO

emissions from existing fossil fuel-fired EGUs. Any comments on this proposed rule relating to the BSER, its stringency, rationale, or legal basis, will not be considered as, by definition, they will be beyond the scope of this action.

The agency recognizes that the “remaining useful lives” of facilities subject to a CAA section 111(d) federal plan is a factor that it must consider at the time it implements the federal plan. This factor, and how the agency proposes to consider it, is discussed in section III.G of this preamble below.

1. The Rate-Based Approach

In the first approach, the EPA would implement a rate-based emissions trading program. In a rate-based program, affected EGUs must meet an emission standard, derived from the EGs, expressed as a rate of pounds of CO

per megawatt hour (lbs/MWh). If sources emit above their assigned rate, they must acquire a sufficient number of emission rate credits (ERC), each representing a zero-emitting megawatt hour (MWh), to bring their rate of emissions into compliance. Emission rate credits (ERCs) may be generated by affected EGUs or by other entities that supply zero- or low-emitting electricity resources to the grid through an approval and recognition process that

the EPA will administer. ERCs may be bought and sold, or banked for use in later years. The rate-based approach is explained in greater detail in section IV of this preamble.

2. The Mass-Based Approach

The second approach to a federal plan that the EPA is proposing in this action is a mass-based trading program. In a mass-based program, the EPA would create a state emissions budget equal to the total tons of CO

allowed to be emitted by the affected EGUs in each state, consistent with the mass goals established in the EGs. The EPA would initially distribute the allowances within each state budget—less three proposed allowance set-asides—to the affected EGUs based on their historical generation. Allowances may then be transferred, bought, and sold on the open market, or banked for future use. The compliance obligation on each of the affected EGUs is to surrender the number of allowances sufficient to cover the EGU's respective emissions at the end of a given compliance period. The EPA is also proposing as a part of the mass-based approach three set-asides of allowances: (1) For a Clean Energy Incentive Program; (2) to support renewable energy (RE) projects; and (3) to allocate allowances based on an updating measurement of affected-EGU generation. The EPA is also proposing that a jurisdiction may choose to replace the federal plan allocation provisions with its own allowance allocation provisions. The mass-based approach is explained in greater detail in section V of this preamble.

3. Other Proposed Actions

The EPA is proposing in this action a finding that it is necessary or appropriate to regulate affected EGUs in certain parts of Indian country via a federal plan. This is discussed in section VI.D of this preamble.

In this action, the EPA is also proposing a number of changes to the framework CAA section 111(d) regulations of 40 CFR part 60, subpart B. These changes generally are intended to provide enhancements to the process for state plan submissions and the timing of EPA actions related to state plans and the federal plan. Specifically, the EPA proposes six changes, to include: (1) Partial approval/disapproval mechanisms similar to CAA section 110(k)(3); (2) a conditional approval mechanism similar to CAA section 110(k)(4); (3) a mechanism for the EPA to make calls for plan revisions similar to the “SIP-call” provisions of CAA section 110(k)(5); (4) an error correction mechanism similar to CAA section 110(k)(6); (5) completeness criteria and a process for determining completeness of state plans and submittals similar to CAA section 110(k)(1) and (2); and (6) updates to the deadlines for EPA action. These proposed changes are explained in greater detail in section VII of this preamble. They are not a component of the proposed federal plan, or changes in the EGs. If these changes are finalized, they will be applicable to other CAA section 111(d) rules. The EPA intends to finalize these changes earlier than the finalization of the model trading rules.

C. Who does the Proposed Action apply to?

Regulated Entities.

Existing fossil fuel-fired EGUs (or affected EGUs) covered by the final Clean Power Plan that are located in a state that does not have an EPA-approved state plan are potentially subject to this proposed action. Affected EGUs are those that were in operation, or had commenced construction, on or before January 8, 2014.

The following North American Industrial Classification System (NAICS) codes apply as shown in Table 1 of this preamble:

An affected EGU is any fossil fuel-fired EGU that was in operation or had commenced construction as of January 8, 2014, and is therefore an “existing source” for purposes of CAA section 111, but in all other respects would meet the applicability criteria for coverage under the GHG standards for new fossil fuel-fired EGUs.

Table 1—Examples of Potentially Regulated Entities

see also

“Indian Tribes: Air Quality Planning and Management,” hereafter “Tribal Authority Rule,” (63 FR 7254, February 12, 1998). As discussed in section VI.D of this preamble, the agency in this action is proposing a necessary or appropriate finding for the affected EGUs in several areas of Indian country and is proposing the federal plan for these affected EGUs.

See section VII of this preamble for additional information on proposed changes to 40 CFR 60.27 to provide enhancements and flexibilities to the agency's process for review and action on state plans and promulgation of federal plans.

If a state has submitted a complete plan, then the EPA will go through a public notice and comment process to fully or partially approve or disapprove the state plan.

The agency believes it is appropriate to propose the federal plan at this time for any states that may ultimately be found to have failed to submit a plan, or had their plan disapproved by the EPA. For some states in this situation, the federal plan may be no more than an interim measure to ensure that congressionally mandated emission standards under authority of section 111 of the CAA are implemented until they can get an approved plan in place. Other states may choose to rely on the federal plan and would not need to develop their own plan. This proposal also serves as two proposed model trading rules which states can adopt or tailor for adoption as their state plan. The role of the model rules is discussed in section II.B of this preamble.

In this proposal, the EPA is soliciting public comment only on the proposed approaches for a federal plan and model trading rule for the implementation of the Clean Power Plan EGs. Comments on the underlying Clean Power Plan rule will be considered outside the scope for this proposed rule.

B. What is the purpose of this proposed rule?

The purpose of this action is two-fold: (1) To co-propose two approaches to a

federal plan to implement the Clean Power Plan EGs for affected EGUs operating in any state lacking an approved state plan by the relevant deadlines; and (2) to propose these same approaches as model trading rules for states to consider in developing their own plans.

1. Federal Plan

Section 111 of the CAA and 40 CFR 60.27 require the EPA to develop, implement and enforce a federal plan to cover existing EGUs located in states that do not have an approved plan. Section 111(d) of the CAA relies upon states as the preferred implementers of EGs for existing EGUs. States with affected EGUs are to submit state plans or make initial submittals to the EPA by September 6, 2016 pursuant to the EGs.

States without any existing EGUs are directed to submit to the Administrator a letter of negative declaration certifying that there are no affected EGUs in the state. No plan is required for states that do not have any affected EGUs. Affected EGUs located in states that mistakenly submit a letter of negative declaration will become subject to the federal plan until a state plan covering those EGUs becomes approved. The EPA intends to finalize the federal plan only for those states that the EPA finds failed to submit plans or whose plans the EPA disapproves. For more information on the timing and mechanics of EPA action on state plans and finalization of this federal plan, see section II.D of this preamble below.

States may request extensions of up to two years as part of a complete initial CAA section 111(d) submission.

2. Model Trading Rule

The EPA is also proposing the federal plan approaches as two forms of a model trading rule (mass-based and rate-based), which states can adopt or tailor for implementation as a state plan under the EGs. The EPA intends to finalize the model trading rules earlier than it promulgates a federal plan for a state. When the EPA finalizes one or both of its proposed approaches as a final model trading rule, and a state adopts a final model trading rule in its entirety as its state plan, it would be presumptively approvable.

The EPA has designed these rules so that they meet the requirements of the final EGs. If one of the model rules is adopted by a state without any change, it would be presumptively approvable. We use the term “presumptively” in recognition that a state plan submission must be accompanied by other materials in addition to the regulatory provisions. These requirements are set forth in the final Clean Power Plan and framework regulations of 40 CFR part 60, subpart B. For instance, they include a formal letter of submittal from the Governor or his or her designee, evidence that the rule has been adopted into state law and that the state has necessary legal authority to implement and enforce the rule, and evidence that procedural requirements, including public participation under 40 CFR 60.23, have been met.

In further support of state use of the model rules, we are drafting the model trading rule so that it can be adopted or incorporated by reference with a minimum of changes that would be necessary to make the rule appropriate for use by states. This way, a state may incorporate by reference the model rule as the state plan, or as the backstop to a state measures plan with few if any adjustments. States may make changes to the model trading rule, so long as they still meet the requirements of the EGs. If the state chooses to tailor or modify the model trading rule such as by expanding the scope of eligibility of projects that may generate ERCs in a rate-based trading program, the EPA may still approve the plan, but the EPA would conduct appropriate review of such provisions for consistency with the EGs and the state would have to demonstrate to the EPA's satisfaction that its alternative provisions are as stringent as the presumptively approvable approach described. We note here, and in the regulatory text of the model trading rule, that the scope of eligibility of proposed “ERC resources” for the federal plan is different than the scope of eligibility provided for in the model rule. Thus, all of the language and provisions in the regulatory text relevant to these other ERC resources is relevant only to the proposed model trading rule and not to the federal plan as such (

i.e.,

those ERC resources discussed in section IV.C.3 of this preamble are applicable to the model rule and only metered RE and applicable nuclear are applicable to the federal plan).

The EPA's approval of a state plan, including a plan that adopts the model trading rule, will be the result of an independent notice-and-comment rulemaking process. Without prejudging the outcome of that process, the EPA recognizes that it may be able to approve or “conditionally approve” state plans that are substantially similar, but not identical to, the final model trading rules. Ultimately, state plans must meet the requirements of the EGs for approvability. Thus, a conditional approval would be based on a condition that the state take such actions as may be necessary by a date certain to meet the requirements of the EGs. (The EPA is proposing to explicitly provide for conditional approvals in the CAA section 111(d) framework regulations. See section VII.B of this preamble.)

In accordance with the EGs, the process for review and approval (or disapproval) of state plans, whether based on the model trading rules or otherwise, would occur once the states have made their submissions by September 6, 2016. As provided in the EGs, states have the option of not submitting a full state plan, but rather making an initial submittal, in order to obtain an extension of 2 years before submitting a full state plan for EPA approval. It could be beneficial for coordination purposes if a state that is interested in adopting one of the model trading rules but intends to make an initial submittal next year were to indicate which model trading rule they intend to adopt. This is not an additional requirement beyond what the EGs require for initial submittals, however.

The EPA strongly encourages states to consider adopting one of the model trading rules, which are designed to be referenced by states in their rulemakings. Use of the model trading rules by states would help to ensure consistency between and among the state programs, which is useful for the potential operation of a broad trading program that spans multi-state regions or operates on a national scale. As discussed at length in the EGs, EGUs operate less as individual, isolated entities and more as multiple components of a large interconnected system designed to integrate a range of functions that ensure an uninterrupted supply of affordable and reliable electricity while also, for the past several decades, maintaining compliance with air pollution control programs. Since, as a practical matter under both the EGs and any federal plan, emission reductions must occur at the affected EGUs, a broad-scale emissions trading program would be particularly effective in allowing EGUs to operate in a way that achieves pollution control without disturbing the overall system of which they are a part and the critical functions that this system performs. In addition, consistency of requirements benefits the affected EGUs, as well as the states and the EPA in their roles as administrators and implementers of a trading program. States of course remain free to develop a plan of their own choosing to submit to the EPA for approval following the

criteria set out in the final Clean Power Plan EGs.

