# Clean Energy Incentive Program Design Details > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-15000 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** June 30, 2016 - **Citation:** 81 FR 42940 ## Text ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 60 and 62 [EPA-HQ-OAR-2016-0033; FRL-9945-01-OAR] RIN 2060-AS84 Clean Energy Incentive Program Design Details AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: In this action, the Environmental Protection Agency (EPA) is proposing design details of the Clean Energy Incentive Program (CEIP). The CEIP is a program that states have the option to adopt if they wish to incentivize certain early emission reduction projects under the Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units (also known as the Clean Power Plan Emission Guidelines (EGs)). The framework for the CEIP was established in the Clean Power Plan EGs, where the EPA also noted that the design details of the program would be developed in a follow-on action. This proposal addresses those design details. In addition, we are re-proposing the CEIP-related aspects of the proposed rate-based and mass-based model trading rules—referred to in this action as optional example regulatory text. This proposal is consistent with the Supreme Court's orders staying the Clean Power Plan during judicial review. The timing elements of the CEIP may be adjusted, if necessary, upon resolution of the petitions for review of the Clean Power Plan. DATES: Comments. Comments must be received on or before August 29, 2016. Public Hearing. The EPA will hold one public hearing on the CEIP design details proposed rule. The hearing will be held to accept oral comments on the proposal. The hearing will be held in Chicago, Illinois, on August 3, 2016. The hearing will begin at 9:00 a.m. Central Standard Time CST and will conclude at 8:00 p.m. (CST). There will be a lunch break from 12:00 p.m. to 1:00 p.m. and a dinner break from 5:00 p.m. to 6:00 p.m. ADDRESSES: Comments. Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2016-0033, at http://www.regulations.gov. Follow the online instructions for submitting comments. Once submitted, comments cannot be edited or removed from Regulations.gov. 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 CEIP Design Details proposed rule to Docket ID No. EPA-HQ-OAR-2016-0033. 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 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-2016-0033. The EPA has previously established a docket for the June 18, 2014, Clean Power Plan proposal under Docket ID No. EPA-HQ-OAR-2013-0602. 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. Public Hearing. The hearing will be held in Chicago, Illinois, on August 3, 2016; in the Lake Michigan Room, Ralph Metcalfe Federal Building, 77 West Jackson Boulevard. The hearing will begin at 9:00 a.m. Central Standard Time CST and will conclude at 8:00 p.m. (CST). There will be a lunch break from 12:00 p.m. to 1:00 p.m. and a dinner break from 5:00 p.m. to 6:00 p.m. To register to speak at the hearing, please use the online registration form available at http://www.epa.gov/cleanpowerplan/clean-energy-incentive-program or please contact Ms. Pamela Garrett at (919) 541-7966 or send an email to publichearing@epa.gov. The last day to pre-register to speak at the hearing will be Monday, August 1, 2016. Additionally, requests to speak will be taken the day of the hearing at the hearing registration desk, although preferences on speaking times may not be able to be fulfilled. Please note that registration requests received before the hearing will be confirmed by the EPA via email. We cannot guarantee that we can accommodate all timing requests and will provide requestors with the next available speaking time in the event that their requested time is taken. Please note that the time outlined in the confirmation email received will be the scheduled speaking time. Again, depending on the flow of the day, times may fluctuate. If you require the service of a translator or special accommodations such as audio description, we ask that you pre-register for the hearing by Friday, July 22, 2016, as we may not be able to arrange such accommodations without advance notice. Please note that any updates made to any aspect of the hearing will be posted online at http://www.epa.gov/cleanpowerplan.www.epa.gov/cleanpowerplan. While the EPA expects the hearing to go forward as set forth previously, we ask that you monitor our Web site or contact Ms. Pamela Garrett at (919) 541-7966 or at garrett.pamela@epa.gov to determine if there are any updates to the information on the hearings. The EPA does not intend to publish a notice in the Federal Register announcing any such updates. The hearing will provide interested parties the opportunity to present data, views, or arguments concerning the proposed action. The EPA will make every effort to accommodate all speakers who wish to register to speak at the hearing venue on the day of the hearing. The EPA may ask clarifying questions during the oral presentations, but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearing. Verbatim transcripts of the hearing and written statements will be included in the docket for the rulemaking. The EPA plans for the hearing to run on schedule; however, due to on-site schedule fluctuations, actual speaking times may shift slightly. Because this hearing will be held at a U.S. government facility, individuals planning to attend the hearing should be prepared to show valid picture identification to the security staff in order to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress in 2005, established new requirements for entering federal facilities. If your driver's license is issued by American Samoa, Illinois, Minnesota, Missouri, New Mexico, or the state of Washington, you must present an additional form of identification to enter the federal building. Acceptable alternative forms of identification include: Federal employee badges, passports, enhanced driver's licenses, and military identification cards. In addition, you will need to obtain a property pass for any personal belongings you bring with you. Upon leaving the building, you will be required to return this property pass to the security desk. No large signs will be allowed in the building, cameras may only be used outside of the building, and demonstrations will not be allowed on federal property for security reasons. Attendees will be asked to go through metal detectors. To help facilitate this process, please be advised that you will be asked to remove all items from all pockets and place them in provided bins for screening; remove laptops, phones, or other electronic devices from their carrying case and place in provided bins for screening; avoid shoes with metal shanks, toe guards, or supports as a part of their construction; remove any metal belts, metal belt buckles, large jewelry, watches and follow the instructions of the guard if identified for secondary screening. Additionally, no weapons ( e.g., pocket knives) or drugs or drug paraphernalia ( e.g., marijuana) will be allowed in the building. We recommend that you arrive 20 minutes in advance of your speaking time to allow time to go through security and to check in with the registration desk. FOR FURTHER INFORMATION CONTACT: Dr. Tina Ndoh, Sector Policies and Programs Division, Office of Air Quality Planning and Standards (D243-04), Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone number: (919) 541-2750; email address: ndoh.tina@epa.gov. SUPPLEMENTARY INFORMATION: Acronyms and Abbreviations. The following acronyms and abbreviations are used in this document. ARP—Acid Rain Program BSER—Best system of emission reduction CAA—Clean Air Act CHP—Combined heat and power CBI—Confidential business information CEIP—Clean Energy Incentive Program CST—Central Standard Time CO 2 —Carbon dioxide CVR—Conservation Voltage Reduction EE—Energy efficiency EGs—Emission Guidelines EGU—Electric generating unit EJ—Environmental justice EM&V—Evaluation, measurement, and verification EPA—Environmental Protection Agency ERC—Emission rate credit FPLG—Federal Poverty Level Guidelines HUD—Department of Housing and Urban Development ITC—Investment Tax Credit M&V—Monitoring and verification MWh—Megawatt-hour NMTC—New Market Tax Credits NTTAA—National Technology Transfer and Advancement Act OMB—Office of Management and Budget PRA—Paperwork Reduction Act PTC—Production Tax Credit RE—Renewable energy RFA—Regulatory Flexibility Act TSD—Technical Support Document TTN—Technology Transfer Network UMRA—Unfunded Mandates Reform Act U.S.—United States WAP—Weatherization Assistance Program WHP—Waste heat to power WWW—World Wide Web Organization of This Document. The information in this preamble is organized as follows: I. General Information A. What should I consider as I prepare my comments for the EPA? II. Background A. What is the framework for the CEIP that was established in the final Clean Power Plan Emission Guidelines? B. What are the statutory authorities for this action, including legal authority and basis for the CEIP? C. How does this action relate to the final Clean Power Plan and proposed federal plan and model trading rules? D. What key comments were received during the informal feedback process? III. Clean Energy Incentive Program Design Details A. Provisions for Matching Allowances and ERCs To Be Issued by the EPA From the 300 Million Short Ton Pool B. Requirements for States That Choose To Participate in the CEIP C. Requirements for CEIP-Eligible Projects D. CEIP Participation for States, Tribes and Territories for Which the EPA Has Not Established Goals IV. Community and Environmental Justice Considerations. V. 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 Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer and Advancement Act (NTTAA) J. Executive Order 12898: Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations I. General Information A. What should I consider as I prepare my comments for the EPA? Do not submit information that you consider to be CBI electronically through http://www.regulations.gov or email. Send or deliver information identified as CBI to only the following address: OAQPS Document Control Officer (Room C404 02), U.S. EPA, Research Triangle Park, NC 27711, Attention Docket ID No. EPA-HQ-OAR-2016-0033. Clearly mark the part or all of the information that you claim to be CBI. For CBI on a disk or CD-ROM that you mail to the EPA, mark the outside of the disk or CD-ROM as CBI and then identify electronically within the disk or CD-ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information marked as CBI will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. If you have any questions about CBI or the procedures for claiming CBI, please consult the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble. Docket. The docket number for the proposed action is Docket ID No. EPA-HQ-OAR-2016-0033. World Wide Web (WWW). In addition to being available in the docket, an electronic copy of the proposed action is available on the Internet through the EPA's Technology Transfer Network (TTN) Web site, a forum for information and technology exchange in various areas of air pollution control. Following signature by the EPA Administrator, the EPA will post a copy of the proposed action at http://www2.epa.gov/cleanpowerplan/regulatory-actions#regulations. Following publication in the Federal Register , the EPA will post the Federal Register version of the proposed rule and key technical documents on the same Web site. II. Background A. What is the framework for the CEIP that was established in the final Clean Power Plan Emission Guidelines? The CEIP is a program that states have the option to adopt if they wish to incentivize certain early emission reduction projects under the Carbon Pollution EGs for Existing Stationary Sources: Electric Utility Generating Units (also known as the Clean Power Plan EGs). 1 The EPA included the CEIP in the Clean Power Plan EGs in response to the many comments we received supporting the early action crediting concept we discussed in the Clean Power Plan proposed rule, see 79 FR 34918-34919 (June 18, 2014). Many stakeholders supported including a mechanism for recognizing early actions for the emission reductions they provide prior to the start of the performance period in 2022. The inclusion of the CEIP was also responsive to comments from stakeholders describing the disproportionate burdens that some communities already bear, and stating that all communities should have equal access to the benefits of clean and affordable energy. The CEIP framework provided in the final EGs offers a mechanism that enables states to incentivize early investments in wind and solar renewable energy (RE) generation, 2 as well as in demand-side energy efficiency (EE) projects in low-income communities that generate carbon-free megawatt hours (MWh) or reduce demand-side energy use during 2020 and/or 2021. 3 1 The Clean Power Plan establishes carbon dioxide (CO 2 ) emission standards for electric utility generating Units (EGUs) in states and tribal areas that have such units (called affected EGUs). In the Clean Power Plan and in this rulemaking, the term “state” generally encompasses the 50 states and the District of Columbia, U.S. territories, and any Indian Tribe that has been approved by the EPA pursuant to 40 CFR 49.9 as eligible to develop and implement a Clean Air Act (CAA) section 111(d) plan. Tribes with affected EGUs may, but are not required to, submit tribal plans to implement the EGs. The EPA would not implement the EGs through a federal plan in a tribal area without first making a necessary or appropriate finding under section 301(d). In the context of the CEIP, the term “state” will usually refer only to those states or Indian country areas of the contiguous U.S. that have affected EGUs under the Clean Power Plan EGs. We discuss the role of states and tribes without affected EGUs in section III.D of this preamble. 2 Currently, eligible RE technologies are limited to wind and solar resources. However, please note that the Agency is proposing a limited expansion of eligibility to certain other zero-emitting, renewable technologies. See section III.C.4 of this preamble. 