In the TSD State Budgets, Unit Allocations, and Unit Emissions Rates, Section 4, Direct Control Rate Limits, EPA indicates that, 'The unit-level rates which sources must comply with under this approach are determined analogously to unit-level allocations - each unit's proposed allocation is divided by the reported or projected heat input associated with that tonnage.' It is not clear that the modeling inputs are adequate to perform a proper evaluation. Further, it appears that the emission rate limits would still be determined primarily on an economic basis, thereby still allowing some units to operate with little or no emission controls. It is Delaware's opinion that this methodology does not adequately evaluate, on a unit- by-unit basis, the technical or economic feasibility of installation of cost-effective emission controls for these units. The methodology therefore may not adequately determine realistic emission rate limits for all of these units. It is Delaware's opinion that unit-by-unit technical evaluations are necessary to properly set such emission rate limits for every EGU in the program. Such evaluations must take into account the unit types, fuel(s) combusted, unit size, unit historic capacity factor, projected additional lifetime, existing emissions controls, commercially available controls for retrofit, etc. [EPA-HQ-OAR-2009-0491-2980.1, p.5]
Response:
EPA is not finalizing direct control rate limits.

V.D.4.b. [Reserved]

V.D.4.c. Penalties

Organization: Tennessee Department of Environment and Conservation, Division of Air Pollution Control
Comment:
Tennessee Department of Environment and Conservation, Division of Air Pollution Control
We also note that the penalty provisions of this option are problematic, since individual facilities could face civil penalties regardless of whether they are in compliance with their emission rate limits. [EPA-HQ-OAR-2009-0491-0553.1,p.5]
Response:
See section VII.F of the preamble.

V.D.4.d. How Direct Control Remedy is Consistent With Court's Opinions

Organization: Edison Electric Institute (EEI)
Comment:
Edison Electric Institute (EEI)
EPA's proposed option to provide for "direct control" measures is unlawful
While EEI appreciates EPA identifying alternates to its preferred remedy, EEI believes that EPA cannot require states to impose specific control measures to address interstate transport as it proposes under its alternate direct control option. This is a matter reserved to the states under the CAA. EPA can at most determine what overall emission level a state must achieve. For example, in Michigan v. EPA, the D.C. Circuit stated
"We held that EPA's approach exceeded its authority under section 110 because each state retains the authority to determine in the first instance the necessary and appropriate control measures needed to satisfy section 110's standards. See Id. at 1407-09 (citing Train v. NRDC, 421 U.S. 60, 78-79 (1975)) . . . As we elaborated in Virginia, 'the Supreme Court decided ... that [section 110] did not confer upon EPA the authority to condition approval of [a state's] implementation plan ... on the state's adoption of a specific control measure.' Virginia, 108 F.3d at 1408."  [EPA-HQ-OAR-2009-0491-2697.1, p.18]
EPA should therefore not finalize this option and should indicate in the final rule that the Agency is prevented, as a matter of law, from finalizing the direct control option. [EPA-HQ-OAR-2009-0491-2697.1, p.18]
Response:
EPA disagrees with the commenter that the Agency was prevented as a matter of law from finalizing the direct control option. EPA's decision to finalize the limited interstate trading option instead of the intrastate control option or direct control option is explained in the preamble to the final rule.

V.E. Projected Costs and Emissions for Each Remedy Option

Organization: City Utilities of Springfield
Comment:
City Utilities of Springfield
If the Agency finds it impossible to move the deadline or modify the compliance mechanism, then the supporting database requires substantial editing to account for the actual, inflated control costs that utilities are destined to encounter by this artificial imposition. [EPA-HQ-OAR-2009-0491-2721.1 p.6]
Response:
EPA believes that the air pollution control retrofit costs utilized in IPM modeling accurately reflect the cost of the air pollution control retrofits projected to be built by 2014.  For more information on the air pollution control retrofit assumptions, including the cost development methodology, please see the IPM documentation.
Organization: Council of Industrial Boiler Owners (CIBO)
Comment:
Council of Industrial Boiler Owners (CIBO)
B. Highly cost effective analysis is flawed.

EPA's calculation of "highly cost-effective" emissions reductions that sources can achieve (75 FR 45231/1) is based on linear cost per ton assumptions. These assumptions do not reflect the cost of controls that sources will be required to install under several earlier-promulgated EPA regulations. EPA's economic assumptions for the cost impact on the regulated sources is incomplete and therefore, the cost of achieving these emission reductions is not highly cost effective.