The EPA believes there are compelling policy reasons that support the provision of a proposed model trading rule at this time. The EPA has heard from multiple stakeholders and in public comments submitted on the proposed EGs that there is a strong interest in seeing a model state plan or trading rule prior to the deadline for state submittals under the EGs. According to these stakeholders, model rules can provide predictability for planning purposes, both among states and affected EGUs. In addition, some states have indicated that they may prefer to rely on a federal plan, either temporarily or permanently, rather than develop a plan of their own. This proposal of a model trading rule addresses these policy interests.

The approach of proposing model trading rules that are identical in all key respects to proposed federal plans that may be promulgated later, is consistent with prior CAA section 111(d) and CAA section 110 rulemakings. For example, the NO

state implementation plan (SIP) Call model rule at 40 CFR part 96 (63 FR 57356; October 27, 1998) was identical in all meaningful respects with the Federal NO

Budget Trading Program at 40 CFR part 97 (65 FR 2674; January 18, 2000). And the CAIR model rule in 40 CFR part 96 (70 FR 25339; May 12, 2005) was identical in all meaningful respects with the federal CAIR in 40 CFR part 97 (71 FR 25396; April 28, 2006).

While these identical programs for model rules and Federal Implementation Plans (FIPs) were finalized in separate parts of the CFR, the EPA does not see any reason that it could not just as easily propose the federal plan as the model trading rule in the same section of the CFR.

If a federal plan were to be finalized for a given state at a later time, this would be reflected in 40 CFR part 62 by cross-reference, along with any modifications or adjustments that may be appropriate at the time of actual promulgation of a federal plan.

We also note that historically under the CAA section 111(d)/129 rules, the content of EGs and their corresponding federal plans have had significant overlap.

We propose to include a note in the regulatory text explaining where aspects of the proposed subpart relevant to states as part of the model trading rule are not applicable.

Table 2—Regional Office Contacts

Region

Regional contact

Phone

States and protectorates

Region I

Shutsu Wong,

wong.shutsu@epa.gov

617-918-1078

Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, Vermont.

Region II

Gavin Lau,

lau.gavin@epa.gov

212-637-3708

New York, New Jersey, Puerto Rico, Virgin Islands.

Region III

Mike Gordon,

gordon.mike@epa.gov

215-814-2039

Virginia, Delaware, District of Columbia, Maryland, Pennsylvania, West Virginia.

Region IV

Ken Mitchell,

mitchell.ken@epa.gov

404-562-9065

Florida, Georgia, North Carolina, Alabama, Kentucky, Mississippi, South Carolina, Tennessee.

Region V.

Alexis Cain,

cain.alexis@epa.gov

312-886-7018

Minnesota, Wisconsin, Illinois, Indiana, Michigan, Ohio.

Region VI

Rob Lawrence,

lawrence.rob@epa.gov

214-665-6580

Arkansas, Louisiana, New Mexico, Oklahoma, Texas.

Region VII

Ward Burns,

burns.ward@epa.gov

913-551-7960

Iowa, Kansas, Missouri, Nebraska.

Region VIII

Laura Farris,

farris.laura@epa.gov

303-312-6388

Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming.

Region IX

Ray Saracino,

saracino.ray@epa.gov

415-972-3361

Arizona, California, Hawaii, Nevada, American Samoa, Guam, Northern Mariana Islands.

Region X

Dan Brown,

brown.dan@epa.gov

503-326-6823

Alaska, Idaho, Oregon, Washington.

C. Legal Authority

Section 111(d)(2) of the CAA, 42 U.S.C. 7411(d)(2) provides the EPA the same authority to prescribe a plan for a state in cases where the state fails to submit a satisfactory plan as the agency would have under CAA section 110(c) in the case of failure to submit an implementation plan. In addition, the EPA has authority under CAA section 111(d)(1) to prescribe regulations that establish procedures similar to CAA section 110 with respect to the submission of state plans, and the EPA also has general rulemaking authority as necessary to implement the CAA under CAA section 301. A federal plan under CAA section 111(d) applies, implements and enforces standards of performance for affected EGUs. Under the Clean Power Plan EGs, state plans will be due on September 6, 2016, but states are also allowed to seek a 2-year extension for a final plan submittal, upon a satisfactory initial plan submittal by the same deadline.

See

40 CFR 60.5755, 60.5760(b). If a state does not submit a final state plan or initial plan submittal,

or if either a final state plan or an initial plan submittal does not meet the requirements of the EG, the agency will take the appropriate steps to finalize and implement a federal plan for that state's EGUs.

Indeed, states may simply choose to accept a federal plan in lieu of undertaking to develop a state plan at all. While the statute uses the phrase “fails to submit a satisfactory plan,” the EPA does not believe this should carry any pejorative connotation. While Congress identified states and local governments as having “primary responsibility” for air pollution prevention and control, CAA section 101(a)(3), states are in no way penalized for not submitting a plan under CAA section 111(d). Rather, the EPA steps into the shoes of the state to carry out the CAA section 111(d) program in its stead. To the extent states may be interested in accepting a federal plan, the EPA would be interested in hearing that through the comment process on this proposal.

Further, states will remain free, and indeed are strongly encouraged, to submit an approvable state plan even after promulgation of the federal plan for their jurisdictions. The EPA will withdraw the federal plan for a state when that state submits, and the EPA approves, a final plan.

See

40 CFR 60.5720.

D. Timing of EPA Actions on the Model Trading Rules, Federal Plan, and Other Proposed Actions

This action co-proposes two approaches to the federal plan, both of which also constitute proposed model trading rules that states could adopt as state plans for EPA approval. The EPA currently intends to finalize one or both of the model trading rules by next summer so that they may be available to states as soon as possible to help inform their state plan development efforts prior to the initial submittal deadline of September 6, 2016, and 2 years before the states' final plan deadline of September 6, 2018.

If the EPA

finalizes the model trading rules in that timeframe, the only direct consequence will be to provide the states certainty as to one or two particular approaches to the design of their state plan that the EPA will approve if adopted in full. The finalization of a model trading rule will not constitute a final action with respect to a federal plan for the affected EGUs in any state. Rather, the proposed federal plan will remain just that, a proposal. The EPA will promulgate a final federal plan for any state only after it has made a finding on a state's failure to submit a plan, or fully or partially disapproved a submitted state plan. The EPA will go through a public notice and comment process before disapproving a submitted and complete state plan, in whole or part. The EPA invites comments on this staged approach to finalizing one or more model trading rules on the one hand (which we currently intend to do in summer 2016), and finalizing federal plans on the other (which we currently intend to do state-by-state upon our taking predicate action on states' plans).

We anticipate that the model rules' text could be finalized either in a new subpart or subparts of 40 CFR part 62 of title 40 of the CFR as proposed, or in a final document that is not published in the CFR.

In this action, the EPA is also proposing enhancements to the process for agency action on state submittals and promulgation of a federal plan under CAA section 111(d). For more detailed discussion of these changes, see section VII of this preamble. This aspect of this proposal is separate from the federal plan and the model trading rules. The EPA intends to finalize these changes on a timeline earlier than both a model trading rule and the federal plan.

Under the framework regulations as proposed to be amended,

see

section VII below, and the final EGs, at 40 CFR 60.27 and 60.5715 and 5760, respectively, the initial timelines for EPA action on state submittals and, potentially, the promulgation of a federal plan will be as follows: The EPA will have 12 months from the date of a state's submission to approve or disapprove that state's plan. The EPA will have 12 months from the date of its action on a state submission to promulgate the federal plan for the EGUs in that state. Under the completeness-criteria process proposed to be added to 40 CFR 60.27,

see

section VII.E below, the EPA would have 6 months from the deadline for a state's submission to notify a state that its submittal does not meet completeness criteria and constitutes a failure to submit a plan. In the case of initial submittals under 40 CFR 60.5765, the EPA will have 90 days from the date the EPA received the initial submittal to notify a state that its initial submittal does not meet the requirements of 40 CFR 60.5765(a). As with state plans, the EPA will have 12 months to promulgate a federal plan from the date of its finding that a state failed to submit a complete and approvable initial submittal. (Formally, such a finding would be that the state failed to submit a state plan.)

The timeframes stated in the previous paragraph reflect the maximum time allowed for EPA action. We note that under CAA section 111(d)(2) and CAA section 110(c), the EPA may promulgate a final federal plan for a state immediately upon making a finding of failure to submit a state plan or initial submittal, or upon making a finding of final disapproval of a state plan. Congress gave the EPA authority in CAA section 111(d)(2), as it did in CAA section 110(c), to promulgate a federal plan at any time after it disapproves or finds a failure to submit a state plan. The Supreme Court has recognized that under this authority, the EPA may promulgate a FIP “at any time” within the 2-year limit of CAA section 110(c) “that begins the moment EPA determines a SIP to be inadequate.”

EME Homer City

EPA,

134 S. Ct. 1584, 1601 (2014). “EPA is not obliged to wait two years or postpone its action even a single day . . . .”

Id.

It is essential to implement plans for the control of emissions of CO

expeditiously and avoid unnecessary delay. Among other reasons, this will provide affected EGUs regulatory certainty and will assist the regulated entities as well as those authorities with responsibility for ensuring grid reliability to have as much time as possible to plan for the 2022 compliance start date set in the EGs. Thus, it is reasonable to propose this federal plan now so that federal plans will be ready to be promulgated quickly in cases where states have failed to submit a plan or their plans are found unsatisfactory.

It is the agency's intention to promulgate federal plans promptly for states who do not submit plans or initial submittals by September 6, 2016. However, the effect of putting the federal plan in place at that time would ultimately be limited in impact upon states. Because the EPA would implement the federal plan, its promulgation does not obligate state officials to take any actions themselves. Further, states remain free—and the EPA in fact encourages states—to submit state plans that can replace the federal plan. States can do so in advance of the beginning of the performance period in 2022, or may transfer to a state plan after that date. However, in doing so, the agency and states should be mindful of the goals of regulatory certainty discussed in the prior paragraph.

Because we are proposing a federal plan that would apply emission standards to affected EGUs in all states that the agency determines not to have an approvable plan, the EPA invites comment from all persons with concerns about or comments on the proposed federal plan as it may apply in any state, whether or not that state has submitted, or intends to submit, its own plan on which the EPA has yet to take action.

In this document, the EPA is proposing regulatory text setting out the substantive provisions for both of the proposed federal plans/model trading rules. The EPA is not providing specific regulatory text that would, if finalized, actually promulgate a federal plan for each state for which this proposed federal plan might be applied.