3 Currently, eligible low-income community projects are limited to demand-side EE. However, please note that the Agency is proposing a limited expansion of eligibility to include solar projects implemented to serve low-income communities that provide direct electricity bill benefits to low-income community ratepayers. See section III.C.5 of this preamble. In the final Clean Power Plan, the EPA finalized a requirement that states wishing to participate in the CEIP must indicate by September 6, 2016, at a minimum, their intention to participate in the CEIP. On February 9, 2016, the Supreme Court stayed the Clean Power Plan during the pendency of the litigation. As a result of the stay, states are not required to provide such notice by September 6, 2016. The EPA will provide further direction on submittal timing requirements, as well as any other adjustments in timing that may be needed, upon the resolution of the judicial petitions for review of the Clean Power Plan. We discuss in more detail the relationship of this action to the Supreme Court's stay in section II.C of this preamble. For purposes of this proposal, however, we will use the original dates in the Clean Power Plan and the CEIP, with the expectation that all timing issues will be dealt with upon the resolution of the litigation. In the event that the EPA finalizes a federal plan for a state, it continues to be the EPA's intention that the CEIP will be available in that state. The EPA believes the optional example regulatory provisions we are proposing, as presumptively approvable for state use or adoption, could suitably function as the CEIP provisions in a potential federal plan. We solicit comments on this aspect of the proposal. However, the EPA will not promulgate a federal plan until some period of time after the petitions for review of the Clean Power Plan are resolved and the stay is lifted. The EPA lacks authority to promulgate a federal plan for a state in the absence of a finding by the Agency that a state has failed to submit a plan by a legal deadline or a final action disapproving a required state plan. During the pendency of the Supreme Court's stay, states are not obliged to submit plans and therefore the EPA could not take either such action or promulgate any final federal plan for any state under the Clean Power Plan EGs. As explained later in this action, there are also pathways whereby a state could implement the CEIP under a duly promulgated federal plan. While the legal effectiveness of the Clean Power Plan is currently stayed, the EPA has determined that it is appropriate to move forward with the design details of the CEIP component of the Clean Power Plan at this time. States have the authority to continue moving forward on their own volition with the design of state plans, and the EPA retains the authority to continue working with states as they do so. For states that, at their own discretion, wish to continue plan development, this action will help them understand what must be included in a state plan if they wish to opt into the CEIP. In addition, the proposal is responsive to the states that requested EPA provide additional detail on the design details of the CEIP as soon as possible. The EPA acknowledged to the public in the October 23, 2015, notice of final rulemaking that it would need to take a future action on the CEIP because there are aspects of the CEIP that need to be completed in order for the program to be able to be implemented (80 FR 64830). Indeed, commenters on the model rules and federal plan proposal, including states, requested that the Agency expeditiously complete the design details of the CEIP. See, e.g., Comment of Minnesota Public Utilities Commission (EPA-HQ-OAR-2015-0199-0363); Comment of Kyra L. Moore, Dir., State of Missouri Dep't of Natural Resources (EPA-HQ-OAR-2015-0199-0457); Hearing Testimony of Jeff Cappella, Western Clean Energy Campaign (November 16, 2015) (EPA-HQ-OAR-2015-0199-0233-A1-06). It is prudent to propose this action now in order to assist those states that have decided to move forward and who are contemplating participation in the CEIP, so that they have the requisite tools and information for doing so. While this proposal generally will be helpful to those who are interested in participating in the CEIP, because the CEIP is an optional program, relies on voluntary measures, and will not become available to the states until the stay is lifted, this proposal will not disadvantage any party (including those who have decided to await the resolution of the litigation prior to acting to develop their state plans). Finally, we heard from many stakeholders that they would like an opportunity to comment on a more developed proposal regarding CEIP topics; the EPA is responding to those requests by issuing this proposal, which provides a new opportunity to submit comments on the CEIP topics addressed here and to review actual proposed rule language. In order to ensure that the EPA considers and responds to your comments on these CEIP topics, you must submit your comments on this proposal, following the process explained in section I.B of this preamble. The CEIP is an incentive program in which both the states, should they elect to participate, and the EPA play a role. The program operates by means of states allocating or issuing early action compliance instruments—called early action allowances or early action emission rate credits (ERCs)—which are then matched by EPA with additional compliance instruments—called matching allowances or matching ERCs. States in turn provide these awarded matching compliance instruments to the providers of eligible CEIP RE and low-income community projects that received the early action allowances or early action ERCs from the state. The EPA designed the CEIP to be an implementable option for states using mass-based plans and states using rate-based plans. The final Clean Power Plan specified the number of early action ERCs that a state may award to CEIP-eligible project providers per MWh of generation or savings achieved in 2020 and/or 2021 under a rate-based plan, but stated that the EPA would speak to the award of early action allowances under a mass-based plan in a future action. Awards of early action ERCs, and the EPA's proposed approach for the award of early action allowances, are discussed in section III.A of this preamble. In the final Clean Power Plan, the EPA stated that, in the case of eligible CEIP solar and wind projects, 4 for every two MWh of energy generation, the state will provide an award of one early action ERC for a state adopting a rate-based plan (or an appropriate commensurate number of early action allowances for states adopting a mass-based plan), and the EPA will provide an award of one matching ERC (or an appropriate commensurate number of matching allowances). Thus, the total award to each eligible wind and solar project is made on a one-to-one basis for every one MWh of clean generation (either one ERC or an appropriate commensurate number of allowances for every one MWh of clean generation). In the case of eligible CEIP demand-side EE projects in low-income communities, 5 for every two MWh of energy savings, the state will provide an award of two early action ERCs (or an appropriate commensurate number of early action allowances), and the EPA will provide an award of two matching ERCs (or an appropriate commensurate number of matching allowances). Thus, the total award for low-income EE projects is made on a two-to-one basis for every one MWh of energy savings (either two ERCs or an appropriate commensurate number of allowances for every one MWh of energy savings). See 80 FR 64831, October 23, 2015. 4 In this action, we are proposing a limited expansion of eligible RE resources to include geothermal and hydropower. See section III.C. of this action for additional discussion of the proposed limited RE expansion. 5 In this action, we are proposing a limited expansion of eligible low-income community projects to include solar projects implemented to serve low-income communities in addition to demand-side EE projects. See section III.C. of this action for additional discussion of the expansion of eligible low-income community projects. The overall size of the EPA matching pool available to all CEIP-participating states has been set at 300 million short tons of CO 2 , and the EPA will award matching allowances or matching ERCs from this pool in an amount not to exceed in the aggregate this limit (80 FR 64829). The 300 million ton matching pool, referred to in this preamble as the “matching pool,” will be apportioned among CEIP-participating states pro rata based on the amount of reductions from 2012 CO 2 emission levels the affected EGUs in each state are required to achieve relative to those in other CEIP-participating states. 6 6 See discussion of proposed apportionment method in section III.A of this preamble. Eligible CEIP projects must be located in or benefit a state that has one or more affected EGUs with an approved final plan that includes requirements establishing its participation in the CEIP. For purposes of the CEIP, we propose that “benefit” a state means that the electricity is generated or saved with the intention to meet or reduce electricity demand in the CEIP-participating state. Additionally, in the final Clean Power Plan, we stated that eligible projects must commence construction (in the case of solar and wind projects) or commence operations (in the case of low-income EE projects) following the submission of a final state plan, or September 6, 2018, for a state that chooses not to submit a final plan by that date. As discussed later in this preamble, we are proposing to adjust this timing requirement to remove final state plan submittal as a triggering event for eligibility. 7 In addition, the EPA did not define the terms “commence construction” or “commence operation” in regards to the CEIP in the final Clean Power Plan. In preparation for this action, we solicited public input on the appropriate definitions for these terms, 8 and we speak to those definitions in section III.C of this preamble. 7 We will continue to use September 6, 2018, as the putative eligibility start date under the CEIP for “commence operation” of low-income EE projects, while recognizing that in light of the Supreme Court's stay, this date, as well as the deadline for final state plan submittals, may need to be adjusted. The applicable eligibility date for “commence commercial operation,” which the EPA is proposing would replace the term “commence construction” with regard to RE projects, is discussed in section III.C of this preamble. 8 See Clean Energy Incentive Program Next Steps (October 21, 2015) at http://www.epa.gov/sites/production/files/2015-10/documents/ceip_next_steps_10_21_15.pdf . A CEIP-participating state must include requirements in its plan for determining CEIP project eligibility and quantifying and verifying the MWh of generation or savings from an eligible project. These requirements must be consistent with the requirements included in the final Clean Power Plan EGs for the issuance of ERCs. 9 This includes requirements for demonstration of eligibility; evaluation, measurement, and verification (EM&V) plans; monitoring and verification (M&V) reports; and independent verification of project submittals. In addition, the state's plan must include a mechanism that ensures that the award of early action allowances or early action ERCs to CEIP-eligible parties will not impact the CO 2 emission performance of affected EGUs required to meet mass-based or rate-based CO 2 emission standards during the plan performance periods. This mechanism is not required to account for matching allowances or ERCs that may be issued to the state by the EPA. 10 9 See 40 CFR 60.5805 through 60.5835. 10 See 40 CFR 60.5737. B. What are the statutory authorities for this action, including legal authority and basis for the CEIP? The CEIP is an optional component of the Clean Power Plan, and the Clean Power Plan is an exercise of the EPA's authority under section 111(d) of the CAA, 42 U.S.C. 7411(d). The legal authority and rationale supporting the Clean Power Plan are discussed in the final rulemaking and accompanying Legal Memorandum. See, e.g., 80 FR 64662, 64707-64710 (October 23, 2015). The rationale and legal authority for the CEIP in particular are also set forth in the final Clean Power Plan. Id. 64831-64832. Nothing in this action reopens the legal determinations or rationale set forth in the final Clean Power Plan. 11 11 The EPA intends for the CEIP to be considered severable from the remainder of the Clean Power Plan. As an optional program that is not required for achievability of the emission performance rates or equivalent state goals, the CEIP is in fact severable. Although the Agency believes, as explained in the preamble to the final EGs, that the CEIP provides a number of benefits, 80 FR 64829-64831, nonetheless, all other aspects of the Clean Power Plan would still be implementable in the absence of the CEIP. The EPA established the CEIP in the final Clean Power Plan EGs, and took final action with respect to certain key design parameters for the program while identifying other details of the program that would be determined through a future action. See 80 FR 64829-64832 (October 23, 2015). The Agency discussed mechanisms for recognizing and providing incentives for early action in the Clean Power Plan proposal and requested comment on design elements of different approaches, see 79 FR 34830, 34918-34919 (June 18, 2014). The Agency identified additional considerations regarding approaches to incentivize early action in a notice of data availability on which the public also had an opportunity to comment, see 79 FR 64543, 64545-64546 (October 30, 2014). The EPA established the CEIP in the final Clean Power Plan in response to overwhelmingly supportive comments from the public that the EGs should provide a mechanism for incentivizing and recognizing early action. In this action, the EPA is not reopening its decision to establish the CEIP, the maximum size of the matching pool, the requirement for states to include a mechanism in their plans that ensures that the award of early action allowances or early action ERCs will not impact the CO 2 emission performance of affected EGUs required to meet CO 2 emission standards under the Clean Power Plan EGs, any other design parameters not expressly opened for comment or proposal in