In addition, EPA arbitrarily adjusted costs, using "higher and lower cost thresholds, based on the downwind air quality impact of emissions from different groups of states.' 75 FR 45233/2. Based on the charts indicating cost per ton by State, it appears that States that still have fossil-fueled plants are targeted, whereas those that do not seem to escape this cost effective analysis.   [EPA-HQ-OAR-2009-0491-2751.1 p.11]
The compliance period EPA has proposed is unreasonable and will cause costs to dramatically escalate for both EGUs and non- EGUs subject to pollution reduction requirements. [EPA-HQ-OAR-2009-0491-2751.1, p. 12]
Response:
The calculation of highly cost-effective controls is determined against the appropriate baseline emissions that would exist in each state if EPA did not impost the Transport Rule.  This calculation, and EPA's analysis of the cost impact of the final rule, need not consider the costs of controls already in place and contributing to the baseline. See preamble for further discussion of baseline calculation and highly cost-effective reductions.
EPA determined that it would not be appropriate to assign the same cost threshold to Group 2 and Group 1 states because a significantly lower cost threshold was sufficient to resolve air quality problems at all downwind receptors linked to the Group 2 states.  See preamble section VI.D.1.d.
EPA believes that the air pollution control retrofit costs utilized in IPM modeling accurately reflect the cost of the air pollution control retrofits projected to be built by 2014.  For more information on the air pollution control retrofit assumptions, including the cost development methodology, please see the IPM documentation.
EPA believes that it is feasible for the electric power sector and its APC supply chain to either make most of the projected retrofits in time to meet the 2012 and 2014 compliance deadlines, or to comply by other means.  See preamble for further discussion.
Organization: E.ON U.S.
Four Flags Area Chamber of Commerce
Comment:
E.ON U.S.
Cost assumptions for control technologies are too low.
EPA's cost assumptions for installation of control technologies are outdated and are too low based on our recent experience in implementing emission control projects, especially in retrofit applications that can impact balance of plant auxiliary systems. In addition, because of the large number of Flue Gas Desulfurization (FGD) and Selective Catalytic Reduction (SCR) controls that will be needed at many utility companies, the cost will almost certainly increase significantly above past costs due to market demand on labor, engineered equipment and raw commodity materials of construction specific to these technologies. The costs are also based on the assumption that CAIR is not in existence or is not a current requirement. [EPA-HQ-OAR-2009-0491-2797.1, p.4]
Four Flags Area Chamber of Commerce
The EPA has not accurately estimated the cost of compliance with this proposal, from the perspective of the cost of installing new equipment as well as the actual equipment needed. [EPA-HQ-OAR-2009-0491-3807, p.1]
Power companies in my state inform me that the costs the EPA used as the basis for designing, permitting, fabricating and installing flue gas desulfurization units are less than half of market rates. Again, the cost of compliance is not accurately reflected in the EPA's estimates. The citizens in my state will have to bear a financial burden that may be unneeded. Now is not the time for expensive government mandates that will provide questionable benefits. [EPA-HQ-OAR-2009-0491-3807, p.2]
Response:
See IPM 4.10 Documentation and IPM Documentation Supplement for EPA Base Case v.4.10_FTransport - Updates for Final Transport Rule for details on FGD and SCR cost assumptions and considerations in response to comments received on those cost assumptions.  Additionally, EPA notes that it does not project SCR retrofit activity driven by Transport Rule, and the FGD retrofit activity as a consequence of Transport Rule is expected to be less than half of what it was at proposal.
Organization: First Energy
Comment:
First Energy
Further, many plants do not have rail access to PRB delivery. Those facilities without rail transportation access to PRB supplies will face additional delivery cost, which can make PRB an uneconomical option. Further, the analysis does not take into account the impact of existing long term coal contracts. FE and other similar coal consumers would likely face significant stipulated penalties for each ton not used from an existing contract. There is also a concern that the PRB supply that meets the EPA expected Sulfur levels is limited and may already be completely subscribed. A limited supply of PRB will impact the $/ton assumption the EPA used in the IPM model. The EPA does not account for the increase in PRB rail deliveries to the Eastern United States from the PRB. The analysis must also consider the increased cost of moving rail sets from one privately owned rail line to another privately owned rail line. These rail lines are already running close to capacity. Significantly increased deliveries of PRB to the Eastern United States may not be logistically feasible until additional rail capacity can be constructed. [EPA-HQ-OAR-2009-0491-2657.1 ,p.9; these comments can also be found at EPA-HQ-OAR-2009-0491-3772.1_NODA, pp.8-9 10/15/2010]
Response:
IPM modeling considers coal access and transportation costs at the plant level, as well as detailed coal reserve availability.  Additionally, IPM incorporates constraints on the growth of PRB coal production due to transportation capacity limits.  See Chapter 9 of IPM documentation.
Regarding long-term contracts, EPA modeling using IPM projects that the rule causes only about 5% of the higher sulfur coal consumed in 2012 in the base case to switch to a lower sulfur coal under the rule.  According to data from the Energy Information Administration (http://www.eia.doe.gov/cneaf/electricity/page/eia906_920.html), contracts for over half of the quantity of coal delivered in July of 2010 when the proposal for this rule was issued will have expired by January of 2012.  EPA believes that this degree of contract turnover is entirely consistent with the level of coal switching projecting in the analysis of this rule.
Organization: Michigan Chamber of Commerce
Comment:
Michigan Chamber of Commerce
The EPA has not accurately estimated the cost of compliance with this proposal, from the perspective of the cost of installing new equipment, as well as the actual equipment needed. The EPA also has not considered the costs of changing or breaking contracts to meet new requirements and schedules. Our members in the Energy industry inform us that the costs the EPA used as the basis for designing, permitting, fabricating and installing flue gas desulfurization units are well below market rates, past implementation experience and current contracts in hand. Again, the cost of compliance is not accurately reflected in the EPA's estimates. Job providers in Michigan will have to bear a financial burden that may not be needed. Now is not the time for expensive government mandates that will, at best, provide questionable benefits. [EPA-HQ-OAR-2009-0491-2696.1, p.1]
Response:
EPA has updated the retrofit control costs originally assumed in the proposal.  EPA believes that these updated costs accurately reflect, on average, current market rates.  For more information on emission control retrofit costs see "Documentation for EPA Base Case v.4.10 using the Integrated Planning Model" August 2010 sect. 5.
Absent details on the contracts to which the commenter refers, EPA believes that the IPM retrofit cost methodology is reasonable.
EPA analysis suggests that the impact on electricity rates is negligible.  See preamble section XII.H.
Organization: Michigan Manufacturers Association (MMA)
Comment:
Michigan Manufacturers Association (MMA)
- The EPA has not accurately estimated the cost of compliance with this proposal, from the perspective of the cost of installing new equipment as well as the actual equipment needed. EPA has not considered the costs of changing or breaking contracts to meet new requirements and schedules. EPA has not considered the availability of the skilled labor necessary to implement a program of this magnitude over a 32 state region. [EPA-HQ-OAR-2009-0491-2762.1, p.2]
Power companies in Michigan and members of MMA have concluded that the costs the EPA used as the basis for designing, permitting, fabricating and installing flue gas desulfurization units are well below market rates, past implementation experience and current contracts in hand. The cost of compliance is not accurately reflected in the EPA's estimates. MMA's members will have to bear a financial burden that may not be needed. Now is not the time for expensive government mandates that will provide questionable benefits, while most definitely adversely affect Michigan's economy. [EPA-HQ-OAR-2009-0491-2762.1, p.3]
Response:
EPA has updated the retrofit control costs originally assumed in the proposal.  EPA believes that these updated costs accurately reflect, on average, current market rates.  For more information on emission control retrofit costs see "Documentation for EPA Base Case v.4.10 using the Integrated Planning Model" August 2010 sect. 5.
With current unemployment rates, sufficient quantities of engineers and skilled craft exist for Transport Rule implantation.  For the extreme case of local shortages of skilled craft (which is not anticipated), this past challenge was overcome by instituting OJT ("On the Job Training") by either qualified  institutional trainers or master / journeymen craftsmen.  Also, this sector's equipment suppliers are also underutilized since 2010.
EPA analysis suggests that the impact on electricity rates is negligible.  See preamble section XII.H.
Organization: Ohio Manufacturers Association (OMA)
Comment:
Ohio Manufacturers Association (OMA)
EPA underestimates the cost of complying with the new rule by basing its assessments on equipment and capabilities that in some cases are not yet in place. Already subject to unrealistic deadlines for compliance, power generators will also face much higher implementation costs-costs that they will eventually pass on to our members. [EPA-HQ-OAR-2009-0491-2651.1, p. 1]
Response:
EPA has updated the retrofit control costs originally assumed in the proposal.  EPA believes that these updated costs accurately reflect, on average, current market rates.  For more information on emission control retrofit costs see "Documentation for EPA Base Case v.4.10 using the Integrated Planning Model" August 2010 sect. 5.  Furthermore, EPA believes that compliance with the Transport Rule is feasible by the compliance deadlines.  See section VII.C.2 of the preamble.