We currently envision that this language would be in the form of a new section to the state-specific subparts of part 62 and would be ministerial in nature. It would likely provide that the affected EGUs in each such state are subject to a federal plan and would then cross-reference or incorporate by reference the substantive provisions of one of the two subparts proposed in this action (if finalized), along with any applicable modifications or adjustments as may be necessary, either based on new information or in response to comments regarding the application of the federal plan to that particular state. This text may appear similar to the FIP language found in the final CSAPR rule (76 FR 48208, 48361-78; August 8, 2011).

The minimum contents of a notice of proposed rulemaking under the CAA are set forth at CAA section 307(d)(3) and 5 U.S.C. 553(b).

E. Use of the Model Trading Rule as a Backstop

As discussed in the final EGs, the EPA believes that either a mass-based or rate-based model trading rule could function well as the federally enforceable “backstop” that the EGs require to be included in “state measures” type state plans.

(The proposed federal plan does not itself require a “backstop” because it relies on an “emission standards” approach, rather than a “state measures” approach, as delineated in the final EGs.) The conditions and requirements for the federally enforceable backstop in a state measures approach are discussed in

detail in the final EGs.

See

sections VIII.C.3.b and VIII.C.6.c of the final EGs. To summarize those provisions, without reopening them for comment, the federally enforceable backstop must fully achieve the CO

emission performance rates or the state's interim and final CO

emission goals if the state plan fails to achieve the intended level of CO

emission performance. The state plan submittal must identify the federally enforceable emission standards for affected EGUs that would be used in the backstop, demonstrate that those emission standards meet the requirements that apply in the context of an emission standards approach, identify a schedule and trigger for implementation of the backstop that is consistent with the requirements in the EGs, and identify all necessary state administrative and technical procedures for implementing the backstop (

e.g.,

how and when the state would notify affected EGUs that the backstop has been triggered). In addition, the backstop emission standards must make up for any shortfall in CO

emission performance during a prior plan performance period that led to triggering of the backstop.

We are aware of at least one case in which a court has upheld the use of a trading program as a backstop to ensure CAA requirements are met.

See WildEarth Guardians

U.S. EPA,

No. 12-9596 (10th Cir. filed October 21, 2014) (upholding use of backstop cap-and-trade program under 40 CFR 41.309 of the Regional Haze Rule).

The EGs explicitly recognized that the backstop emission standards could be based on one of the model trading rules that the EPA is proposing in this action. As discussed in section II.B of this preamble above, we are drafting the model trading rule so that it can be adopted or incorporated by reference with a minimum of changes necessary to make the rule appropriate for use by states, and this includes its use as a backstop. Instances of this approach are throughout the proposed rule text and reflect our desire to ease the use of the model rule for states, as a full state plan, or as a backstop to a “state measures” plan.

One way in which a backstop may need to differ from the model trading rules proposed in this action is the requirement to make up for a shortfall in emissions performance in a state's prior plan performance period. The model trading rules do not provide provisions that would automatically adjust the emission standards to account for any prior emission performance shortfall (which is an option states have if designing their own backstop). Thus, a state relying on the model trading rule as its backstop would likely need to submit an appropriate revision to the backstop emission standards adjusting for the shortfall through the state plan revision process. This would likely be done in conjunction with the process for putting the backstop into effect.

If a state chooses to use the model rule as its federally enforceable backstop in a state measures plan, this does not mean that the backstop is itself the federal plan. Rather, the model rule becomes adopted as a part of the state plan. Both approaches to the model trading rule are “emission standard” approaches under the EGs where an emission standard is imposed and federally enforceable on the affected EGUs: In the rate-based approach the emissions standard is an allowable rate of emissions; in the mass-based approach the emission standard is the requirement to hold allowances equal to reported emissions. The EPA may also handle the administration of the trading program for states utilizing the model trading rule. However, even though the backstop may take the form of an EPA-administered, federally-enforceable trading rule, this does not mean that a federal plan has been put into effect. The state retains all of its rights and responsibilities with respect to the implementation and enforcement of the backstop as a component of its state plan.

Applicability and Enforceability.

If promulgated for the affected EGUs in a particular state, this federal plan will require affected EGUs to meet specific emission standards for CO

and related requirements. These enforceable compliance obligations will apply to the owners and operators of those affected EGUs.

See

40 CFR 62.13. No obligation falls on states or state officials (except to the extent they may be owners and operators of affected EGUs).

In the event of noncompliance, the provisions in the federal plan are federally enforceable against an affected EGU, in the same manner as the provisions of an approved state plan under CAA section 111(d), and similar to a FIP or an approved SIP under CAA section 110.

See

CAA section 111(d)(2)(B), 42 U.S.C. 7411(d)(2)(B) (power to enforce state and federal plans), section 113(a)-(h), 42 U.S.C. 7413(a)-(h), and section 304, 42 U.S.C. 7604. This means that the Administrator has the ability to enforce against violations and secure appropriate corrective actions pursuant to CAA sections 113(a)-(h), and states and other third parties maintain the ability to enforce against violations and secure appropriate corrective actions pursuant to CAA section 304.

See Reno

Condon,

528 U.S. 141, 151 (2000). State officials responsible for developing state plans, however, should be aware of the procedural enhancements being proposed to the framework regulations of 40 CFR part 60, subpart B, in this rulemaking document. These changes are discussed in section VII of this preamble below. These changes are not a component of the proposed federal plan or the EGs. Although these changes do not alter the deadlines or submission obligations provided in the Clean Power Plan Emission Guidelines, state officials and other interested parties are encouraged to review and comment on these changes.

III. Federal Plan Structure To Achieve Reductions

A. Overview

1. Interactions With State Plans and Scope of Trading

The EPA intends to set up and administer a program to track trading programs—both rate-based and mass-based—that will be available for all states that choose it. The EPA proposes that affected EGUs in any state covered by a federal plan could trade compliance instruments with affected EGUs in any other state covered by a federal plan or a state plan meeting the conditions for linkage to the federal plan. In the proposed mass-based federal plan trading program, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an allowance distributed in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. Similarly, in the proposed rate-based federal plan trading program approach, this would mean that affected EGUs in a state covered by the federal plan or a state meeting the conditions for linkage to the federal plan could use, as a compliance instrument, an ERC issued in any other state covered by the federal plan or a state meeting the conditions for linkage to the federal plan. We propose that an affected EGU in a state covered by the mass-based trading federal plan must use allowances for compliance (not ERCs). Similarly, an affected EGU in a state covered by the rate-based trading federal plan must use ERCs for compliance (not allowances).

The agency promulgated provisions for “ready-for-interstate-trading” plans in the EGs. The EPA is proposing the federal plans as ready-for-interstate-trading plans. State plans that adopt the model rule are also considered ready-for-interstate-trading. The EPA proposes to allow interstate trading between affected EGUs in states covered by the proposed federal plans and affected EGUs in states covered by state plans (referred to below as “linking” states, or “linkages”) under the following conditions, which are discussed further below the list:

• The state plan must be approved.

• The state plan must implement the same type of trading program as the federal plan trading program in order to

be linked for interstate trading,

i.e.,

mass-based trading programs can link to mass-based trading programs only, and rate-based trading programs can link to rate-based trading programs only.

• The state plan must use the identical compliance instrument as the federal plan (this requirement is detailed below).

• The state plan must be approved as a ready-for-interstate-trading plan.

• The state plan must use an EPA-administered tracking system (we are also requesting comment on expanding this to include a state plan that uses an EPA-designated tracking system that is interoperable with an EPA-administered system, as detailed below).

The EPA proposes that interstate ERC trading could occur both (1) from affected EGUs in states covered by the rate-based trading federal plan to affected EGUs in states with approved rate-based trading state plans meeting the proposed conditions for linkages (including the conditions for being “ready-for-interstate-trading” that were finalized in the EG), and (2) from affected EGUs in such state-plan-covered states to affected EGUs in federal-plan-covered states. The EPA also requests comment on expanding the scope of interstate trading to include linking states covered by the rate-based trading federal plan with any state that has an approved rate-based trading state plan meeting the proposed conditions for linkages and that uses an EPA-designated ERC tracking system that is interoperable with an EPA-administered ERC tracking system. The EPA also requests comment on allowing a state that has an approved rate-based trading state plan meeting the proposed conditions for linkages and that uses an EPA-designated ERC tracking system to register with the EPA, and after registration, to link with states covered by the rate-based trading federal plan. There are multiple benefits to a registration requirement, which include ensuring that the tracking systems are functionally interoperable.

For the mass-based federal plan, the EPA proposes that interstate allowance trading could occur in both directions,

i.e.,

from affected EGUs in states covered by the mass-based trading federal plan to affected EGUs in states with approved mass-based trading state plans meeting the proposed conditions for linkages, and from affected EGUs in such state-plan-covered states to sources in federal-plan-covered states.

The EPA proposes that a condition of linkage between a state plan and the federal plan is the use of an identical compliance instrument. In the mass-based federal plan the EPA proposes to issue allowances in short tons; as a result, the EPA is proposing in this rule that linkage for the mass-based federal plan is limited to state plans that issue allowances in short tons. The agency also requests comment on whether to extend linkage to state plans that issue allowances in metric tons and on what provisions would be necessary to implement such linkages. The EPA believes that considerations for linkages to state plans that use metric tons may include tracking system design, and stipulation of which parties convert state plan allowances denominated in metric tons to allowances denominated in short tons and at what stage of compliance operations the conversion occurs. The agency requests comment on these and any other considerations for linkages between the federal plan and state plans that issue allowances in metric tons.

In this preamble all references to “tons” are short tons, unless otherwise noted.

The EPA also requests comment on expanding the scope of interstate trading to include linking states covered by the mass-based trading federal plan with any state that has an approved mass-based trading state plan meeting the proposed conditions for linkages and that uses an EPA-designated allowance tracking system that is interoperable with an EPA-administered allowance tracking system. The EPA also requests comment on allowing a state that has an approved mass-based trading state plan meeting the proposed conditions for linkages and that uses an EPA-designated allowance tracking system to register with the EPA, and after registration, to link with states covered by the mass-based trading federal plan.

In the Clean Power Plan EGs, the EPA promulgated requirements that apply to an emissions budget trading state plan that includes non-affected EGU emission sources, to provide the opportunity for such a state plan to be potentially approvable for linking to other state plans (see Clean Power Plan EGs, section VIII). In this proposed rule, the proposed approach to link from the mass-based trading federal plan to state plans could result in linking of the federal plan to state plans that include non-affected emission sources. The EPA requests comment on this proposed approach.

The EPA believes that a broad trading region provides greater opportunities for cost-effective implementation of reductions compared to trading limited to a smaller region. The proposed approach to interstate trading is intended to strike a reasonable balance between providing the opportunity for a wide interstate trading system while maintaining the integrity of the linked programs. The agency requests comment on the proposed approach to interstate trading linkages in the federal plans.

Whether the EPA ultimately finalizes rate-based or mass-based federal plans, the agency believes that the ERC market and the allowance market would be competitive. The opportunities for interstate trading detailed above would reduce any potential for firms to exercise market power in the ERC market or allowance market. The EPA requests comment on this expectation of a competitive ERC market and a competitive allowance market, and comment on potential program design choices that could address any identified market power concern. The EPA intends to provide information to the market and the public, consistent with other trading programs that the agency administers, as detailed in sections IV and V of this preamble, for the rate-based and mass-based approaches, respectively.