this document, or its determination of legal authority and rationale for the CEIP provided in the preamble to the final Clean Power Plan EGs, see 80 FR 64831-64832. Additional information on the relationship between this action and the EGs, as well as the proposed federal plan and model trading rules, is provided in section II.C of this preamble. The CEIP is optional for states; states are not required to implement this incentive program for early action. However, if a state does choose to participate in the CEIP, it must follow the requirements specified in the final Clean Power Plan EGs as well as any additional requirements that may be finalized through this rulemaking action. Additionally, as discussed in section II.C of this preamble, in instances of federal plan promulgation, the EPA's intent is that the CEIP would also be available. Even in the case of a federal plan, states would have an ability to implement the CEIP, but if they chose not to, the EPA would implement the CEIP in those states. Thus, we invite comment on the CEIP provisions we are proposing as optional example CEIP regulatory text, including to the extent that text may be applied by the EPA through a federal plan. This action is undertaken pursuant to the authority in section 111(d) of the CAA, as well as the Agency's general rulemaking authority as necessary to carry out the functions of the CAA, 42 U.S.C. 7411(d), 7601(a). This rulemaking action is subject to the rulemaking provisions of the CAA set forth in section 307(d), 42 U.S.C. 7607(d). This action is nationally applicable because it would establish additional requirements for states that choose to opt into the CEIP. The EPA's action in this proposal is consistent with, and the EPA's authority to proceed with this action is unaffected by, the Supreme Court's orders in West Virginia, et al. v. EPA, et al., No. 15A773 (February 9, 2016). The Court granted applications for a stay of the Clean Power Plan EGs pending disposition of the Stay Applicants' petitions for review of the EGs in the U.S. Court of Appeals for the District of Columbia Circuit, including any subsequent review by the Supreme Court. That litigation is currently pending, and the Supreme Court's stay is in effect. A stay has the effect of “halting or postponing some portion of [a] proceeding, or [ ] temporarily divesting an order of enforceability.” Nken v. Holder, 556 U.S. 418, 428 (2009). A stay is distinct from an injunction, which “direct[s] the conduct of a particular actor.” Id. The EPA has not been enjoined by any court from continuing to work with state partners in the development of frameworks to reduce CO 2 emissions from affected EGUs. This action proposes several changes and additions to the CEIP, which is an optional program, and proposes optional example regulatory text for use by states in the design of their plans. This is wholly consistent with the EPA's statutory authorities and the precedents discussed later in this preamble, and is consistent with and unaffected by the February 9, 2016 stay orders. A state may participate in the CEIP only after the EPA approves a required state plan or the EPA promulgates a federal plan for that state that includes the CEIP. These actions will not occur until sometime after the judicial stay has been lifted. Thus, this action is consistent with, and the EPA's authority to proceed with this action is unaffected by, the stay. Furthermore, we note that in addition to its CAA section 111 and CAA section 301 authority to engage in this rulemaking, the EPA possesses multiple other authorities under the CAA that direct it to engage in capacity building and provide technical and financial assistance to states in order to effectuate the air pollution reduction objectives of the CAA. 12 These authorities typically support, but operate independently of, the CAA's regulatory mandates. Under section 102 of the CAA, for example, the EPA shall “encourage cooperative activities by the States and local governments for the prevention and control of air pollution; encourage the enactment of improved and . . . uniform State and local laws relating to the prevention and control of air pollution; and encourage the making of agreements and compacts between States for the prevention and control of air pollution.” 42 U.S.C. 7402(a). The EPA is also authorized under section 103 of the CAA to conduct a variety of research and development activities, render technical services, provide financial assistance to air pollution control agencies and other entities, and conduct and promote coordination of training for individuals—all for the purpose of the “prevention and control of air pollution.” 42 U.S.C. 7403(a). 12 It is undisputed that CO 2 , as a greenhouse gas, is an air pollutant under the CAA. See Massachusetts v. EPA, 549 U.S. 497, 528-532 (2007). The EPA may, among other things, “collect and disseminate, in cooperation with other Federal departments and agencies, and with other public and private agencies, institutions, and organizations having related responsibilities . . . information pertaining to air pollution and the prevention and control thereof.” Id. § 7403(b). The CAA expressly authorizes the Agency to develop “nonregulatory strategies . . . for preventing or reducing multiple air pollutants, including . . . carbon dioxide, from stationary sources, including fossil fuel power plants.” Id. § 7403(g). Taken together, these provisions both establish that the EPA has the authority, and illustrate why the EPA would have good reason, to continue coordinating and assisting in the development of CO 2 pollution prevention and control efforts of the states and local governments, even in light of the stay of the Clean Power Plan. The EPA has proceeded under a similar understanding of its authority when CAA rules have been judicially stayed pending review in the past. When the D.C. Circuit Court stayed the Cross-State Air Pollution Rule (CSAPR), EME Homer City Generation, L.P. v. EPA, No. 11-1302 (D.C. Cir. December 30, 2011), the EPA proceeded to issue two rules making a number of revisions to the stayed rule. The EPA noted that its actions in revising the rule were “consistent with and unaffected by the Court's Order staying the final [CSAPR]. Finalizing this action in and of itself does not impose any requirements on regulated units or states.” 77 FR 10324, 10326 (February 21, 2012). Indeed, one of the changes the EPA undertook while the stay was in effect was a delay of the effective date of certain “assurance provisions” “in order to neutralize a key uncertainty facing successful and potentially rapid program implementation following the current stay, such that sources can rely on immediate activation of a [CSAPR] allowance market.” Id. at 10331 (emphasis added). In another set of revisions finalized in June of 2012, the EPA again took action making a number of important changes, including state budget adjustments and revision of set-aside accounts for new sources, while the stay of the rule was in effect. See 77 FR 34830 (June 12, 2012). Among other things, the EPA rejected a comment to revise the set-aside accounts for years for which the EPA had already recorded allowances in compliance accounts prior to the stay being issued. Id. at 34838-34839. The EPA explained that because the allowances were already recorded, they were freely available to their owners to be transferred or sold and may no longer be in the original owners' accounts. The Agency rejected the commenter's expansive interpretation that the judicial stay meant “these allocations are no longer distributed for use.” Id. Rather, in the EPA's view, the stay meant that “sources are not required to hold allowances for compliance at this time,” but that did not mean the allowances themselves did not remain in circulation. Id. Similarly, when the D.C. Circuit Court stayed the nitrogen oxide (NO X ) state implementation (SIP) Call, issued under authority of CAA section 110(k)(5), Michigan v. EPA, No. 98-1497 (D.C. Cir. May 25, 1999), the Agency proceeded to institute direct federal regulation of the sources to achieve functionally the same result under CAA section 126(c). See Findings of Significant Contribution and Rulemaking on CAA section 126 Petitions for Purposes of Reducing Interstate Ozone Transport, 65 FR 2674, 2680 (January 18, 2000). In reviewing and upholding the EPA's direct federal regulation under CAA section 126, the D.C. Circuit Court addressed the issue of whether the EPA could proceed under CAA section 126 in light of the stayed NO X SIP Call under CAA section 110. Noting that the “congruence” between the EPA's schedules for action under the separate provisions had been disrupted by its stay order, and that the conditions under which the EPA had originally deferred action under CAA section 126 were no longer present, the Court upheld the Agency's authority to proceed under CAA section 126 and deferred to the Agency's interpretation that the two provisions “operate independently” such that proceeding with regulation under CAA section 126 was not unlawful. Appalachian Power Co. et al. v. EPA, 249 F.3d 1032, 1045-48 (D.C. Cir. 2000). To be clear, the EPA is not proposing to institute direct regulation of the affected EGUs in this action nor is the Agency proposing to implement the CEIP while the stay is in effect. Rather, the court's analysis in Appalachian Power supports the Agency's view that a stay does not affect its ability to conduct activities that are not in themselves dependent for their authority on the effectiveness of the stayed action. 13 13 See also Air Transp. Ass'n of Am. v. U.S. Dep't of Transp. et al., 613 F.3d 206, 209 (D.C. Cir. 2010) (upholding Federal Aviation Administration's institution of airport congestion pricing while “slot auctions” regulation to solve the same congestion problem was judicially stayed pending review). While none of the Clean Power Plan's deadlines can be enforced while the stay remains in effect, at this point it is not clear whether and to what extent those deadlines will necessarily be tolled once the stay is lifted. Some of the stay applicants expressly requested that all of the Clean Power Plan's deadlines be tolled for the period between the Clean Power Plan's publication and the final disposition of their lawsuits. See, e.g., Appl. of Util. & Allied Parties for Immediate Stay of Final Agency Action Pending Appellate Review 22. In its brief, the government interpreted that form of relief to be requested (either explicitly or implicitly) by all of the applicants, and it opposed the stay in part on the grounds that such relief would be “extraordinary and unprecedented.” Mem. for Fed. Resps. in Opp. 3; see id. 70-71. In their reply brief, the 29 State Applicants clarified that they were only seeking a “straightforward” Administrative Procedure Act stay that would merely “temporarily divest[ ] [the Clean Power Plan] of enforceability,” such that “the States need not comply with any of the [Clean Power Plan's] deadlines that will occur during this litigation.” Reply of 29 States and State Agencies in Support of Appl. for Immediate Stay 29 (emphasis added). The States disagreed that granting the stay would necessarily require day-for-day tolling of every Clean Power Plan deadline for the period between the Clean Power Plan's publication and the conclusion of the lawsuit. Id. at 30. They stated that although such tolling “would be appropriate as a matter of basic fairness,” “the exact shape of such an equitable disposition need not be decided today.” Id. at 30 (emphasis added) (citing Michigan v. EPA, no. 98-1497, Dkt. 524995 (D.C. Cir. 1999), for an example of a case in which the Court of appeals decided whether and how to toll relevant deadlines after the challenged rule was upheld). The Supreme Court's orders granting the stay did not discuss the parties' differing views of whether and how the stay would affect the Clean Power Plan's deadlines, and did not expressly resolve that issue. In this context, the legal effect of the stay on the Clean Power Plan's deadlines is ambiguous, and the question of whether and to what extent tolling is appropriate will need to be resolved once the validity of the Clean Power Plan is finally adjudicated. At that point, the effect of the stay will be able to be assessed in light of all relevant circumstances. Because it is currently unclear what adjustments, if any, will need to be made to implementation timing, the EPA is in general in this action maintaining the timing elements of the CEIP that have already been finalized, recognizing that they may need to be adjusted in concert with other timing elements of the Clean Power Plan. In particular, we continue to refer to the period during which generation and savings may be eligible to earn early action allowances or ERCs as 2020 and 2021. We propose to retain the start date for project eligibility as September 6, 2018, for demand-side EE projects implemented in low-income communities, but are proposing a start date of January 1, 2020, for eligible CEIP RE projects, including those implemented in low-income communities. However, we propose to remove the alternative earlier date related to the date of final state plan submittal. These proposed changes are discussed in section III.C of this preamble. The decision not to propose further changes to the key timing elements of the CEIP in this action should not be taken to indicate any particular view or intention by the Agency regarding how the timelines for the Clean Power Plan overall may be impacted by the Supreme Court's stay. C. How does this action relate to the final Clean Power Plan and proposed federal plan and model trading rules? As noted previously, the EPA took final action in the Clean Power Plan to establish the CEIP, and finalized certain aspects of the CEIP at 40 CFR 60.5737, while identifying other details that it would address in a future action. See 80 FR 64829-64832, 64943. In the proposed federal plan and model trading rules for the Clean Power Plan, the EPA requested comment on a number of details for the CEIP that had been identified in the final EGs, and also proposed provisions to implement the CEIP under the federal plan and model trading rules. See 80 FR 65025-65026. In this action, we are proposing the design details we identified as needing to be addressed. We are also proposing several adjustments to the CEIP as finalized in the Clean Power Plan EGs, reflecting new information and feedback from stakeholders after the EGs were finalized. This action does not re-open those aspects of the CEIP as finalized that the EPA is not expressly proposing to change or requesting comment on. We are also re-proposing the CEIP-related aspects of the mass-based and rate-based model trading rules, which we characterize in this proposal as optional example regulatory text. 14 We are not re-proposing federal plan CEIP provisions, but request comment on the limited issue of the suitability of these more detailed, re-proposed optional example CEIP provisions for possible use in a federal plan. 15 14 We are not re-proposing any aspects of the model rules that are un-related to the CEIP. 15 In the fall of 2015, during the federal plan and model trading rules proposal comment period, the EPA, through informal outreach efforts, received feedback from stakeholders that a separate regulatory action on the design details of the CEIP was appropriate. In the proposed federal plan and model trading rules for the Clean Power Plan, the EPA expressed its intent to implement the CEIP in states that may become subject to a federal plan; see 80 FR 64978 (October 23, 2015). The Agency proposed a mass-based and a rate-based approach to implementing the CEIP as part of the federal plan. 16 See 80 FR 65066-65067 (proposing a CEIP set-aside as part of a mass-based plan at 40 CFR 62.16235(e)); id. at 65092-65093 (proposing a rate-based CEIP program at 40 CFR 62.16431). As was generally the case for the federal plan and model trading rules, these proposed federal plan provisions also served as proposed model rule provisions that would be presumptively approvable if adopted in state plans. See generally 80 FR 64973. 