V.E.1. State Budgets/Limited Trading

Organization: American Coalition for Clean Coal Electricity (ACCCE)
Comment:
American Coalition for Clean Coal Electricity (ACCCE)
COMPLIANCE ALTERNATIVES
Under the proposal, the alternatives to deferring the compliance deadlines would not adequately remedy the problem we have discussed above and would, in some cases, create complications. Below we discuss briefly the four most likely remedies if controls could not be installed by an EGU in time to meet the proposed deadlines. [EPA-HQ-OAR-2009-0491-2874.1 p.5]
Retire or Curtail Coal-Fueled Generation
Fuel-switching to natural gas may not be a viable solution for EGUs that are unable to meet the compliance deadlines. First, sufficient natural gas generating capacity may not be available in areas of the country where it is needed. Second, increasing the use of natural gas may require construction of pipeline infrastructure for delivery of the natural gas to specific electric generating facilities. Third, natural gas historically has been subject to considerable price volatility, making this compliance strategy undesirable for many owners of EGUs and for public utility commissions. For example, over the period from 2002 through May 2010, the average monthly price of natural gas for generating electric power ranged from a low of $2.86/ Mcf to a high of $12.41/Mcf.13 Fourth, greater use of natural gas is likely to increase production of shale gas. As EPA is aware, there are a host of environmental concerns associated with the production of shale gas. In the case of new gas-fired generation and major fuel conversion projects, we do not believe that electric utilities could secure the necessary permits and PUC approvals, nor complete construction in time to ensure a smooth transition over the 2012-2014 period. [EPA-HQ-OAR-2009-0491-2874.1 p.6]
[[Please note the commenter's final docket is missing a page of text. Their numbering skips from page 6 to page 8]]
Response:
See preamble section VII.C.2
Organization: First Energy
Comment:
First Energy
EPA Assumed Rate Increases
The EPA also assumes that the cost of controls from utilities will all be passed along to the ratepayer. The assumption that utilities will successfully recoup their pollution control expenditures through each state's utility commission is outlandishly optimistic, and entirely inappropriate for merchant generators like FE. Rather, as discussed above, EPA should incorporate more appropriate financial assumptions in the IPM that reflect the merchant market. [EPA-HQ-OAR-2009-0491-2657.1,p.13]
FE also recommends the EPA provide the public with an annual estimated rate increase for the pollution control projects the EPA imposes for each state. Based on the total SO2 & NOx reductions required for each state, the highest reductions would imply the greatest shift in power prices through rate increases for that state. [EPA-HQ-OAR-2009-0491-2657.1,p.13]
Response:
IPM modeling projects average wholesale costs for energy and capacity consistent with a least-cost compliance strategy.  EPA's simplified analysis of electricity rate impacts uses these wholesale prices to calculate an average retail electricity price at a regional level.  For the purposes of this analysis, each region is assumed to be either regulated cost of service or fully competitive.  EPA believes that this approximation at the regional level reasonably represents average electricity rates.  Estimating impacts at a sub-regional (e.g., state) level would require information regarding specific future decisions of each individual utility commissions, which would be highly speculative given available information.
Organization: Florida Municipal Electric Association (FMEA)
Comment:
Florida Municipal Electric Association (FMEA)
EPA's Choice of 2008 and 2009 for the Baseline is Inappropriate. EPA has chosen 2008 and 2009 as baseline years for NOx and SO2 emissions, respectively. These two years do not represent normal operating conditions for many of the units regulated under this rulemaking, and therefore, EPA should allow for the selection of a more representative time period. The units regulated by this rulemaking are also regulated under CAIR, many of which had extended outages in 2008 and 2009 to install SO2 and NOx control equipment. Additionally, in 2008 and further into 2009, the U.S. economy plunged into an economic "crisis," and electricity demand dropped significantly. Therefore, 2008 and 2009 are not representative years for many of the units regulated by this rulemaking. FMEA suggests that EPA utilize an approach similar to CAIR, and use an average capacity of the past five years, or some other period that would accurately represent past performance. [EPA-HQ-OAR-2009-0491-2731.1, pp. 7-8]