A transparent and well-functioning allowance or ERC market is an important element of a mass-based or rate-based trading program. The EPA has over 20 years of experience implementing emissions trading programs for the power sector and based on that experience, believes the potential or likelihood of market manipulation is fairly low. Nonetheless, the EPA is evaluating the options for providing oversight of the allowance or ERC markets that may be established through the final EGs and federal plans. This could include engaging with other federal and state agencies as appropriate, and potentially with third parties, in conducting market oversight. The agency requests comment on appropriate market monitoring activities, which may include tracking ownership of allowances or ERCs, oversight of the creation and verification of credits, and tracking market activity (

e.g.,

transaction volumes and prices).

2. Addressing Potential Leakage and Interstate Effects

The final EGs specify the concern of leakage, which is defined in section VII.D of the final EGs as the potential of an alternative form of implementation of the BSER (

e.g.,

the rate-based and mass-based state goals) to create a larger incentive for affected EGUs to shift generation to new fossil fuel-fired EGUs relative to what would occur when the implementation of the BSER took the form of standards of performance incorporating the subcategory-specific emission performance rates representing

the BSER. The final EGs specified that mass-based plan approaches must address leakage, because the form of the mass goals may ultimately impact the relative incentives to generate and emit at affected EGUs as opposed to shifting generation to new sources, with potential implications for whether the mass goal implements or is consistent with the BSER and overall emissions from the sector. These circumstances are much less likely to be present under a rate-based plan approach, where the form of the goal ensures sufficient incentive to affected existing EGUs to generate and thus avoid leakage, similar to the CO

emission performance rates. By requiring mass-based plan components that address leakage, the final EGs ensure that mass goals are equivalent to the CO

emission performance rates and are thus an equivalent expression of the BSER. Section VII.D of the final EGs details the requirement for addressing leakage and why it is needed, and section VIII.J of the final EGs specifies options for mass-based state plan components that address leakage. We are proposing, as part of the mass-based approach under the federal plan and model rule, to implement allowance allocation approaches to address leakage, specifically through establishing an output-based allocation set-aside and a set-aside that encourages the installation of RE. These proposed strategies are detailed in section V.D of this preamble.

In the final EGs, the EPA also discussed the concern that CO

emission reductions would be eroded in situations where an affected EGU in a rate-based state counts the MWh from measures located in a mass-based state, but the generation from that measure acts solely to serve load in the mass-based state. In that scenario, expected CO

emission reduction actions in the rate-based state are foregone as a result of counting MWh that resulted in CO

emission reductions in a mass-based state. The proposed rate-based approach, in accordance with the final EGs, restricts ERC issuance for any emission reduction measures located in a mass-based state, except for RE. RE measures located in a state with a mass-based state plan can only be approved for ERC issuance for use by a state under a rate-based federal plan if it can be demonstrated that load-serving entities in the rate-based state have contracted for the delivery of the RE generation that occurs in a mass-based state to meet load in a rate-based state. As part of this federal plan, we are proposing that this can be demonstrated through the provision of a power delivery contract or power purchase agreement in which an entity in the rate-based state contracts for the supply of the MWhs in question and providing documentation that the electricity was treated as comparable to a generation resource used to serve regional load that included the rate-based state. This demonstration must be included as part of the project application for ERC issuance to the EPA or its agent from the RE provider in the mass-based state. Once the project is approved, subsequent applications for issuance of credit to the EPA will need to reference that the MWh submitted are associated with that contractual arrangement with the mass-based RE provider. The EPA requests comment on this approach. It should also be noted that we are proposing that under the proposed mass-based approach, if RE located in a mass-based state receives mass-based set-aside allowances for any generation, that generation is not eligible to be issued ERCs in a rate-based state.

The EPA requests comment on the proposed treatment of leakage and of interstate effects under both the proposed rate-based federal plan approach and the proposed mass-based federal plan approach, and as part of the corresponding proposed model rules.

3. Provisions To Encourage Early Action

The EPA outlined and initiated the CEIP in the final EGs (see section VIII.B.2 of the final EGs). The program is designed to incentivize investment in certain types of RE projects, as well as demand-side energy efficiency (EE) projects implemented in low-income communities. These RE projects must commence construction, and these EE projects must commence implementation after the date of submission of a final plan to the EPA by the state they are located on or benefitting, or after September 6, 2018 for those states on whose behalf the EPA is implementing the federal plan, and will receive incentives for the MWh they generate or the end-use energy demand reductions they achieve during 2020 and/or 2021. The CEIP also provides an additional incentive to drive investment in demand-side EE projects implemented in low-income communities. The EPA proposes to apply the CEIP in all states subject to either a rate-based or mass-based federal plan. The EPA's proposed approaches to implementing the program in the rate-based and mass-based federal plans are detailed in sections IV and V of this preamble, respectively.

B. Inventory of Emissions

Fossil fuel-fired EGUs are by far the largest emitters of GHGs among stationary sources in the United States, primarily in the form of CO

, and among fossil fuel-fired EGUs, coal-fired units are by far the largest emitters. This section describes the amounts of these emissions and places these amounts in the context of the U.S. Inventory of Greenhouse Gas Emissions and Sinks

(the U.S. GHG Inventory).

“Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2013”, Report EPA 430-R-15-004, United States Environmental Protection Agency, April 15, 2015.

http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

The EPA implements a separate program under 40 CFR part 98 called the Greenhouse Gas Reporting Program

(GHGRP) that requires emitting facilities over threshold amounts of GHGs to report their emissions to the EPA annually. Using data from the GHGRP, this section also places emissions from fossil fuel-fired EGUs in the context of the total emissions reported to the GHGRP from facilities in the other largest-emitting industries.

U.S. EPA Greenhouse Gas Reporting Program Dataset,

see http://www.epa.gov/ghgreporting/ghgdata/reportingdatasets.html.

The EPA prepares the official 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 of this preamble, which presents total U.S. anthropogenic emissions and sinks

of GHGs, including CO

emissions, for the years 1990, 2005, and 2013.

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

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

[Million metric tons carbon dioxide equivalent (MMT CO

Eq.)]

Sector

1990

2005

2013

Energy

5,290.5

6,273.6

5,636.6

Industrial Processes and Product Use

342.1

367.4

359.1

Agriculture

448.7

494.5

515.7

Land Use, Land-Use Change and Forestry

13.8

25.5

23.3

Waste

206.0

189.2

138.3

Total Emissions

6,301.1

7,350.2

6,673.0

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

(775.8)

(911.9)

(881.7)

Net Emissions (Sources and Sinks)

5,525.2

6,438.3

5,791.2

Total fossil energy-related CO

emissions (including both stationary and mobile sources)

are the largest contributor to total U.S. GHG emissions, representing 77.3 percent of total 2013 GHG emissions.

In 2013, fossil fuel combustion by the utility power sector—entities that burn fossil fuel and whose primary business is the generation of electricity—accounted for 38.3 percent of all energy-related CO

emissions.

Table 4 of this preamble presents total CO

emissions from fossil fuel-fired EGUs, for years 1990, 2005, and 2013.

From Table ES-4 of “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2013”, Report EPA 430-R-15-004, United States Environmental Protection Agency, April 15, 2015.

http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

The energy sector includes all greenhouse gases resulting from stationary and mobile energy activities, including fuel combustion and fugitive fuel emissions.

From Table ES-2 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2013”, Report EPA 430-R-15-004, United States Environmental Protection Agency, April 15, 2015.

http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

From Table 3-1 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2013”, Report EPA 430-R-15-004, United States Environmental Protection Agency, April 15, 2015.

http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

From Table 3-5 “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2013”, Report EPA 430-R-15-004, United States Environmental Protection Agency, April 15 2015.

http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html.

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

)

GHG emissions

1990

2005

2013

Total CO

from fossil fuel-fired EGUs

1,820.8

2,400.9

2,039.8

—from coal

1,547.6

1,983.8

1,575.0

—from natural gas

175.3

318.8

441.9

—from petroleum

97.5

97.9

22.4

In addition to preparing the official U.S. GHG Inventory, which represents comprehensive total U.S. GHG emissions and complies with commitments under the UNFCCC, the EPA collects detailed GHG emissions data from the largest emitting facilities in the United States through its GHGRP. Data collected by the GHGRP from large stationary sources in the industrial sector show that the utility power sector emits far greater CO

emissions than any other industrial sector. Table 5 of this preamble presents total GHG emissions in 2013 for the largest emitting industrial sectors as reported to the GHGRP. As shown in Table 4 and Table 5 of this preamble, respectively, CO

emissions from fossil fuel-fired EGUs are nearly three times as large as the total reported GHG emissions from the next ten largest emitting industrial sectors in the GHGRP database combined.

Table 5—Direct GHG Emissions Reported to GHGRP by Largest Emitting Industrial Sectors (MMT CO

)

Industrial sector

2013

Petroleum Refineries

176.7

Onshore Oil & Gas Production

94.8

Municipal Solid Waste Landfills

93.0

Iron & Steel Production

84.2

Cement Production

62.8

Natural Gas Processing Plants

59.0

Petrochemical Production

52.7

Hydrogen Production

41.9

Underground Coal Mines

39.8

Food Processing Facilities

30.8

C. Affected EGUs

For the Clean

Power Plan and this federal plan, an affected EGU is any SGU, IGCC, or stationary combustion turbine that was in operation or had commenced construction as of January 8, 2014,

and that meets the following criteria, which differ depending on the type of unit. To be an affected EGU, such a unit, if it is SGU or IGCC, must serve a generator capable of selling greater than 25 MW to a utility power distribution system and have a base load rating greater than 260 GJ/h (250 MMBtu/h) heat input of fossil fuel (either alone or in combination with any other fuel). If such a unit is a SCT, the unit must meet the definition of a combined cycle or CHP combustion turbine, serve a generator capable of selling greater than 25 MW to a utility power distribution system, and have a base load rating of greater than 260 GJ/h (250 MMBtu/h).

U.S. EPA Greenhouse Gas Reporting Program Dataset as of August 18, 2014.

http://ghgdata.epa.gov/ghgp/main.do.

Under section 111(a) of the CAA, determination of affected sources is based on the date that the EPA proposes action on such sources. January 8, 2014 is the date the proposed GHG standards of performance for new fossil fuel-fired EGUs were published in the

Federal Register

(79 FR 1430).

When considering and understanding applicability, the following definitions may be helpful. Simple cycle

combustion turbine means any stationary combustion turbine which does not recover heat from the combustion turbine engine exhaust gases for purposes other than enhancing the performance of the stationary combustion turbine itself. Combined cycle combustion turbine means any SCT which recovers heat from the combustion turbine engine exhaust gases to generate steam that is used to create additional electric power output in a steam turbine. CHP combustion turbine means any SCT which recovers heat from the combustion turbine engine exhaust gases to heat water or another medium, generates steam for useful purposes other than exclusively for additional electric generation, or directly uses the heat in the exhaust gases for a useful purpose.