16 For the purposes of a rate-based federal plan, the EPA notes that as currently proposed, demand-side energy-efficiency measures may only be awarded ERCs in the context of the CEIP. The EPA has determined to remove these CEIP provisions from the larger model trading rules rulemaking, and to re-propose optional example regulatory text for the CEIP as part of this proposal. With regard to the proposed federal plans, the EPA is not re-proposing CEIP federal plan provisions in this action, but invites comment on the presumptively approvable example approach, including to the extent it provides additional detail on the approach that EPA could take in a federal plan. As proposed in this action, this example text provides greater specificity than the October 23, 2015 proposal on the requirements that may be included in any potential future federal plan CEIP. 17 The Agency believes it is administratively simpler and more convenient for the public to be able to review and comment on any optional example regulatory text related to the CEIP in conjunction with all of the other CEIP design details being proposed in this action. Thus, this action constitutes, in part, a re-proposal of optional example CEIP provisions, replacing and superseding the proposed CEIP provisions that were included in the model trading rules published in the Federal Register on October 23, 2015. The EPA invites comments on this re-proposed optional example regulatory text as an approach states or the EPA could take in state or federal plans, respectively. 17 The EPA does not intend to finalize any provisions related to implementation of the CEIP as part of a federal plan until the actual promulgation of a federal plan, which would not occur until lifting of the stay and an EPA determination of a subsequent failure of a state to timely submit a plan or EPA disapproval of a state plan. In some instances, those proposed provisions are being re-proposed without significant changes; in others, proposed CEIP revisions to the EGs presented in this action necessitated corresponding changes to the mass- and rate-based optional example regulatory text. However, the October 2015 proposal did not contain specific proposals for certain design details that are now being proposed here. The EPA intends to finalize the CEIP optional example rule text included in this action in conjunction with the finalization of the other CEIP design details proposed in this action. We do not intend to include the CEIP optional example rule text as part of the finalized model trading rules. Nonetheless, the finalized CEIP optional example rule provisions could be integrated with the finalized mass-based or rate-based model trading rules when EPA finalizes this CEIP rulemaking, where a state chooses to implement the CEIP. Thus, the CEIP optional example rule text is being proposed in the same subpart of the Code of Federal Regulations as the full model trading rules, in order to facilitate states wishing to adopt a model rule that includes the CEIP. Since the CEIP is an optional program, should the Agency not be able to approve a state's CEIP, the Agency believes that the provisions would be severable and not impact the Agency's ability to approve the remainder of a state's final plan submission. In addition, because the CEIP is an optional program, the Agency does not anticipate that it would promulgate a partial federal plan addressing the CEIP in the circumstance where a state plan is approvable but its CEIP provisions are not. However, consistent with what we stated in the October 2015 federal plan and model trading rules proposal, the EPA continues to intend to implement the CEIP if it were to promulgate a full federal plan for a particular state, see 80 FR 64978. In addition, in the event that the EPA promulgates CEIP provisions as part of a federal plan for a particular state, the state may subsequently be able to take over the implementation of the CEIP through one of two separate mechanisms. The state may either take a delegation of the federal plan (or a partial delegation covering just the CEIP), or the state may submit a partial state plan for implementation of the CEIP upon EPA's approval. The general process for delegation of federal plans under section 111(d) was explained in the October 2015 proposal, see 80 FR 65032-33. The EPA is not proposing any changes to this existing process, and we recognize the ability of states with a federal plan in place to take a delegation of the CEIP, similar to other section 111 federal regulations. A delegation of the CEIP would generally mean that a state with adequate resources and legal authority would operate the CEIP, subject to the EPA's oversight and except for any functions that the EPA may retain for itself upon delegation. Eligible project providers would come to the state agency with the delegated EPA authority in order to present applications and submittals under the CEIP, and the state would review these applications and submittals and issue early action ERCs or allocate early action allowances. In delegating the CEIP, the EPA would follow its existing New Source Performance Standards (NSPS) delegations guidance and the EPA Delegations Manual, Delegation 7-139, “Implementation and Enforcement of 111(d)(2) and 111(d)(2)/129(b)(3) federal plans,” which, among other things, call for the state to enter into a memorandum of agreement with the relevant EPA Regional Administrator, in order to take delegation of the program. See 80 FR 65032-33. States may also be in a position to take over direct implementation of the CEIP in their own right through a partial state plan. As we proposed in the October 2015 federal plan and model trading rules proposal, the EPA may approve partial state plans to implement a portion of the EGs under section 111(d). The EPA specifically recognized that certain aspects of the Clean Power Plan implementation may be appropriate for states to handle through a partial state plan, for instance, decisions as to the method of allocation of allowances under a mass-based federal plan. See id. at 65027-65029. We believe the CEIP is similarly a program under the Clean Power Plan that could be appropriately submitted and administered by a state operating under an otherwise-federal plan. Unlike a delegation, a partial state plan requires a submission process for EPA approval as for a full state plan, including a demonstration of adequate legal authority and that procedural requirements, such as public notice and opportunity to comment on the partial state plan, are satisfied. Finally, we note that in the October 23, 2015, model trading rules and federal plan proposal the EPA requested comment on a number of details regarding CEIP program design that were not limited to the federal plan and model trading rules, but pertained to general design parameters or details not addressed in the final EGs. See 80 FR 65025-65026. These topics related to CEIP requirements that would be applicable to all states opting to participate in the program ( i.e., these issues would not be limited to model trading rules or federal plans). The bulk of this proposal is dedicated to addressing these topics through a set of additional provisions in the EGs at 40 CFR 60.5737. The EPA values the comments related to the topics that have been submitted to date, both on the October 23, 2015, proposal as well as to the CEIP non-regulatory docket that closed on December 15, 2015. We have reviewed and considered the comments submitted through the federal plan and model trading rules rulemaking docket that closed on January 21, 2016, as well as the non-regulatory docket. These comments have informed various aspects of this proposal. We encourage those who have submitted comments already on the CEIP to re-submit those comments and/or any updated or additional comments through the comment submittal process for this rulemaking proposal. We heard from many stakeholders that they would like an opportunity to comment on a more developed proposal regarding these CEIP topics; the EPA is responding to those requests by issuing this proposal, which provides a new opportunity to submit comments on the CEIP topics addressed here. In order to ensure that the EPA considers and responds to your comments on these CEIP topics, you must submit your comments on this proposal, following the process explained in the section titled ADDRESSES . D. What key comments were received during the informal feedback process? In an effort to obtain stakeholder feedback on the CEIP, the EPA engaged in broad outreach activities. Approximately 750 stakeholders (potential project providers, environmental justice (EJ) groups, community groups, state and local governments, tribes and environmental non-governmental organizations) participated in at least one of four listening sessions on the CEIP. These listening sessions were part of an overall outreach effort that also included two workshops focused on community concerns, dozens of stakeholder meetings, conference appearances and one-on-one discussions since August 2015 that helped to inform this proposal. Additionally, the EPA opened a non-regulatory docket (EPA-HQ-OAR-2015-0734) requesting pre-proposal input on the design details of the CEIP covered in this package. Specifically, the EPA requested input on the following: (1) What the EPA should consider when defining criteria, terms and requirements under the CEIP; (2) what the EPA should consider regarding the timing and distribution of EPA matching allowances or ERCs under the CEIP; and (3) what the EPA should consider when designing the mechanics of the CEIP. The non-regulatory docket received more than 5,000 comments. While not within the scope of our requests, many commenters supported the inclusion of the CEIP in the Clean Power Plan. These commenters stated, however, that the CEIP project eligibility start date tied to submission of a final state plan, and the limitation of CEIP matching awards for eligible energy savings or generation to the years 2020 and 2021 only, were too restrictive. With regard to the project eligibility start date, commenters asserted that RE and EE projects take time to design, implement and begin generating/saving MWh, especially those that are developed with, by, and for low-income households and communities. Again, while not all of these topics are within the scope of this action, in response to some of these concerns, the EPA is proposing a modification to make clear when eligibility may begin for projects, as discussed further in section III.C of this preamble. With regard to apportionment of the EPA matching pool of allowances and ERCs among the states, the majority of commenters felt that the pro-rata distribution method identified in the final Clean Power Plan EGs, whereby each state's share is based on the amount of reductions from 2012 levels the affected EGUs in the state are required to achieve relative to those in the other CEIP-participating states (80 FR 64830; October 23, 2015), was the appropriate apportionment method. Some commenters suggested that, rather than apportioning the matching pool among the states, the pool should instead be available on a first-come, first served basis to eligible CEIP project developers, regardless of where such projects take place. The EPA agrees with the majority of commenters that supported a state-by-state apportionment, as the Agency believes this is consistent with the state plan structure of the Clean Power Plan, and it ensures that all states that choose to participate in the CEIP have access to the additional allowances and ERCs supplied by the matching pool. Therefore, the EPA is proposing in this action the size of the matching pool for each state, in line with the pro-rata distribution methodology previously described ( see tables 1 and 2 in section III.A of this preamble). The EPA has provided the calculations supporting these numbers in a technical support document (TSD) in the docket for this proposal. 