We note that certain affected EGUs are exempt from inclusion in a state plan and this federal plan. Affected EGUs that may be excluded under the EGs are those that (1) Are subject to subpart 40 CFR part 60, subpart TTTT as a result of commencing modification or reconstruction; (2) are SGUs or IGCC that are currently and always have been subject to a federally enforceable permit limiting net-electric sales to one-third or less of its potential electric output or 219,000 MWh or less on an annual basis; (3) are non-fossil units (

i.e.,

units that are capable of combusting 50 percent or more non-fossil fuel) that have historically limited the use of fossil fuels to 10 percent or less of the annual capacity factor or are subject to a federally enforceable permit limiting fossil fuel use to 10 percent or less of the annual capacity factor; (4) are stationary combustion turbines that are not capable of combusting natural gas (

i.e.,

not connected to a natural gas pipeline); (5) are CHP units that are subject to a federally enforceable permit limiting, or have historically limited, annual net electric sales to a utility power distribution system to the product of the design efficiency and the potential electric output or 219,000 MWh (whichever is greater) or less; (6) serve a generator along with other SGU(s), IGCC(s), or stationary combustion turbine(s) where the effective generation capacity (determined based on a prorated output of the base load rating of each SGU, IGCC, or stationary combustion turbine) is 25 MW or less; (7) are a municipal waste combustor unit subject to subpart Eb of 40 CFR part 60; or (8) are a commercial or industrial solid waste incineration unit that is subject to subpart CCCC of 40 CFR part 60.

We had proposed in the Clean Power Plan EGs that affected EGUs were those existing source fossil fuel-fired EGUs that met the applicability criteria for coverage under the final GHG standards for new fossil fuel-fired EGUs being promulgated under CAA section 111(b). However, we are finalizing in the EGs that states need not include certain units that would otherwise meet the CAA section 111(b) applicability in this CAA section 111(d) EGs. These include simple cycle turbines, certain non-fossil units, and certain CHP units. The final CAA section 111(b) standards include applicability criteria for simple cycle combustion turbines, for reasons relating to implementation and minimizing emissions from all future combustion turbines.

The EPA also requests comment on an alternative compliance pathway that could be available to units under a mass-based approach. The ways that the approach could be implemented are further outlined in the Alternative Compliance Pathway for Units that Agree to Retire Before a Certain Date Technical Support Document (TSD). Under this approach, two basic requirements would need to be met. The first is that the unit would have to take a commitment that it would retire on a date on or before December 31, 2029. The second is that the unit would have to demonstrate that it will take an enforceable emission limitation that would assure that the overall state emission goal is met. The TSD explores ways that this approach could be implemented, including ways that the enforceable emission limitation could be calculated and implemented. The EPA requests comment on whether this approach should be available for all units or limited to small units (

e.g.

less than 100 MW nameplate capacity). The EPA also requests comment on whether and how such an approach could be included under a rate-based approach.

The applicability of this proposed federal plan follows the same applicability criteria as the final EGs. The rationale for these criteria is provided in section IV.D of the Clean Power Plan. We are not reopening the criteria or rationale here.

In the federal plan Affected EGU TSD, the EPA lists all applicable affected EGUs according to our records from the National Electric Energy Data System (NEEDS), Energy Information Administration (EIA), and comments from the Clean Power Plan. In this TSD, each affected EGU is assigned its proposed applicable standards if a federal plan were to be promulgated for that affected EGU at any time. The EPA requests comments and updates to this list of affected units. Section VI.C of the final EGs describes the data used in setting the standards and how an inventory of affected units has been compiled.

D. Compliance Schedule

In accordance with the schedule set out in the EGs, the federal plan is proposed to be implemented in a phased approach. The first period, corresponding to the Interim Period in the EG, is proposed to run from beginning of calendar year 2022 until end of calendar year 2029 (January 1, 2022 to December 31, 2029). The Final Period would run from beginning of calendar year 2030 (January 1, 2030) indefinitely into the future. The first period is proposed to be comprised of three “compliance periods,” set by calendar year. The first compliance period will be from January 1, 2022 to midnight, December 31, 2024 (3 calendar years). The second compliance period will be from January 1, 2025 to midnight, December 31, 2027 (3 calendar years). The third compliance period will be from January 1, 2028 to midnight, December 31, 2029 (2 calendar years).

Under the EGs, midnight, December 31, 2029 marks the end of the Interim Period, and the beginning of the Final Period. The EPA proposes that the compliance periods in the Final Period will each be 2 calendar years. Thus, the first compliance period after 2030 would be from January 1, 2030 to midnight, December 31, 2031. The second compliance period would be from January 1, 2032 to midnight, December 31, 2033. This would repeat accordingly unless changed by the EPA through a revision to the federal plan or other action.

This schedule would be the same under either a rate- or mass-based approach.

The EPA recognizes that the compliance periods provided for in this rulemaking are longer than those historically and typically specified in CAA rulemakings. As reflected in long-standing CAA precedent, “[t]he time over which [the compliance standards] extend should be as short term as possible and should generally not exceed one month.”

See e.g.,

June 13, 1989 Guidance on Limiting Potential to Emit in New Source Permitting and January 25, 1995 Guidance on Enforceability Requirements for Limiting Potential to Emit through SIP and § 112 Rules and General Permits. The EPA determined that the longer compliance periods provided for in this rulemaking are acceptable in the context of this specific rulemaking because of the unique characteristics of this rulemaking, including that CO

is long-lived in the atmosphere, and this rulemaking is focused on performance standards related to those long-term impacts.

Prior to the beginning of the first compliance period in 2022, the agency intends to establish the infrastructure for operating a federal trading program and to work closely with affected EGUs in the states where the federal plan is promulgated prior to the start of the first compliance period in 2022. We request comment on whether it would be possible to grant, on a case-by-case basis, certain affected EGUs, particularly small entities, additional time to come into compliance, and to request additional input from the public as to the design of such flexibility that would be compatible with the EGs and a federal plan that implements a trading system.

The EPA recognizes that it is important to ensure a degree of liquidity in compliance instruments in either of the proposed trading approaches, while also maintaining the stringency required by the final EGs. A number of aspects of the rate-based and mass-based programs would assist with this, including allocation methods or rules, mechanisms to place allowances or credits into the market relatively early, requirements for public transparency of information related to allowance, or credit issuance, tracking, transfers and holdings. The EPA solicits comment on other approaches to ensure market liquidity while continuing to meet the stringency of the final EGs.

E. Addressing Reliability Concerns

The proposed federal plan has been designed to ensure that, to the greatest extent possible, implementation would not interfere with the power sector's ability to maintain electric reliability.

Like the EGs, the federal plan provides a long planning horizon and implementation period. In addition the federal plan allows affected EGUs to obtain tradable allowances and credits to meet obligations which assures that reliability can be maintained without disruption to the electricity system.

The EPA evaluated certain aspects of electric reliability in the context of modeling projections for the final Clean Power Plan, and that evaluation is described in the “Resource Adequacy and Reliability Analysis TSD” for that rulemaking, a copy of which is also included in the docket for this rulemaking.

There are many features of the electricity system that ensure that electric system reliability will be maintained. For example, in the Energy Policy Act of 2005, Congress added a section to the Federal Power Act to make reliability standards mandatory and enforceable by the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC), the Electric Reliability Organization which FERC designated and oversees. Along with its standards development work, NERC conducts annual reliability assessments via a 10-year forecast and winter and summer forecasts; audits owners, operators and users for preparedness; and educates and trains industry personnel. Numerous other entities such as FERC, U.S. Department of Energy (DOE), state public utility commissions (PUCs), independent system operators and regional transmission organizations (ISOs/RTOs), and other planning authorities also consider the reliability of the electric system. There are also numerous remedies that are routinely employed when there is a specific local or regional reliability issue. These include transmission system upgrades, installation of new generating capacity, calling on demand response, and other demand-side actions.

Additionally, planning authorities and system operators constantly consider, plan for and monitor the reliability of the electricity system with both a long-term and short-term perspective. Over the last century, the electric industry's efforts regarding electric system reliability have become multidimensional, comprehensive and sophisticated. Under this approach, planning authorities plan the system to assure the availability of sufficient generation, transmission, and distribution capacity to meet system needs in a way that minimizes the likelihood of equipment failure.

Long-term system planning happens at both the local and regional levels with all segments of the electric system needing to operate together in an efficient and reliable manner. In the short-term, electric system operators operate the system within safe operating margins and work to restore the system quickly if a disruption occurs.

Mandatory reliability standards apply to how the bulk electric system is planned and operated. For example, transmission operators and balancing authorities have to develop, maintain and implement a set of plans to mitigate operating emergencies.

Casazza, J. and Delea, F., Understanding Electric Power Systems: An Overview of the Technology, the Marketplace, and Government Regulations, IEEE Press, at 160 (2010).

Id.

NERC Reliability Standard EOP-001-2.1b—Emergency Operations Planning, available at

http://www.nerc.net/standardsreports/standardssummary.aspx.

The EPA's approach in this proposed federal plan builds on the foundation provided in the EGs' determination of the BSER to ensure that the final federal plan, like the final EGs, does not interfere with the industry's ability to maintain reliability of the nation's electricity supply. First, the federal plan, like the EGs, provides more than 6 years before reductions are required and an 8-year period from 2022 to 2029 to meet interim goals. This allows time for planning and steady, measured implementation.

Second, the federal plan is a market-based trading program which will allow affected EGUs the opportunity to buy and sell emissions credits or allowances as well as bank them. The EPA's proposed federal plan includes two alternative approaches: A mass-based trading program and a rate-based trading program. Trading programs of both types have many positive attributes. Among them is that they help to ensure that imposition of the federal plan will not interfere with the industry's ability to maintain the reliability of the nation's electricity supply. Such a program does not restrict unit-level operational decision-making beyond requiring units to hold a sufficient number of tradable permits (

e.g.,

allowances or ERCs) to cover emissions. It, therefore, inherently allows for unit-level operational flexibility to facilitate the maintenance of reliability and makes the program enormously resilient. If a unit finds it needs to run more than anticipated, the market-based compliance system provides a way for the EGU to meet its generation needs while it maintains compliance with the federal plan.

Third, just as we have required the states to do in developing state plans, the EPA is considering reliability as a part of developing this federal plan. For example, the EPA will consult with planning authorities. The EPA will work with the ISO/RTO Council to convene a face-to-face meeting for planning authorities with the EPA during the comment period to discuss any concerns or other feedback on the federal plan from those entities. This meeting will help to ensure that the EPA is taking into consideration any concerns about the relationship of this rulemaking to the ability of the industry to maintain electric reliability across the country as we finalize the federal plan. It will give the planning authorities an opportunity to hear directly from the EPA how the federal plan is designed and gives the planning authorities an opportunity to voice concerns and ask questions. This will help inform comments that planning authorities may submit to the docket.

In the final Clean Power Plan EGs, the EPA laid out the availability of a reliability safety valve that could be used if an unanticipated catastrophic emergency caused a conflict between

maintenance of electric reliability and inflexible requirements that a state plan might impose on an affected EGU or EGUs. Under the federal plan, inflexible requirements are not imposed on specific plants. Rather as explained earlier, the very nature of the federal plan, in which affected EGUs can obtain allowances or credits if needed, supports reliability. Therefore, a reliability safety valve for the federal plan is not needed. The EPA invites comments on this aspect of the proposed federal plan.

The EPA, DOE, and FERC have agreed to coordinate efforts to help ensure continued reliable electricity generation and transmission during the implementation of the final EGs and the final federal plan in any state that does not have an approved state plan. The three agencies have developed a coordination strategy that reflects their joint understanding of how they will work together to monitor implementation. The three agencies will work together to monitor implementation, share information and resolve any difficulties that may be encountered.

The EPA is not proposing to include an allowance set-aside, or similar mechanism in a rate-based approach, to address reliability issues in the federal plan; however, we request comment on including such a set-aside in the context of a mass-based approach. The EPA requests comment specifically on creation of an allowance set-aside for the purpose of making allowances available in emergency circumstances in which an affected EGU was compelled to provide reliability critical generation and demonstrated that a supply of allowances needed to offset its emissions was not available.

The set-aside would be in addition to the proposed set-asides that are detailed in section V.D in this preamble. The EPA would set aside allowances in each state under the mass-based federal plan, and if a reliability issue is perceived by the EPA, DOE and FERC coordinated monitoring process discussed above, the EPA would distribute allowances from the set-aside to support affected EGUs during or after an unforeseen, emergency reliability event. If there were unused allowances remaining in the set-aside, then the EPA would distribute them to affected EGUs pro rata based on the allocation approach that is detailed in section V.D of this preamble. The EPA requests comment on all elements of such an approach, including what events would trigger the need for allowances from the reliability set-aside; eligibility criteria to receive the set-aside allowances; the size of the set-aside; and the timing of distribution of allowances from the reliability set-aside. Additionally, the EPA requests comment on how a reliability “set-aside” approach could be implemented in the rate-based federal plan.

As detailed later in this preamble, the EPA proposes in the federal plan to implement a CEIP, which was established in the EGs to reward investment in certain clean energy projects that achieve MWh results during 2020 and 2021 (see sections IV and V of this preamble for the proposed approach to implement this incentive program in the rate-based and mass-based federal plans, respectively). Implementation of the CEIP in the federal plans would create ERCs and allowances before 2022, allowing for creation of banks that could be used in the event of an unforeseen, emergency reliability issue. The EPA requests comment on the potential for these banks of ERCs and allowances to support reliable electricity generation and transmission to be utilized in the event of this kind of reliability emergency.

F. Worker Certification

In the EGs, the EPA suggested that to ensure that emission reductions are realized, it is important that construction, operations and other skilled work undertaken pursuant to state plans is performed to specifications, and is effective, safe, and timely. The EPA asks for comments as to whether the federal plan should encourage EGUs to ask for a demonstration that the work undertaken under a federal plan is performed by a proficient workforce. A good way to ensure such a workforce is to require that workers have been certified by: (1) An apprenticeship program that is registered with the U.S. Department of Labor (DOL), Office of Apprenticeship or a state apprenticeship program approved by the DOL; (2) a skill certification aligned with the DOE Better Building Workforce Guidelines and validated by a third party accrediting body recognized by DOE; or (3) other skill certification validated by a third party accrediting body.

G. Remaining Useful Lives and Potential for “Stranded Assets”

Section 111(d)(2) of the CAA provides, “In promulgating a standard of performance under a plan prescribed under this paragraph, the Administrator shall take into consideration, among other factors, remaining useful lives of the sources in the category of sources to which such standard applies.” 42 U.S.C. 7411(d)(2). This language tracks similar language in CAA section 111(d)(1) with respect to state plans. In the final EGs, we explained how the Guidelines permit states in applying a standard of performance in their state plans to consider the remaining useful life of a facility. We determined that it was appropriate to specify that the general variance provisions in 40 CFR 60.24(f) should not apply to the class of affected facilities covered by these Guidelines. We concluded that facility-specific factors and in particular, remaining useful life, do not justify a state making further adjustments to the performance rates or aggregate emission goal that the Guidelines define for affected EGUs in a state and that must be achieved by the state plan.

Because the Guidelines do not allow for states to deviate from state goals based on remaining useful life, the EPA does not believe such goal adjustments are necessary or appropriate in the federal plan either. Nonetheless, this does not obviate the requirement that the EPA itself, in the design of its federal plan, consider, among other factors, the remaining useful lives of the affected facilities. The agency therefore proposes the following analysis of this factor.

We note that the preamble and supporting materials for the EGs discuss a related concern raised by some stakeholders, which is whether the EGs could result in widespread “stranded assets” as a direct result of the rule. As explained there, we believe this concern is distinct from the “remaining useful lives” factor in CAA section 111(d)(1), and for the same reasons, believe it is distinct from the factor Congress directed the agency to consider in CAA section 111(d)(2). Nonetheless, we undertook analysis in the final EGs of whether and to what extent there may be a “stranded asset” concern. See memorandum to Clean Power Plan Docket EPA-HQ-OAR-2013-0602 titled “Stranded Assets Analysis” dated July 2015. We believe that analysis demonstrates that this is not likely to be a widespread issue under the federal plan either.

Congress added the “remaining useful lives” factor to CAA section 111(d)(2) in the 1977 CAA Amendments. Congress did not provide in the statute any direction on how or to what degree “remaining useful lives” of facilities subject to a section 111(d) federal plan is to be considered. As discussed in the preamble to the final EGs, Congress' intent in enacting the provision was to allow for older facilties with short remaining useful lives to not be required to install capital-intensive pollution control devices to meet emission standards that would only be used for a short period of time before a plant ceased operation. A House of Representatives report on a predecessor bill to the enacted statute stated, “Older plants with relatively short remaining useful lives might have chosen to cease operation if the

only

means of emission

limitation available to meet emission limits were pollution control technology.” H. Report 94-1175, at 159 (1976) (emphasis added). This language is probative of the fact that Congress viewed “remaining useful lives” as a consideration for facilities with relatively little remaining useful life. We are confident the proposed federal plan will not force costly pollution control investments at older plants with short remaining useful lives.

Further, the statute provides that this factor is one “among other factors” that the agency is to consider in promulgating a standard of performance. Congress provided no guidance in the statute as to what those other factors could be. The inclusion of unspecified factors that the agency may determine for itself to consider, along with the use of the term “consider,” highlights that Congress intended to give the agency a substantial degree of discretion in determining how the “remaining useful lives” factor is considered. The statute does not require, and Congress did not intend, that this consideration mandate the agency to prevent all premature retirements of affected EGUs, to impose no emission requirements on older affected EGUs, or to ensure that profitability is maintained at all times for all affected EGUs. Congress knew how to explicitly exempt older plants from CAA requirements at the time of the 1977 Amendments. For example, Congress excluded plants in existence before August 7, 1977 from the preconstruction requirements of the prevention of significant deterioration (PSD)/non-attainment new source review (NSR) program,

see

CAA section 165(a). And in CAA section 169A related to visibility impairment in federal class I areas, Congress excluded from applicability units that began operation before August 7, 1962. 42 U.S.C. 7491(b)(2)(A). In CAA section 111(d) Congress did not set any such specific criteria. Rather it directed the agency to “consider” the remaining useful lives of facilities, among other factors.

This view also accords with past agency practice in implementing a similar provision. In the 1977 Amendments, Congress listed “remaining useful life” as a factor for consideration in the visibility program under section 169A. 42 U.S.C. 7491. The “remaining useful life of the source” is one of several enumerated factors that the state or the EPA is to consider in determining the best available retrofit technology (BART) for a particular source. Consistent with congressional purpose, the EPA has implemented this factor in the regional haze program for many years through the BART guidelines, in appendix Y to 40 CFR part 51. In the context of the visibility program, we have interpreted this provision to mean that the remaining useful life should be considered when calculating the annualized costs of retrofit controls.

See

40 CFR part 51, appendix Y, section IV.D.4.k. In the agency's view, this approach to “remaining useful life” aligns with congressional intent and informs our view of how the “remaining useful lives” factor should be considered under this CAA section 111(d) federal plan. The key consideration is whether the time period associated with amortizable costs of compliance will exceed the remaining useful lives of the sources in question.

Consistent with legislative intent and past agency practice, we propose that the federal plan adequately considers “remaining useful lives” of affected EGUs by providing for trading and other flexibilities authorized in the EGs. To summarize, these include: Relatively long periods for affected EGUs to come into compliance, the ability to credit early action, the use of emissions trading, the use of multi-year compliance periods, and the ability to link to other federal or state plans to create larger emissions markets. The federal plan is proposed to include a Clean Energy Incentive Program as provided for in the EGs, which will credit early action and ease compliance in the initial years of the program. These tools will create economic incentives that reward over-performance of some affected EGUs, and allow others to simply acquire credits or allowances to comply with their emission standard, thereby avoiding the need for installation of costly pollution controls at sources with a short remaining life.

Thus, the proposed federal plan is designed in such a way that it adequately, and inherently, takes into account the remaining useful lives of affected EGUs. It provides substantial compliance flexibility, including means of avoiding the need to make extensive capital investments in control technologies that could not be recouped during the remaining useful lives of a facility.

The design of the federal plan as a form of emission trading provides individual affected EGUs the flexibility to make cost-conscious compliance choices. This flexibility avoids or substantially diminishes any likelihood that compliance will be a physical impossibility or result in unreasonable costs.

Because we believe that this is the case for all facilities through the basic design of the federal plan, we also can confirm, in line with the EGs, that the availability of variances from the emission standards is unnecessary in the federal plan. Under the general framework regulations, facility-specific variances from an otherwise applicable standard of performance have been potentially available under the application process in 40 CFR 60.27(e)(2), which incorporates the factors provided in 40 CFR 60.24(f) for states. Consistent with our view that the federal plan adequately considers remaining useful lives, and for the same reasons, the need for facility-specific variances under the circumstances of 60.24(f) (unreasonable costs of controls, physical impossibility of installation of necessary control equipment, or other factors that make longer compliance times or less stringent standards significantly more reasonable) is not expected to arise, and thus, the agency proposes to make 40 CFR 60.27(e) inapplicable in this federal plan.

By relying on either rate- or mass-based emission trading, the proposed federal plan capitalizes on the inherent flexibility available through market-based techniques. In effect, under a trading program with repeating compliance periods, a facility with a short remaining useful life has a total outlay that is proportionately smaller than a facility with a long remaining useful life, simply because the first facility would need to comply for fewer compliance periods and would need proportionately fewer ERCs or allowances than the second facility. Buying ERCs or allowances as a compliance method could avoid excessive up-front capital expenditures that might be unreasonable for facilities with short remaining useful lives, and therefore addresses the consideration of “remaining useful lives.” Buying ERCs or allowances as a compliance method also would reduce the potential for stranded assets.