18 18 See TSD titled “Apportionment of the Matching Pool among the States”. Some commenters stated that the EPA matching pool of 300 million short tons of CO 2 should be divided evenly into two reserves: one reserve for wind and solar projects, and another reserve for low-income EE projects. Others supported a different division, largely commenting that a greater share of the matching pool should be reserved for low-income EE projects. There was also strong support for allowing flexibility for states to decide the size of the two reserves. The EPA has considered those comments and proposes that the matching pool should be divided evenly into two reserves, but seeks comment on several other approaches for distributing the pool as discussed further in section III.A. With regard to the definition of low-income community, many commenters suggested each state should have flexibility to choose the definition(s) that may be employed by project providers seeking early action awards from the state. Commenters supported the use of definitions of low-income currently used by other federal incentive programs, such as 80 percent of the area median income, 19 Department of Housing and Urban Development (HUD) criteria, 20 Empowerment Zones criteria, 21 or an annual income at or below 200 percent of the federal poverty level. 22 However, other commenters suggested that states should not be allowed this flexibility, and rather that the EPA should provide a definition that all states must use. Many of the definitions referenced by commenters address “low-income” at the individual household level. By contrast, some commenters stated that a geographically based definition ( i.e., Census tract- or neighborhood-level, or zip codes with above-average concentrations of low-income individuals) is most appropriate, and allows for the most comprehensive approach to program delivery; other commenters stated CEIP plans should not geographically restrict or allow the exclusion of low-income households within a state, as such an exclusion would create a disparate impact and unduly harm low-income households. Some commenters stated that a hybrid approach that would include both geographically based definitions as well as household level definitions would be most appropriate to ensure that low-income communities, as well as low-income residents that are not within low-income communities are both eligible to receive CEIP matching awards for EE projects. A few commenters stated that the double-match for energy-efficiency projects should be extended beyond low-income communities, and also be made available for minority populations and in Indian Country. The EPA further discusses the definition of “low-income,” for purposes of implementing the CEIP in section III.B. 19 HUD.GOV, FY 2015 Income Limits, https://www.huduser.gov/portal/datasets/il/il15/index.html . 20 et seq. 21 Programs of HUD, http://portalhud.gov/hudportal/HUD%3Fsrc%3D/hudprograms/empowerment_zones . 22 Federal Poverty Guidelines, February 2015, http://familiesusa.org/product/federal-poverty-guidelines . With regard to the criteria for eligible EE projects in low-income communities, commenters suggested that eligibility go beyond single family residential projects and that states should consider additional factors such as economic development and job creation when prioritizing EE and RE projects. Requirements for CEIP-eligible projects are discussed in section III.C of this preamble. Although the EPA did not request comment on the types of RE projects that should be eligible for consideration, several commenters requested that, in addition to wind and solar resources, the EPA consider including geothermal, biomass and hydropower, as well as other generating technologies such as combined heat and power (CHP) and waste heat to power (WHP). One commenter requested that nuclear generation be considered as an eligible RE technology, however, several other commenters explicitly stated that the EPA should not consider nuclear as an eligible RE technology. The Agency also received several petitions for reconsideration on the final Clean Power Plan requesting that the scope of CEIP eligibility be expanded. 23 In this action, we are proposing a limited expansion of the list of CEIP-eligible RE technologies beyond wind and solar, to two other renewable, zero-emitting technologies: Geothermal and hydropower (We note these technologies were also considered in the formulation of building block 3 of the BSER. See 80 FR 64807, October 23, 2015). Commenters also suggested expanding eligibility of low-income projects to include certain RE technologies, such as solar, that could benefit low-income communities in the same way that energy efficiency projects can. We agree that low-income communities can benefit from additional incentives for solar resources, similar to the benefits that would be realized for EE. We also recognize that deployment of RE projects in low-income communities face barriers similar to those faced by low-income EE projects. Accordingly, we are proposing that solar projects implemented to serve low-income communities that provide direct electricity bill benefits to low-income community ratepayers would be eligible for CEIP awards from the low-income community reserve, and that such projects would be eligible for the same (two-for-one) CEIP incentive available to low-income EE projects. Discussions on these proposed provisions are located in sections III.C.4 and III.C.5 of this preamble. 23 While there is some overlap in this action on this and several other issues relating to the CEIP raised by the petitions for reconsideration, the Agency continues to review, and is not acting on, these or any other aspects of the petitions for reconsideration of the Clean Power Plan at this time. Commenters requested that the EPA provide early guidance on a methodology for representing the 300 million short tons of CO 2 EPA matching pool in the form of ERCs, which are denominated in MWh. Such guidance is provided in section III.A of this preamble. Commenters also supported flexibility for states to identify the mechanism used for tracking MWh generated or avoided by eligible CEIP projects. The majority of commenters asserted that EM&V requirements used to quantify CEIP-eligible MWh generated or saved should be flexible and transparent, should not be overly burdensome ( i.e., the cost of the EM&V should be balanced with the accuracy and reliability of the results), should not present a significant disincentive to participation in the CEIP, and that states that already have robust quantification and verification processes in place should be allowed to rely on these processes. Additionally, there was some support for independent verification of the EM&V methods, procedures, and assumptions used to quantify MWh for eligible CEIP projects ( i.e., independent verification of EM&V plans as well as subsequent M&V reports). These commenters suggested that the EPA should be responsible for developing and maintaining a list of approved independent verifiers, and some suggested that EPA should provide template EM&V plans and M&V reports. Section III.B discusses state plan requirements for distribution of early action allowances or ERCs, including considerations for EM&V of CEIP-eligible MWh. The EPA also received comments on what, if any, reapportionment process should take place for EPA matching allowances or ERCs that a state is eligible to receive, but that the state does not ultimately access because it chooses not to opt in to the CEIP, or the CEIP provisions of its otherwise approved state plan are disapproved by the EPA. Commenters were nearly evenly divided on whether these “extra” matching allowances or ERCs should be reapportioned to CEIP-participating states on a pro-rata basis, or whether they should be made available to CEIP-participating states on a first-come, first-served basis, based on state awards of early action allowances or ERCs to eligible CEIP projects. Other commenters stated that EPA matching allowances or ERCs that are apportioned to a state, but ultimately are not used by that state because it chooses not to opt in to the CEIP, should not be reapportioned among CEIP-participating states. Based on some stakeholder concerns and further consideration by the Agency, the EPA is not including provisions for reapportionment among states in this proposal. See section III.A of this preamble for a discussion on the reasons for excluding reapportionment provisions for any remaining CEIP credits, and a request for comment on whether reapportionment should be included in the CEIP. Many commenters supported broad geographic eligibility for participation in the CEIP, including supporting the inclusion of projects located in states, tribal lands and territories without affected EGUs, or for whom the EPA has not yet established goals under the Clean Power Plan EGs. Please see section III.D for a discussion on CEIP participation for states, tribes and territories for which the EPA has not established goals. III. Clean Energy Incentive Program Design Details In this section, we discuss the proposed design details for several elements of the CEIP. Section III.A presents the proposed provisions for matching allowances and ERCs to be issued by the EPA from the matching pool of 300 million short tons of CO 2 emissions. This includes a discussion of how EPA proposes to translate the pool into matching allowances and matching ERCs; the number of allowances or ERCs that may be allocated or issued by a state to a CEIP-eligible project provider per MWh generated or saved; the division of the EPA matching pool into a reserve for RE projects and a reserve for low-income community projects; the apportionment of the EPA matching pool among the states; and whether to include reapportioning EPA matching allowances and ERCs among CEIP-participating states. Section III.B of this preamble discusses requirements for states that choose to participate in the CEIP. It includes requirements for allocation of early action allowances or issuance of early action ERCs by a state; requirements for a proposed process by which EPA matching allowances or matching ERCs would be awarded; options for meeting the requirement finalized in the Clean Power Plan EGs to maintain the stringency of mass-based or rate-based CO 2 emission performance by affected EGUs when implementing the CEIP; the requirement for a state to select one or more existing definitions of “low-income community” for purposes of implementing the CEIP; and requirements addressing the potential improper allocation or issuance of early action allowances or early action ERCs by a state. Section III.C of this preamble discusses requirements for CEIP-eligible projects, including eligible RE projects and eligible low-income community projects. This includes a proposal to clarify the term “project” to also include programs that deploy eligible RE technologies and implement demand-side EE. It also includes a proposal to clarify the definition of “commence construction” as applied to RE projects, as well as a discussion of the option for a state to use an Agent for reviewing CEIP project applications, allocating early action allowances, and issuing early action ERCs. In addition, this section proposes the expansion of eligible CEIP RE projects to include, in addition to wind and solar, two other RE technologies: Geothermal and hydropower. The section also proposes an expansion of technologies implemented in low-income communities that would be eligible to receive a two-for-one CEIP award. Specifically, we propose that solar projects implemented to serve low-income communities that provide direct electricity bill benefits to low-income community ratepayers also be eligible for a two-for-one award in addition to the demand-side EE technologies that are already included. For this reason, we now refer to this reserve as the ‘low-income community’ reserve instead of the former ‘demand-side EE’ reserve. Finally, this section proposes that states have flexibility to determine the types of demand-side EE projects they may deem eligible for CEIP awards (such as projects for residences and non-profit commercial buildings, or transmission and distribution projects that reduce electricity use on the customer side of the meter), so long as they are implemented in communities that meet the state's approved definition(s) for “low-income community.” Section III.D of this preamble discusses CEIP participation for states, tribes and territories for which the EPA has not established goals in the Clean Power Plan EGs. This includes a proposal that may further enhance the ability of project providers located in Indian country without affected EGUs to participate in the CEIP, a request for comment on how to determine the appropriate portion of the matching pool that should be apportioned to the non-contiguous states and territories, if they choose to participate in the CEIP, and a discussion of how eligible CEIP projects developed in states without affected EGUs may receive early action allowances or ERCs from another state that has chosen to participate in the CEIP. A. Provisions for Matching Allowances and ERCs To be Issued by the EPA From the 300 Million Short Ton Pool As discussed in section II.A of this preamble, the EPA established an overall matching pool of 300 million short tons of CO 2 to be made available for states participating in the CEIP. Participating states that allocate early action allowances or issue early action ERCs are able to receive matching allowances or matching ERCs from the EPA from this matching pool. In this action, we are proposing a methodology to determine a state's pro rata share of the matching pool for both mass- and rate-based programs. The EPA is proposing to use this methodology to determine the amount of matching allowances or ERCs that will be available to each CEIP-participating state. We are also proposing that a state may only allocate or issue early action allowances or ERCs to eligible CEIP projects in a total amount not to exceed the number of matching ERCs or allowances that are apportioned to the state. 24 24 The EPA notes that, while a mass-based state may not allocate from its CEIP early action set-aside a number of allowances larger than the number of matching allowances available to the state, such a state could choose to create an additional allowance set-aside from which it could allocate allowances to incentivize additional early investments in RE or EE. In general, a state has full discretion to allocate its allowances as it sees fit. Additionally, this action proposes a division of the matching pool that would establish the portion of the matching pool available to each CEIP-participating state for awards to eligible CEIP RE projects, and the portion of the matching pool available to each CEIP-participating state for awards to eligible CEIP low-income community projects. 