In addition, the timing of the federal plan limits the immediate costs of compliance, particularly for facilities that have useful lives ending before 2022, but also for facilities that have useful lives ending before 2030. There are no compliance obligations for affected EGUs under this federal plan until 2022, when the first compliance period begins. At that point, the agency is following the glide path provided for in the EGs, which begins with relatively higher emission targets that will slowly strengthen over the interim performance period from 2022-2029 through three multi-year compliance periods. The final, most stringent, compliance obligation does not begin until 2030.

Further, unlike state plans that can be more stringent under CAA section 116, the federal plan is no more stringent than the EGs, and, as explained in the EGs, the Guidelines reflect a reasonable, rather than a maximum possible, implementation level for each building block in order to establish overall goals that are achievable. As discussed in the

EGs, the BSER determined an average level of emissions achievable by groups of EGUs, rather than for an individual EGU. In considering the remaining useful lives of facilities under a federal plan, the EPA believes this approach to setting the emission standards, coupled with the ability to trade, adequately accounts for remaining useful lives of facilities. In essence, it allows the facilities to comply with the federal plan through the purchase or acquisition of ERCs or allowances, and to avoid the need to make costly investments in control technology for plants that have short remaining useful lives.

For these reasons, the federal plan adequately considers “remaining useful lives.” We invite comment on our consideration of facilities' “remaining useful lives” in the federal plan.

In addition, the ability to generate ERCs for sale or to sell unneeded emission allowances (depending on whether in a rate- or mass-based system) may give some affected EGUs an economic incentive to take measures to reduce emissions that otherwise would have been uneconomical.

H. Implications for Other EPA Programs and Rules

1. Title V Permitting

Under the proposed federal plan, title V permits for sources with affected EGUs will need to include any new applicable requirements that the plan places on the affected EGUs. The EPA, however, is not proposing any permitting requirements independent of those that would be required under title V of the CAA and the regulations implementing title V, 40 CFR parts 70 and 71.

All major stationary sources of air pollution and certain other sources are required to apply for title V operating permits that include emission limitations and other conditions as necessary to assure compliance with applicable requirements of the CAA, including the requirements of an applicable CAA section 111(d) state plan or federal plan. CAA sections 502(a) and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The “applicable requirements” that must be addressed in title V permits are defined in the title V regulations, and include requirements under CAA section 111(d) (40 CFR 70.2 and 71.2 (definition of “applicable requirement”)).

Part 70 addresses requirements for title V programs implemented by state, local, and tribal governments, and part 71 governs the title V program implemented by the EPA or delegate agencies in areas under federal jurisdiction, such as Indian country.

The EPA anticipates that, given the nature of the units covered by the proposed federal plan, most of the sources at which they are located are already or will be subject to title V permitting requirements. For sources subject to title V, the requirements applicable to them under the proposed federal plan will be “applicable requirements” under title V and, therefore, will need to be addressed in the title V permits. For example, requirements under the proposed federal plan concerning designated representatives, monitoring, reporting, and recordkeeping, the requirement to either meet an emission rate (including through holding ERCs (rate-based approach)), or to hold allowances covering emissions (mass-based approach) will be “applicable requirements” to be addressed in the permits.

The EPA does not believe this approach is affected by the Supreme Court's decision in

Utility Air Regulatory Group

U.S. EPA,

134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that the EPA may not treat GHGs as an air pollutant for purposes of determining whether a source is a major source required to obtain a title V operating permit. In accordance with that decision, the D.C. Circuit's amended judgment on April 10, 2015 vacated the title V regulations under review in that case (40 CFR 70.12 and 71.13) to the extent that they require a stationary source to obtain a title V permit solely because the source emits or has the potential to emit GHGs above the applicable major source thresholds. The D.C. Circuit also directed the EPA to consider whether any further revisions to its regulations are appropriate in light of

UARG

EPA,

and, if so, to undertake to make such revisions. As the agency made clear in a memorandum to Regional Administrators last year, “While the EPA will no longer apply or enforce the requirement that a source obtain a title V permit solely because it emits or has the potential to emit GHGs above major source thresholds, the agency does not read the Supreme Court decision to affect other grounds on which a title V permit may be required or the applicable requirements that must be addressed in title V permits.”

Accordingly, while the emission of GHGs alone cannot trigger the need for a title V permit under

UARG,

the EPA believes a final federal plan under CAA section 111(d) will create new “applicable requirements” in the form of an emission standard (either an emission rate or an allowance system) and related requirements for GHGs (here, CO

) on affected EGUs.

See

40 CFR 70.2, 71.2 (definition of “applicable requirement” includes “any standard or other requirement under section 111 of the Act,

including section 111(d)”

) (emphasis added). Thus, an affected EGU may be required to modify its existing title V permit, or obtain a new permit if it does not already have one, if it becomes subject to an emission standard for CO

under a CAA section 111(d) federal plan.

Memorandum from Janet McCabe, Acting Assistant Administrator, Office of Air and Radiation, and Cynthia Giles, Assistant Administrator, to Regional Administrators, Regions 1-10, at 5 (July 24, 2014).

The title V permits program is structured to provide flexibility for market-based approaches, such as allowance trading programs under the federal plan, including flexibility to make changes under such programs without necessarily requiring a formal permit revision. For example, the title V regulations provide that a permit issued under title V shall include, for any “approved * * * emissions trading or other similar programs or processes” applicable to the source, a provision stating that no permit revision is required “for changes that are provided for in the permit.” 40 CFR 70.6(a)(8) and 71.6(a)(8). Consistent with this provision in the title V regulations, the proposed federal plan regulations include a provision stating that no permit revision shall be required for the allocation, holding, deduction, or transfer of allowances once the requirements applicable to such allocations, holdings, deductions, or transfers of CO

allowances are already incorporated in such permit. Consistent with title V regulations, this provision should be included in each title V permit for a covered source. As a result, allowances will be able to be traded (or allocated, held, or deducted) under the federal plan without a revision of the title V permit of any of the sources involved.

As a further example of flexibility under title V, and consistent with 40 CFR 70.7(e)(2)(i)(B) and 40 CFR 71.7(e)(1)(i)(B), the EPA is proposing that any changes that may be required to an operating permit with respect to a trading program under the federal plan may be made using the minor permit modification procedures of the title V rules. The EPA proposes that such changes may include the initial changes needed to the title V permit to establish the applicability of the trading program to the source, specify the covered units, and to include other permit terms that may be needed for implementation, including the general approach for monitoring and reporting. The minor permit modification procedures could also be used for any subsequent changes

to permit terms that may be needed with respect to the trading program, although we expect such changes to be infrequent. As noted above, once a trading program has been established in the permit, there may be transactions, such as individual trades, that will require no formal permit modification procedures because such trading would be already addressed and allowed by the permit (“provided for in the permit”) provided the changes do not conflict with any existing terms of the permit. If a source wishes to make a change that would go against any express term of the permit, the permit must be revised to allow such a change before the source begins operation of the change. Under the implementation strategy described above, the EPA believes it would be unlikely that any change in trading allowances would violate a term of a permit, but this principle is important to keep in mind when deciding if a minor permit modification is appropriate with respect to operating a trading program in the context of a title V permit.

The EPA believes that the approach to permitting requirements we are proposing here, which imposes no additional permitting requirements independent of title V and provides for the use of minor permit modification procedures, will streamline the process for sources already required to be permitted under title V and for permitting authorities. If there are any sources that would become newly subject to title V as a result of the requirements of this proposed federal plan, the initial title V permit that would be issued pursuant to 40 CFR 70.7(a) or 71.7(a) would address the federal plan requirements, when finalized.

The EPA notes that the approach to title V permitting that is being proposed is somewhat similar to the approach adopted in the final CSAPR.

See

76 FR 48299-48300 (August 8, 2011). The agency recently issued guidance to assist permitting authorities and sources subject to CSAPR in incorporating CSAPR requirements into title V permits.

The EPA invites comment on its proposed approach to permitting requirements for the federal plan, including whether it would be of use to develop guidance similar to the guidance developed for permitting under CSAPR. The EPA invites comment on its proposed approach to incorporating applicable requirements of the federal plan into title V permits and revising those requirements, including specifically seeking comment on whether all requirements should be eligible for incorporation into title V permits via minor modification procedures or if only a specified subset of such requirements should be eligible for such procedures.

Memorandum from Anna Marie Wood, Director, Air Quality Policy Division, Office of Air Quality Planning and Standards (OAQPS), and Reid P. Harvey, Director, Clean Air Markets Division, Office of Atmospheric Programs (OAP), to Regional Air Division Directors, 1-7, regarding Title V Permit Guidance and Template for the Cross-State Air Pollution Rule (May 13, 2015).

The EPA also notes that the applicable requirements of this proposed federal plan would apply to a source and are independently enforceable regardless of whether they have yet been included in the source's Title V permit.

2. Implications for New Source Review Program

The NSR program is a preconstruction permitting program that requires major stationary sources of air pollution to obtain permits prior to beginning construction. The requirements of the NSR program apply both to new construction and to modifications of existing major sources. Generally, a source triggers these permitting requirements as a result of a modification when it undertakes a physical or operational change that results in a significant emission increase and a net emissions increase. NSR regulations define what constitutes a significant net emissions increase, and the concept is pollutant-specific.

In the final EGs, the EPA recognized that, as part of its CAA section 111(d) plan, a state may impose requirements that require an affected EGU to undertake a physical or operational change to improve the unit's efficiency that results in an increase in the unit's dispatch and an increase in the unit's annual emissions. If the emissions increase associated with the unit's changes exceeds the thresholds in the NSR regulations for one or more regulated NSR pollutants, including the netting analysis, the changes would trigger NSR. We noted that while there may be instances in which an NSR permit would be required, we expect those situations to be few.

The EPA believes the analysis of NSR applicability is basically the same for sources under a CAA section 111(d) federal plan. That is, it is conceivable that a source under a federal plan may choose, as a means of compliance with either a rate-based or mass-based approach, to undertake a physical or operational change to improve an affected EGU's efficiency that results in a significant net emissions increase of a regulated NSR pollutant. This would trigger NSR. However, as with state plans, the EPA believes that these situations will be few.

After the proposal for the Clean Power Plan was published in June of 2014, the U.S. Supreme Court issued its opinion in

UARG

EPA,

134 S. Ct. 2427 (June 23, 2014). The Supreme Court held that an increase in GHG emissions alone cannot by law trigger the NSR requirements of the PSD program under section 165 of the CAA. On remand from the Court, the DC Circuit issued an amended judgment in

Coalition for Responsible Regulation, Inc.