1. The Size of the EPA Matching Pool in Terms of Allowances and ERCs As stated in the preamble of the final Clean Power Plan, the EPA determined that the matching pool of 300 million short tons of CO 2 emissions was an appropriate reflection of the CO 2 emission reductions that could be achieved in 2020 and 2021 through additional early investment in technologies with zero associated CO 2 emissions, 80 FR 64830. We recite this information as it is relevant to our calculation of the size of the pool in terms of allowances and ERCs, but we are not reopening the size of the matching pool as finalized in the EGs. To estimate short tons of CO 2 , the EPA projected that potential additional early investment in wind and solar could result in 400 million MWh of clean generation in 2020 and 2021, and applied the assumption that each MWh displaces approximately 0.8 short tons of CO 2 from carbon-emitting generation per MWh of clean energy generation. 25 400 million MWh multiplied by 0.8 short tons of CO 2 per MWh results in 320 million tons. The EPA applied a conservative downward adjustment to this calculation to set the size of the matching pool at 300 million short tons. 25 0.8 short tons of CO 2 per MWh is approximately the CO 2 emission intensity of all affected sources in 2012. See Data File: Goal Computation Appendix 1-5, TSD to the Clean Power Plan Final Rule titled Emission Performance Rate and Goal Computation. The EPA is using the relationship between tons of CO 2 and allowances that was established in the final Clean Power Plan EGs in order to determine the overall amount of matching allowances available through the EPA matching pool. Under a mass-based state plan, an allowance represents a limited authorization to emit one ton of CO 2 . The matching pool was established in the EGs at 300 million short tons of CO 2 , which would be equivalent to 300 million allowances. Thus, the EPA matching pool, in the form of allowances, will be equal to 300 million allowances. The EPA is using the relationship between MWh and ERCs that was established in the final Clean Power Plan EGs, along with an adjustment identical to that applied when setting the matching pool at 300 million short tons, in order to determine the overall number of matching ERCs available through the EPA matching pool. Under a rate-based state plan, each MWh of generation or savings from an eligible resource that meets all applicable requirements of the EGs may be issued one ERC by a state. The EPA is proposing to establish the size of the matching pool, in the form of ERCs, based on the projection of 400 million MWh of wind and solar generation in 2020 and 2021, with the application of the same conservative downward adjustment the EPA used to adjust 320 million short tons of CO 2 emissions downward to 300 million short tons in setting the size of the matching pool in the final Clean Power Plan. As follows, the EPA proposes that the size of the matching pool, in the form of ERCs, will be equal to 375 million ERCs. The establishment of the matching pool in terms of both allowances and ERCs does not have any bearing on the final Clean Power Plan's provisions that allowances from a mass-based emission budget trading program may not be used for compliance in a rate-based emission trading program and that ERCs may not be used for compliance in a mass-based emission budget trading program. Allowances and ERCs are distinct tradable compliance instruments used by states implementing mass-based and rate-based emission standards, respectively, and are not interchangeable under the Clean Power Plan EGs, see 40 CFR 60.5750(d); id. 60.5790(a); 80 FR 64839. Using a single multiplication factor on a one-time basis to represent the matching pool in both forms—allowances and ERCs—is done simply for the limited purpose of providing for the implementation of the CEIP in the context of either a mass-based or a rate-based emission trading program. 2. Awards for CEIP-eligible MWh, in Terms of ERCs and Allowances The final Clean Power Plan EGs specified the ERC award ratios (both by a state and the EPA) for MWh of generation or energy savings achieved by an eligible project under the CEIP. 26 These award ratios would be applied by a state with a rate-based state plan that chooses to implement the CEIP. Specifically, eligible CEIP RE projects may receive an award of two ERCs for every two MWh of clean energy generated. This award is based on the issuance of one early action ERC by the state and the award of one matching ERC by the EPA. In addition, eligible low-income community projects are eligible for a “double” award of four ERCs for every two MWh of energy savings. This award is based on the issuance of two early action ERCs by the state and the award of two matching ERCs by the EPA. 26 These provisions are discussed in section VIII.B.2 of the preamble to the final EGs (80 FR 64830, October 23, 2015). See also 40 CFR 60.5737(b) of the EGs. For example, if a CEIP-eligible RE project generates 50 MWh in 2020, the project would be eligible to receive 25 early action ERCs from the state and 25 matching ERCs from the EPA, for a total award of 50 ERCs. As another example, if a CEIP-eligible low-income community project saves 50 MWh in 2020, the project would be eligible to receive 50 early action ERCs from the state and 50 matching ERCs from the EPA, for a total award of 100 ERCs. While the final Clean Power Plan EGs specified the ERC award ratios for CEIP-eligible MWh that may be used by rate-based states, we stated that the Agency would propose in a future action the allowance award ratios for CEIP-eligible MWh that mass-based states may use. As follows, in this action the EPA is proposing that the allocation of early action allowances by a state, and the award of matching allowances by the EPA, will be based on a 0.8 short tons of CO 2 /MWh factor. As discussed previously in this section, this is the same factor applied by the EPA when it established the size of the matching pool of 300 million short tons of CO 2 emissions (see 80 FR 64830). For eligible CEIP RE projects under a mass-based program, the proposed 0.8 short tons of CO 2 /MWh factor would result in a total of 0.8 allowances awarded for every one MWh. Again, with half of the total award being made by the state in the form of allocated early action allowances, and the other half of the award being made by the EPA in the form of matching allowances, both the state and EPA would provide 0.4 allowances for each MWh generated, for a total of 0.8 allowances. 27 For example, if a CEIP-eligible wind project generates 50 MWh in 2020, the total potential combined award available from the state and the EPA would be 40 allowances ( i.e., 50 MWh × 0.8 short tons CO 2 /MWh). The project would be eligible to receive an allocation of 20 early action allowances from the state and award of 20 matching allowances from the EPA, for a total award of 40 allowances. 27 Allowances may only be allocated or awarded in whole-allowance increments. Given the two-to-one award available to low-income community projects, for each MWh of CEIP-eligible energy savings or generation from a low-income community project under a mass-based program, a CEIP project provider would be eligible to receive 0.8 early action allowances from the state and 0.8 matching allowances from the EPA, for a total award of 1.6 allowances per MWh. For example, if a CEIP-eligible low-income community project saves 50 MWh in 2020, the total combined award available to the project would be 80 allowances ( i.e., 50 × 0.8 short tons CO 2 /MWh × 2 (to account for the two-to-one award ratio, per MWh of energy savings)). The project would be eligible to receive an allocation of 40 early action allowances from the state and an award of 40 matching allowances from the EPA, for a total award of 80 allowances. 3. Division of the Matching Pool of 300 Million Short Tons of CO 2 Emissions Into a Reserve for RE Projects and a Reserve for Low-Income Community Projects In the final Clean Power Plan EGs, the EPA expressed its intent to divide the matching pool of 300 million short tons of CO 2 emissions into a RE reserve for wind and solar projects, and a reserve for low-income demand-side EE projects, (80 FR 64829, October 23, 2015). As presented in section III.C of this preamble, in this action, the EPA is proposing that the RE reserve would also accommodate CEIP awards (on a one-to-one basis) to geothermal and hydropower projects and that the low-income community reserve would also accommodate CEIP awards (on a two-to-one basis) to solar projects implemented to serve low-income communities. After taking account of this proposal to include geothermal and hydropower projects as eligible for the RE reserve, and solar projects implemented to serve low-income communities as eligible for the low-income community reserve, the EPA is proposing, consistent with the intent stated in the final Clean Power Plan EGs, that the matching pool be divided evenly between the two reserves, with 50 percent of the matching pool (150 million allowances, or 187.5 million ERCs) made available for eligible CEIP RE projects and 50 percent of the matching pool (150 million allowances, or 187.5 million ERCs) made available for eligible CEIP low-income community projects. The EPA is proposing that a CEIP-participating state may allocate early action allowances or issue early action ERCs up to an amount equivalent to the number of matching allowances or matching ERCs the state is eligible to receive from the EPA for each reserve, as listed in tables 1 and 2 of this preamble. Allowances or ERCs that are designated for one reserve may not be re-designated for the other reserve, ( e.g., allowances that are reserved for low-income community projects may not be reallocated to the RE reserve or vice versa). The proposal for the 50 percent/50 percent apportionment is based in part upon the EPA's analysis of the potential MWh that may be achieved by wind, solar, geothermal, hydropower, and low-income EE projects in 2020 and 2021, as well as upon stakeholder feedback regarding the appropriate apportionment between these two reserves. As discussed in section III.C of this preamble, the EPA is proposing to replace the term “commence construction” for CEIP-eligible RE projects with the term “commence commercial operation,” as well as to make an associated change in the date of project eligibility to on or after January 1, 2020. The EPA is not reopening the decision to set the size of the CEIP matching pool at 300 million short tons. However, we note that even under the proposed changes to project eligibility, and the updated assumptions as discussed in the TSD to this action titled “Renewable Energy and Low Income Energy Efficiency Potential,” the EPA projects that energy generation from potentially eligible CEIP wind, solar, geothermal and hydropower projects will not exceed 400 million MWh in 2020 and 2021 combined. Thus, even if the EPA were considering a change in the magnitude of the CEIP (which it is not), new information and assumptions at this point would not lead the Agency to a different result in terms of the appropriate size of the CEIP matching pool, in light of the objectives for the CEIP identified in the final EGs, 80 FR at 64829-64832. Further, the EPA proposes, in line with the discussion in the final EGs, that 50 percent of the matching pool would be the appropriate amount to apportion to the RE reserve. With regard to wind and solar potentials, at the time of promulgation of the Clean Power Plan EGs, the EPA projected that the deployment rates for wind and solar energy would remain relatively modest in the years leading up to the start of the interim plan performance period ( i.e., no greater than the combined historic maximum deployment rates experienced for wind in 2012 and for solar in 2014). 28 Subsequent to finalization of the CPP, Congress extended tax credits for wind and solar resources. It is likely that the extension of the wind and solar tax credits in December 2015, as well as the May 5, 2016 IRS guidelines extending the Production Tax Credit (PTC) Continuity Safe Harbor from 2 years to 4 years, may also impact the development of wind and solar projects that commence commercial operation in 2020 onward. 29 Nonetheless, the EPA continues to believe that one half of the total size of the CEIP matching pool remains the appropriate amount to incentivize the qualifying RE technologies—wind, solar, geothermal and hydropower—in light of the multiple purposes and scale of the CEIP. 28 See TSD to the Final Clean Power Plan titled “Greenhouse Gas Mitigation Measures,” Docket ID No. EPA-HQ-OAR-2013-0602. 29 See: Consolidated Appropriations Act, 2016 (H.R. 2029, Sec. 301 and Sec. 303) (Dec. 18, 2015). This legislation extended the expiration date for the Production Tax Credit (PTC) for qualified facilities that use wind to produce electricity, as well as permission for PTC-eligible wind facilities to claim the Investment Tax Credit (ITC) in lieu of the PTC, through the end of 2019 (Sec. 301). The Act also extended the expiration date for the ITC tax credit for qualified solar energy equipment that generates electricity until January 2, 2022 (Sec. 303). See also: Internal Revenue Service Notice 2016-31, May 5, 2016. At the same time, the EPA believes that the remaining 50 percent of the CEIP matching pool remains the appropriate size for the low-income community reserve, leaving a more-than adequate margin to accommodate large-scale deployment of both demand-side EE projects and solar projects implemented to serve low-income communities. As discussed in section III.C of this preamble, the EPA is proposing to clarify the term “commence operation” for CEIP-eligible low-income demand-side EE projects, and to make a change in the date of eligibility for such projects such that they may commence operation on or after September 6, 2018. In addition, also as discussed in section III.C of this preamble, the EPA is proposing to replace the term “commence construction” for CEIP-eligible RE projects (including solar projects implemented to serve low-income communities) with the term “commence commercial operation” and to make an associated change in the eligibility date for such projects to January 1, 2020. 30 Given these assumptions, and also as explained in detail in the TSD to this action titled “Renewable Energy and Low Income Energy Efficiency Potential,” the EPA estimates that energy savings from potentially eligible CEIP low-income demand-side EE projects could reach up to 39 million MWh in 2020 and 2021 combined, thus absorbing approximately ten percent of the matching allowances or ERCs provided by the EPA in the matching pool. The EPA estimates that generation from solar projects implemented to serve low-income communities could reach up to 8 million MWh in 2020 and 2021 combined, thus absorbing approximately an additional two percent of the matching allowances or ERCs provided by the EPA in the matching pool. 30 As explained above in Section II.B, the decision not to propose further changes to the key timing elements of the CEIP in this action should not be taken to indicate any particular view or intention by the Agency regarding how the timelines for the Clean Power Plan overall may be impacted by the Supreme Court's stay. Given that eligible low-income community projects may receive CEIP awards on a two MWh to one MWh basis (as discussed in section III.A of this preamble), with half of the award coming from the state, and half of the award coming from the EPA, these 39 million MWh of low-income energy efficiency savings and 8 million MWh of solar generation implemented to serve low-income communities would be eligible to receive approximately 47 million matching ERCs, or 38 million matching allowances. In light of this analysis, and in agreement with stakeholder comment that the EPA should apportion the matching allowances and ERCs evenly between a reserve for RE projects and a reserve for low-income community projects, the EPA is proposing that the matching pool be divided evenly between the two reserves, with 50 percent of the matching pool (150 million allowances, or 187.5 million ERCs) made available for RE projects and 50 percent of the matching pool (150 million allowances, or 187.5 million ERCs) made available for low-income community projects. This apportionment is appropriate for several policy and technology-driven reasons. The apportionment achieves the policy objective of the CEIP, which is to ensure incentives for deployment of additional projects in both reserves (RE projects as well as low-income community projects). Whereas some stakeholders requested that we apportion the matching pool such that low-income community projects be eligible to receive more than 50 percent of the matching pool, our analyses do not support the need for a reserve for low-income community projects larger than 150 million allowances/187.5 million ERCs in order to meet demand during the CEIP period, even with the two-to-one award for such projects. However, the EPA requests information and data that may support a larger reserve for low-income community projects. The proposal would also add solar projects implemented to serve low-income communities as eligible low-income community CEIP projects. This expansion of the CEIP scope in low-income communities promotes emission reductions and will help these communities better harness the benefits of energy efficiency and solar resources. More specifically, this expansion of the CEIP scope will provide low-income communities a greater opportunity to reach the full scale of opportunity presented by the reserve of matching allowances and ERCs for low-income community projects. The EPA further believes that the 50-50 apportionment is an appropriate choice based on the rapidly evolving pace of technology and consumer demand for energy in the United States. Several analysts have noted that the electric power sector will undergo transformative changes from a number of factors, particularly lower costs for distributed generation, technology improvements in RE resources, and rapid innovation in energy efficiency technologies ( e.g., lighting and temperature controls). For example, a 2016 first quarter update from the Federal Energy Regulatory Commission (FERC) shows that RE made up almost all new capacity added in the United States so far this year—constituting 99% of the new generation capacity in service. 31 These changes are occurring at a rapid pace and support the view that the CEIP apportionment should provide incentives and room for continued growth in both renewables and energy efficiency projects in low-income communities. 31 Federal Energy Regulatory Commission (FERC). March 2016. Energy Infrastructure Update; Office of Energy Projects. Page 4. Accessed on June 14 at http://www.ferc.gov/legal/staff-reports/2016/mar-infrastructure.pdf . The apportionment of the two reserves, on a state-by-state basis, is included in tables 1 and 2. 32 The EPA further proposes that a state may not transfer matching allowances or ERCs between these two reserves in its state-level apportionment. In other words, should one reserve become fully subscribed, the state would not be permitted to move matching allowances or ERCs into it from the other reserve. Rather, as stated in the Clean Power Plan EGs, the EPA will retire matching allowances or ERCs that remain in each of the state's two reserves following January 1, 2023 (See 80 FR 64803, October 23, 2015). Such a retirement is appropriate given that the intent of the matching pool is to incentivize early actions in 2020 and 2021, and matching allowances and ERCs in this pool should not be available to award to actions from 2022 onward, during the performance periods under the Clean Power Plan EGs. 32 In section III.D of this preamble, we discuss potential participation options for noncontiguous states and territories and for tribes without affected EGUs. Pro rata shares proposed in this action do not reflect potential shares that may be apportioned to these groups pending comments. The EPA seeks comment on all aspects of the proposed 50 percent/50 percent division of the 300 million short ton matching pool into a reserve for RE projects and a reserve for low-income community projects. In particular, the EPA seeks comment on the extent to which the recent extension of the federal tax credits for wind and solar resources will help to meet the CEIP's objectives with respect to promoting increased deployment of RE resources, including wind and solar, over the period leading up to 2022. The EPA notes that DOE's National Renewable Energy Laboratory has published an analysis which found that with these tax credits in place, roughly 100 gigawatts of additional wind and solar capacity would be added by the end of 2021. 33 Similar analyses have been conducted by third parties. Therefore, the EPA seeks comment on whether it is appropriate, in light of the tax credit extensions, to include in the CEIP a mechanism that would limit the number of early action and matching allowances or ERCs that may be available to wind and solar projects that may not require additional incentives for deployment, and on how to best design such a mechanism. 34 One potential approach would be to apportion less than 50 percent ( e.g., 30 percent or 25 percent) of the 300 million short ton matching pool to the reserve for eligible RE projects. Some stakeholders have suggested that another approach would be to exclude projects from CEIP eligibility that are benefitting from the Investment Tax Credit (ITC) or PTC from CEIP eligibility. In response to this stakeholder feedback, we request comment on whether and how to implement limitations on CEIP participation for wind and solar resources that benefit from the ITC or PTC. For example, a state could request, as part of a wind or solar project's CEIP eligibility application that it submit a certification that it is not benefitting from the PTC or ITC. Further the EPA seeks comment on whether the project should still be allowed to receive CEIP awards if it only receives a partial tax credit. The EPA seeks comment on this and other approaches a state could use to ensure that a wind or solar project submitting an eligibility application for a CEIP award is not also receiving tax incentives. We also solicit comment on whether and how any considerations of impacts of the PTC or ITC should impact apportionment for the RE reserve. The EPA is also seeking comment on an alternative apportionment of the reserves, which would set a “floor” on the portion of the matching pool that would be available for RE projects and low-income community projects and leave a portion of the matching pool available to be apportioned at the states' discretion. For example, 40 percent of every state's pro rata share could be reserved for RE projects and 40 percent could be reserved for low-income community projects, with the remaining 20 percent to be awarded at the state's discretion to any CEIP-eligible project type. 33 http://www.nrel.gov/docs/fy16osti/65571.pdf . 34 The EPA acknowledges that geothermal technologies are eligible for a permanent 10 percent tax credit. However, because analysis indicates that these technologies will likely not be widely deployed during the 2020-2021 timeframe, we do not believe it is necessary to constrain the number of early action and matching allowances or ERCs that may be available to geothermal projects. For a projection of constant geothermal generation in 2020 and 2021, see http://www.eia.gov/forecasts/aeo/data/browser/<#/?id=16-AEO2016&cases=ref2016~ref_no_cpp&sourcekey=0 . 4. Apportionment of the Matching Pool Among the States: Allowances and ERCs Available in the RE and Low-Income Community Reserves The final Clean Power Plan EGs expressed the EPA's intent to apportion the 300 million ton matching pool among states based on the amount of reductions from 2012 levels the affected EGUs in the state are required to achieve relative to those in other participating states (80 FR 64830, October 23, 2015). Tables 1 and 2 show the state-level shares that result from this calculation approach, including the number of allowances (of the 300 million allowance total) or ERCs (of the 375 million ERC total) that would be available to a CEIP-participating state depending on the choice of a mass-based or rate-based state plan. See the TSD to this action, titled “Apportionment of the Matching Pool among the States,” for further discussion of the calculation approach. As discussed in section III.A, the EPA proposes to divide each state's share of the matching pool into a portion for RE projects and a portion for low-income community projects. An apportionment between the two reserves of 50 percent for RE and 50 percent for low-income community projects is shown in tables 1 and 2 of this preamble. The EPA is proposing that only those states with EGUs subject to the final Clean Power Plan EGs and that have submitted a final plan with approved CEIP provisions, as well as those states for whom the EPA may implement a federal plan, will receive an apportionment of the matching pool that the EPA is making available under the CEIP. 35 However, we do note that eligible projects outside of the boundaries of CEIP-participating states may still be eligible for award of early action and matching allowances or ERCs, so long as that project provides a benefit to the state issuing the award. 35 See section III.D for a discussion of pathways by which tribes and states without affected EGUs, as well as states and territories for which the EPA has not yet finalized emission goals under the Clean Power Plan, may participate in the CEIP. 36 As discussed in section III.D of this document, shares that may be provided to states and territories where goals have yet to be established would be distributed from the 300 million short ton matching pool, if the Agency moves forward with those options. Once the values for these shares are determined, if at all, table 1 would be updated to reflect the shares for all states, territories and tribes receiving CEIP matching allowances. We anticipate that the overall total share of the CEIP matching pool needed for states and territories where goals have yet to be established would be no more than five percent of the total pool (or about 15 million allowances). Table 1—Proposed State Shares of Matching Pool [Allowances] 36 State/tribe Available matching allowances (mass-based plan states) Renewable energy reserve (50%) Low-income community reserve (50%) Total share (100%) Alabama 4,683,458 4,683,458 9,366,916 Arizona 2,579,426 2,579,426 5,158,852 Arkansas 3,280,844 3,280,844 6,561,688 California 328,268 328,268 656,536 Colorado 3,334,788 3,334,788 6,669,576 Connecticut 104,122 104,122 208,244 Delaware 207,588 207,588 415,176 Florida 4,845,372 4,845,372 9,690,744 Georgia 4,133,434 4,133,434 8,266,868 Idaho 22,392 22,392 44,784 Illinois 8,953,081 8,953,081 17,906,162 Indiana 8,631,114 8,631,114 17,262,228 Iowa 3,286,774 3,286,774 6,573,548 Kansas 3,173,445 3,173,445 6,346,890 Kentucky 7,429,292 7,429,292 14,858,584 Lands of the Fort Mojave Tribe 8,827 8,827 17,654 Lands of the Navajo Nation 2,434,598 2,434,598 4,869,196 Lands of the Uintah and Ouray Reservation 263,264 263,264 526,528 Louisiana 2,246,141 2,246,141 4,492,282 Maine 31,109 31,109 62,218 Maryland 1,459,162 1,459,162 2,918,324 Massachusetts 255,705 255,705 511,410 Michigan 5,591,791 5,591,791 11,183,582 Minnesota 3,004,354 3,004,354 6,008,708 Mississippi 535,959 535,959 1,071,918 Missouri 5,656,983 5,656,983 11,313,966 Montana 1,965,515 1,965,515 3,931,030 Nebraska 2,222,542 2,222,542 4,445,084 Nevada 504,431 504,431 1,008,862 New Hampshire 161,696 161,696 323,392 New Jersey 669,007 669,007 1,338,014 New Mexico 1,234,572 1,234,572 2,469,144 New York 836,656 836,656 1,673,312 North Carolina 4,011,884 4,011,884 8,023,768 North Dakota 3,225,953 3,225,953 6,451,906 Ohio 7,182,558 7,182,558 14,365,116 Oklahoma 3,100,508 3,100,508 6,201,016 Oregon 231,529 231,529 463,058 Pennsylvania 7,559,018 7,559,018 15,118,036 Rhode Island 53,511 53,511 107,022 South Carolina 2,479,202 2,479,202 4,958,404 South Dakota 396,310 396,310 792,620 Tennessee 3,267,125 3,267,125 6,534,250 Texas 15,600,288 15,600,288 31,200,576 Utah 2,101,783 2,101,783 4,203,566 Virginia 2,079,819 2,079,819 4,159,638 Washington 1,127,151 1,127,151 2,254,302 West Virginia 5,260,335 5,260,335 10,520,670 Wisconsin 3,590,805 3,590,805 7,181,610 Wyoming 4,656,486 4,656,486 9,312,972 Total 149,999,975 149,999,975 299,999,950 Table 2—Proposed State Shares of Matching Pool [Emission rate credits] 37 State/tribe Available matching ERCs (rate-based plan states) Renewable energy reserve (50%) Low-income community reserve (50%) Total share (100%) Alabama 