Environmental Protection Agency,

Nos. 09-1322, 10-073, 10-1092 and 10-1167 (D.C. Cir., April 10, 2015), vacating the relevant regulations. Therefore, increases in emissions of GHGs alone, including those that may occur through actions taken at sources to comply with the proposed federal plan (such as may occur when an NGCC unit increases its operations due to generation shift from a SGU), cannot trigger NSR.

The EPA will invite comment on potential scenarios in which affected EGUs, particularly small entities, could be subject to the requirements of the NSR program as a result of taking compliance measures under the federal plan, and any ideas for harmonizing or streamlining the permitting process for such sources that are consistent with judicial precedent. However, the EPA is not proposing any changes to the NSR program in this action, and the agency is not reopening or reconsidering any prior actions or determinations related to NSR in this action. Any comments related solely to the NSR program will be considered outside the scope of this proposed rule.

3. Interactions With Other EPA Rules

Existing fossil fuel-fired EGUs, such as those covered in this proposal, are or will be potentially impacted by several other rules recently finalized or proposed by the EPA.

These rules include the Mercury and Air Toxics Standards (MATS) (77 FR 9304; February 16, 2012);

the CSAPR; Requirements for Cooling Water Intake Structures at Power Plants (79 FR 48300; August 15, 2014); Disposal of Coal Combustion Residuals from Electric Utilities, promulgated on April 17, 2015 (80 FR 21302); and the

proposed Steam Electric Effluent Limitation Guidelines and Standards (78 FR 34432; June 7, 2013). These rules are discussed in more detail in the final EGs along with steps the EPA is taking to enable compliance with obligations under other power sector rules as efficiently as possible. We solicit comment on whether there are specific things the EPA can do in the design and implementation of the federal plan that further this objective.

We discuss other rulemakings solely for background purposes. The effort to coordinate rulemakings is not a defense to a violation of the CAA. Sources cannot defer compliance with existing requirements because of other upcoming regulations.

The Supreme Court recently reversed and remanded a DC Circuit Court of Appeals decision that had upheld the MATS rule.

Mich.

EPA,

No. 14-46 (S. Ct. filed June 29, 2015). The Court did not vacate the rule, however, and it remains in effect.

I. Administrative Appeals Process

Under either a rate-based or mass-based trading program, the EPA anticipates that there may be situations in which individual parties are affected by decisions of the agency. For example, under a rate-based plan, a determination may be made that an eligibility application by an ERC provider is denied. And, for set-asides in the mass-based program, an affected EGU may believe that its allowance allocation amount was miscalculated. Similar to prior trading programs, the agency believes it would be efficient and potentially avoid the need for recourse to litigation to provide an administrative appeals process. Therefore we are proposing, and requesting comment on, the use of the regulations for appeals procedures set forth in 40 CFR part 78, to provide for the adjudication of certain disputes that may arise during the course of implementation of a federal plan under CAA section 111(d). We also propose to revise part 78 to accommodate such appeals. The part 78 procedures cover prior CAA emission trading programs and were specifically designed with these types of disputes in mind.

The persons eligible to file such appeals would be designated representatives as defined in this proposed rule and other “interested persons” as defined in part 78. The filing of an appeal and the exhaustion of administrative remedies under part 78 would be a prerequisite to seeking judicial review. For purposes of judicial review, final agency action would occur only when an agency decision under the federal plan listed as appealable under part 78 has been issued, and the procedures of part 78 for appealing the decision are exhausted.

The actions we propose to list as appealable under the part 78 procedures are as follows:

In the case of the rate-based federal plan: Decisions on an eligibility application for ERCs; decisions regarding the number of ERCs generated; decisions on the transfer of ERCs; decisions on the disallowance of ERCs for compliance; decisions that there has been an excess of emissions requiring a 2-for-1 ERC administrative compliance penalty; decisions regarding deduction or surrender of ERCs for compliance from affected EGUs' compliance accounts; decisions on the accreditation of independent verifiers; the use of error corrections regarding information submitted by ERC providers, affected EGUs, or other ERC account holders; and the finalization of compliance period emissions data, including retroactive adjustment based on audit or other investigation.

In the case of a mass-based federal plan: Decisions on an eligibilty application for set-aside allowances; decisions regarding the allocation of allowances to affected EGUs; decisions regarding the allocation of allowances from set-asides; decisions on the transfer of allowances; decisions regarding the finalization of emissions data by affected EGUs during compliance periods; decisions making error corrections to information submitted by affected EGUs and other account holders; decisions that there has been excess emissions requiring a 2-for-1 allowance administrative compliance penalty; and decisions regarding the deduction or surrender of allowances for compliance from affected EGUs' compliance accounts.

We request comment on this list of actions for both types of approaches to the federal plan, and whether there are other decisions that may be made in the course of implementation of the federal plan that are party-specific that would be appropriate to list as appealable under part 78. We also request comment on whether it would be appropriate for the EPA to finalize an administrative appeals process that differs in any way from that offered under part 78, or in addition to that offered under part 78. If so, we request comment broadly on all aspects of the alternative or additional adminsitrative appeals process, including with respect to any structural, procedural, subtantive, and timing requirements it should include, who should have access to it and in what manner, and how it would differ from part 78. Finally, we request comment on whether, similar to other programs identified in 40 CFR 78.1(a)(1), the agency should make the procedures of part 78 available to any actions of the Administrator under the comparable state regulations approved as a part of a state plan under the EGs.

J. Consistency of Program Structure With Clean Air Act Authority

The EPA is co-proposing two distinct forms of emissions trading as the mechanism for federal implementation of standards of performance that achieve the emission performance levels determined by application of the BSER in the Clean Power Plan EGs. Both proposals are “emission standard” approaches as defined in the EGs, and the EPA is not proposing an approach like the “state measures” approach that is also available to states in the final EGs. The EPA has legal authority to establish either of the proposed trading systems as a federal plan under CAA section 111(d)(2). We discuss this topic briefly here and invite public comment. The EGs discussed the role of emissions trading in the BSER,

see, e.g.,

section V.A of the preamble to the final EGs. The EPA regards this to be a separate issue and is not revisiting or reopening the discussion of the BSER or the role of trading in the BSER here. The EGs recognize and provide ample opportunity for states to establish standards of performance that allow the use of emissions trading or other multi-unit compliance approaches. Here we discuss why an emissions trading program is a lawful and appropriate form of federal “implementation” of a “standard of performance” under CAA section 111(d)(2). We invite comment on this legal discussion and the agency's interpretation of its authority.

1. General Section 111(d)(2) Authority

Section 111(d)(2) provides that “[t]he Administrator shall have the same authority [ ] to prescribe a plan for a State in cases where the State fails to submit a satisfactory plan as he would have under section 7410(c) of this title in the case of failure to submit an implementation plan . . .” 42 U.S.C. 7411(d)(2)(A).

Section 111(d)(2) further provides that “[i]n promulgating a standard of performance under a plan prescribed under this paragraph, the Administrator shall take into consideration, among other factors, the remaining useful lives of the sources in the category of sources to which such standard applies.” The agency's interpretation of the “remaining useful lives” provision is discussed above in section III.G of this preamble.

The phrase “same authority to prescribe” indicates that Congress viewed the EPA's authority to issue a federal plan for designated pollutants under CAA section 111(d) as, in some sense, co-extensive with its authority to issue a FIP for National Ambient Air Quality Standards (NAAQS) pollutants under CAA section 110. This authority under CAA section 111, of course, must be understood in reference to the purpose of that section (

i.e.,

to achieve emission reductions for designated pollutants from designated facilities), rather than in reference to the purpose of CAA section 110 (

i.e.,

to attain and

maintain the NAAQS). However, it has been the agency's longstanding view that, in both procedural and substantive respects, Congress intended that the CAA section 110 authority be looked to under CAA section 111(d)(2).

See

40 FR 53340, at 53342 (November 17, 1975) (“It is obvious that [the Administrator] could only prescribe standards on some substantive basis. The references to section 110 of the CAA suggest that (as in CAA section 110) [she] was intended to do generally what the states in such cases should have done, which in turn suggests that (as in CAA section 110) Congress intended the states to prescribe standards on some substantive basis. Thus, it seems clear that some substantive criterion was intended to govern not only the Administrator's promulgation of standards but also [her] review of state plans.”).

Over the several decades of implementation of the CAA, the courts, and the EPA, have addressed the nature and scope of CAA section 110 authority.

See, e.g.,

71 FR 25328, 25338 (May 12, 2005) (CAIR final rule). In general, the EPA has broad power under CAA section 110(c) to cure a defective SIP. Thus, in promulgating a FIP under CAA section 110, the EPA may exercise its own, independent regulatory authority in accordance with CAA section 110(c) and the CAA more broadly. When the EPA has promulgated a FIP, courts have not required explicit authority for specific measures: “We are inclined to construe Congress' broad grant of power to the EPA as including all enforcement devices reasonably necessary to the achievement and maintenance of the goals established by the legislation.”

South Terminal Corp.

EPA,

504 F.2d 646, 669 (1st Cir. 1974). Further, the same authority that is exercised by the states under the CAA in connection with the adoption, implementation, and enforcement of a SIP may be assumed to be available to the EPA when the agency issues a FIP, after determining that a state has not adopted a satisfactory SIP. As the Ninth Circuit has held, when the EPA acts in place of the state pursuant to a FIP under CAA section 110(c), the EPA “stands in the shoes of the defaulting state, and all of the rights and duties that would otherwise fall to the state accrue instead to EPA.”

Central Ariz. Water Conservation Dist.

EPA,

990 F.2d 1531, 1541 (9th Cir. 1993).

Accord, South Terminal,

504 F.2d at 668 (“[T]he Administrator must promulgate promptly regulations setting forth an implementation plan for a state should the state itself fail to propose a satisfactory one. The statutory scheme would be unworkable were it read as giving to the EPA when promulgating an implementation plan for a state, less than those necessary measures allowed by Congress to a state to accomplish federal clean air goals. We do not adopt any such crippling interpretation.”).

By the same token, if there are clear limits to the EPA's CAA section 110(c) authority, those too, would arguably carry over to CAA section 111(d)(2). For instance, CAA section 110(c)(1) ties the EPA's authority to promulgate a final FIP for a state to the EPA's predicate action on a SIP (or lack thereof): Generally, either an action disapproving a plan, or a finding that a state has failed to submit a plan. However, even here, as the Supreme Court has recognized, “the plain text of the CAA grants EPA plenary authority to issue a FIP `at

any

time' within the 2-year period that begins the moment EPA determines a SIP to be inadequate.”

EPA

EME Homer City Generation,

134 S. Ct. 1584, 1602 n.14 (2014).

Congress gave the EPA the same authority to prescribe a plan under CAA section 111(d)(2) as it possesses under CAA section 110(c). The EPA believes this authority is the “same” in the sense described above and in the case law.

The scope of the EPA's action to undertake a FIP under CAA section 110 is informed by the scope of the state's action to undertake a SIP; likewise, the scope of the EPA's action to undertake a federal plan under CAA section 111(d) is informe

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