5,854,323 5,854,323 11,708,646 Arizona 3,224,283 3,224,283 6,448,566 Arkansas 4,101,055 4,101,055 8,202,110 California 410,335 410,335 820,670 Colorado 4,168,485 4,168,485 8,336,970 Connecticut 130,153 130,153 260,306 Delaware 259,485 259,485 518,970 Florida 6,056,715 6,056,715 12,113,430 Georgia 5,166,792 5,166,792 10,333,584 Idaho 27,991 27,991 55,982 Illinois 11,191,352 11,191,352 22,382,704 Indiana 10,788,892 10,788,892 21,577,784 Iowa 4,108,467 4,108,467 8,216,934 Kansas 3,966,806 3,966,806 7,933,612 Kentucky 9,286,616 9,286,616 18,573,232 Lands of the Fort Mojave Tribe 11,034 11,034 22,068 Lands of the Navajo Nation 3,043,247 3,043,247 6,086,494 Lands of the Uintah and Ouray Reservation 329,080 329,080 658,160 Louisiana 2,807,677 2,807,677 5,615,354 Maine 38,886 38,886 77,772 Maryland 1,823,952 1,823,952 3,647,904 Massachusetts 319,632 319,632 639,264 Michigan 6,989,739 6,989,739 13,979,478 Minnesota 3,755,443 3,755,443 7,510,886 Mississippi 669,949 669,949 1,339,898 Missouri 7,071,229 7,071,229 14,142,458 Montana 2,456,894 2,456,894 4,913,788 Nebraska 2,778,178 2,778,178 5,556,356 Nevada 630,539 630,539 1,261,078 New Hampshire 202,121 202,121 404,242 New Jersey 836,258 836,258 1,672,516 New Mexico 1,543,216 1,543,216 3,086,432 New York 1,045,820 1,045,820 2,091,640 North Carolina 5,014,855 5,014,855 10,029,710 North Dakota 4,032,441 4,032,441 8,064,882 Ohio 8,978,197 8,978,197 17,956,394 Oklahoma 3,875,635 3,875,635 7,751,270 Oregon 289,411 289,411 578,822 Pennsylvania 9,448,773 9,448,773 18,897,546 Rhode Island 66,889 66,889 133,778 South Carolina 3,099,003 3,099,003 6,198,006 South Dakota 495,387 495,387 990,774 Tennessee 4,083,907 4,083,907 8,167,814 Texas 19,500,360 19,500,360 39,000,720 Utah 2,627,229 2,627,229 5,254,458 Virginia 2,599,773 2,599,773 5,199,546 Washington 1,408,939 1,408,939 2,817,878 West Virginia 6,575,419 6,575,419 13,150,838 Wisconsin 4,488,506 4,488,506 8,977,012 Wyoming 5,820,607 5,820,607 11,641,214 Total 187,499,975 187,499,975 374,999,950 5. Provisions for Reapportioning Matching Allowances and ERCs Among CEIP-Participating States 37 As discussed in section III.D of this document, shares that may be provided to states and territories where goals have yet to be established would be distributed from the 300 million short ton matching pool, if the Agency moves forward with those options. Once the values for these shares are determined, if at all, table 2 would be updated to reflect the shares for all states, territories and tribes receiving CEIP matching ERCs. We anticipate that the overall total share of the CEIP matching pool needed for states and territories where goals have yet to be established would be no more than five percent of the total pool (or about 18.75 million ERCs). The preamble to the final Clean Power Plan EGs indicated that, following receipt of final state plans, the EPA would execute a reapportionment of matching allowances or ERCs among the states, if it proves necessary. However, some stakeholders during the informal outreach period raised concerns around the timing in which the EPA would know that additional matching allowances or ERCs are available for reapportionment and whether a later reapportionment would be capable of addressing remaining unmet-demand for eligible CEIP projects. The EPA agrees that timing considerations may create a degree of uncertainty that makes reapportionment among states inappropriate. Additionally, as discussed in section III.A, the wind and solar tax credit extensions could also impact the imperative for reapportionment. Therefore, the EPA is not including reapportionment provisions in the CEIP. The EPA also recognizes that there may be administrative challenges that may not support reapportioning of matching allowance/ERCs to states participating in the CEIP. From an administrative perspective, reapportioning CEIP allowances/ERCs after the known CEIP participants are determined, but before the CEIP program begins, may not be feasible depending on when state plans are submitted and approved, including approvable CEIP provisions. In addition, if a reapportionment were to occur, it could occur when the state has already begun to implement its CEIP, thus providing an element of uncertainty for states and project providers. Reapportionment of matching allowances/ERCs may also influence a state's decision to opt-in to the CEIP, based on considerations that neighboring states could receive additional matching allowances/ERCs if the state chooses not to opt-in to the program. This could be perceived as a ‘double-disadvantage’: Not only is the state electing to not receive matching allowances/ERCs, it is also electing to have other states' matching allowance/ERC shares increased. This consideration could lead to a perverse incentive for a state to opt-in to the program in an effort to shield their original share of the matching pool from reapportionment, but not follow through on program implementation. Lastly, the EPA expects that most states will opt to take advantage of the benefits provided by the CEIP, and therefore as such, do not expect a large pool of remaining matching allowances or ERCs would be available for reapportionment. In lieu of reapportioning matching allowances or matching ERCs that are not claimed by a state that chooses not to opt-in to the CEIP, the EPA would simply retire these unclaimed matching allowances or ERCs on January 1, 2023. Although we are not including reapportionment provisions in this proposal, we are seeking comment on whether these provisions should be included. In the case of reapportionment, only those states with approved state plans that include approved CEIP provisions, and states for whom the EPA is implementing the federal plan, would be eligible to receive a final apportionment of matching allowances or ERCs from the EPA. States that choose not to participate in the CEIP, or states with approved state plans that do not contain approved CEIP provisions, would not be eligible to receive an apportionment. If a state elects not to participate in the CEIP or the CEIP provisions of a state's approved state plan are disapproved, the matching allowances or ERCs listed for that state in tables 1 and 2 of this preamble would be reapportioned to the other states that are participating in the CEIP via an approved state plan with approved CEIP provisions, or via a federal plan. This reapportionment would be executed on a pro-rata basis, using the same calculation method used to establish the initial apportionment of matching allowances/ERCs among the states. 38 Any matching allowances or ERCs that were not awarded from a state's matching allowance or ERC apportionment by January 1, 2023 would be retired by the EPA. The EPA requests comment on whether to include reapportionment provisions, and the methodology that should be used for reapportioning matching allowances or ERCs. 38 See TSD titled “Apportionment of the Matching Pool among the States”. B. Requirements for States That Choose to Participate in the CEIP State plans that include implementation of the CEIP must meet certain requirements to ensure effective administration of the state's CEIP. Several basic requirements have already been established in the final EGs at 40 CFR 60.5737. This section summarizes those requirements and also proposes additional requirements necessary for implementation of a state CEIP and the related award of EPA matching allowances or ERCs. This section also discusses relevant proposed optional example rule provisions for the CEIP, which would constitute a presumptively approvable approach for meeting these CEIP requirements. 39 In the discussion that follows, we present requirements for allocation of early action allowances or issuance of early action ERCs by a state. Section III.B.2 discusses a proposed process by which EPA matching allowances or ERCs would be awarded. Section III.B.3 reviews the requirement finalized in the Clean Power Plan EGs to maintain the stringency of mass-based or rate-based CO 2 emission performance by affected EGUs when implementing the CEIP, and proposes a method for meeting this requirement for mass-based plans and rate-based plans. Section III.B.4 proposes how states may define “low-income community” for purposes of implementing the CEIP. Section III.B.5 proposes requirements for addressing potential improper allocation or issuance of early action allowances or early action ERCs, respectively. 39 The EPA requests comment on the use of the proposed optional CEIP example rule provisions as suitable regulatory text in the event of implementation of a federal plan CEIP. 1. State Plan Requirements for Distribution of Early Action Allowances or ERCs A state plan that implements the CEIP must include requirements that specify the process for application for, and allocation/issuance of, early action allowances or ERCs under the CEIP, as applicable. 40 41 Many of these requirements were included in the final EGs at 40 CFR 60.5737, and unless otherwise noted, this action does not re-open these requirements. (We discuss these requirements solely to help identify what new or revised requirements we are proposing, and to provide an overall view of all the requirements.) However, this action proposes several changes and enhancements to these requirements. If the changes proposed in this action are finalized, then taken together, these requirements would include: 40 States with rate-based state plans would issue early action ERCs; states with mass-based state plans would allocate early action allowances. 41 Consistent with provisions in the Clean Power Plan emissions guidelines at 80 FR 64906, section VIII.K.2.b, a state may empower an agent to act on its behalf when administering the CEIP. A state agent is a party acting on behalf of the state, based on authority vested in it by the state, pursuant to the legal authority of the state. A state could designate an agent to provide certain limited administrative services, or could choose to vest an agent with greater authority. Where an agent issues an ERC or allowance on behalf of the state, such issuance would have the same legal effect as issuance of an ERC or allowances by the state. —Eligibility requirements for projects under the CEIP, including the definition(s) of low-income community a state intends to use to make CEIP awards to low-income community projects; —Requirements for submission of project eligibility 42 applications to the state for the allocation/issuance of early action allowances or early action ERCs, demonstrating the eligibility of the project under the CEIP, including an EM&V plan for the project; 42 CEIP-eligible project types are discussed in section III.C of this proposal. —Requirements for submission of M&V reports to the state, containing monitored and verified MWh generation or savings results for a project; —Requirements for submission of accompanying verification reports by an accredited independent verifier, for both eligibility applications and M&V reports; 43 43 While submitted separately by an independent verifier, a verification report constitutes part of an eligibility application and M&V report. —Requirements for accreditation of independent verifiers and conduct of independent verifiers; —State allocation or issuance of early action allowances or early action ERCs, based on quantified and verified MWh; —Tracking system capabilities and infrastructure necessary to support state administration of the CEIP; 44 44 Following the proposal of the Clean Power Plan, the EPA received a number of comments from states and stakeholders about the value of the EPA's support in developing and/or administering tracking systems to support state administration of emission trading programs. The EPA is exploring options for providing such support and is conducting a scoping assessment of tracking system support needs and functionality. This scoping assessment will consider support that could assist states with implementation of the CEIP, should a state choose to include the CEIP in a state plan. —Actions to be taken if early action allowances or early action ERCs are found to have been improperly issued; —A mechanism for ensuring maintenance of CO 2 emission performance by affected EGUs, considering state implementation of the CEIP; 45 45 As established in the Clean Power Plan EGs (and not re-opened here), any state that chooses to participate in the CEIP must demonstrate in its plan that it has a mechanism in place that enables issuance of early action ERCs or early action allowances in a manner that would have no impact on the aggregate emission performance of affected EGUs required to meet rate-based or mass-based CO 2 emission standards during the compliance periods (80 FR 64831). For a mass-based program, maintenance of stringency is addressed through the established emission budget for affected EGUs, as discussed in this section. The mechanism by which rate-based states may meet this requirement is discussed in this section. We note the requirement in the final EGs, which we are not reopening, that if a final state plan includes CEIP provisions, the entire plan, including the CEIP, is subject to the requirements for meaningful engagement and public comment. In addition, the EPA is proposing in this action that a state plan must not prohibit an eligible CEIP project from receiving early action allowances or ERCs on the basis that the project is located in Indian country. Many of the requirements listed previously were established in the final Clean Power Plan EGs (80 FR 64692). This proposal includes additions and revisions to certain requirements in the final Clean Power Plan EGs necessary to allow for implementation of the CEIP. This action proposes no changes to, and does not in any way re-open, any aspects of the final Clean Power Plan other than those expressly proposed or on which we expressly request comment, and all such potential changes are solely related to the CEIP. We are also proposing optional example regulatory text for the CEIP, which when finalized, would provide presumptively approvable approaches for implementing the CEIP by a state as part of a mass-based emission budget trading program or a rate-based emission trading program. 46 The EPA has structured the proposed optional example regulatory text [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-15000. Public record. Not legal advice.