Response:
EPA is finalizing an allocation methodology that establishes a historic baseline, using the highest 3 years of 5 years of heat input data for the years 2006 through 2010.  See preamble section VII.D.
Organization: Indiana Energy Association
Comment:
Indiana Energy Association
e . The Indiana Utility Group believes that financing of both controls and generating units is now far more difficult than the assumptions used by EPA in its CATR analysis. EPA's singularly focused financial assumptions are arbitrary since commercial lending banks and national credit rating agencies will evaluate a company's credit quality and financing rate based on more than just the single CATR happening in the future planning horizon. Also, materials, commodities, labor availability and other costs can exhibit great volatility both temporally and from state to state as demonstrated over the past five years or so. EPA has failed to include these factors in its singularly deterministic CATR analysis and the Indiana Utility Group urges EPA to do so in a reanalysis with multiple scenarios analyzed for the final CATR. [EPA-HQ-OAR-2009-0491-3711 p.3]
Response:
EPA believes that the financial assumptions utilized in IPM v.4.10_FTransport modeling are appropriate for system-wide modeling.  For further discussion of EPA's financial assumptions, see IPM documentation.
EPA believes that the air pollution control retrofit costs utilized in IPM modeling accurately reflect, on average, the cost of the air pollution control retrofits projected to be built by 2014.  Given that EPA considers materials, commodities, and labor availability in determining a cost methodology, EPA does not agree that alternate analyses with multiple scenarios would be informative.  For more information on the air pollution control retrofit assumptions, including the cost development methodology, please see the IPM documentation.
Organization: Kentucky Chamber of Commerce
Comment:
Kentucky Chamber of Commerce
Kentucky is proud to be the fifth leading producer of energy in the country  -  driving significant manufacturing in our state including automotive production and aluminum. We feel that EPA grossly underestimates the cost of compliance and overestimates the economic viability of many of the plants that EPA assumes will continue to operate. The EPA proposal is based on data that does not take into account the significant improvements in air quality that have occurred in the last five years because of compliance with CAIR, which is still in effect.[EPA-HQ-OAR-2009-0491-2760.1 p.1]
We feel strongly the implementation of the transport rule without additional scientific and economic analysis, research and development will result in significant cost increases for business and consumers. In addition, these costs may cause some plants to close or significantly reduce production, threatening electricity reliability and significantly affecting local economies through reduction in payroll taxes and employment numbers. This rule will jeopardize plant expansions for multinational corporations that are currently located in the United States because they will move their operations to countries with less restrictive air quality requirements. Increased energy costs and decreased electric reliability will have a  significant adverse impact on all sectors of the business community and could potentially force Kentucky businesses to relocate out of the country.  [EPA-HQ-OAR-2009-0491-2760.1 p.1]
Response:
See preamble section V.B.
EPA projects that the benefits of the final rule far outweigh the costs, and impacts on the manufacturing sector are projected to be minimal.  See RIA Chapter 8.
See section V.D.2.g of Response to Comment document.
Organization: Michigan Department of Natural Resources and Environment
Comment:
Michigan Department of Natural Resources and Environment
Schedules for Scrubber and Selective Catalytic Reduction Installations
The proposed TR described concerns that there may be other regulatory requirements that could potentially interfere with the installation of controls for the TR by increasing demands on the boilermakers' time. In addition, the EPA requested information regarding alternative postcombustion cost-effective technologies that could reduce S02 and/or NOx emissions. [EPA-HQ-OAR-2009-0491-2774.1 p.10]
The DNRE believes that installation of scrubbers along with newer baghouse technologies could address the reductions needed in S02, along with a co-benefit for reductions in mercury. Michigan has a mercury emission reduction requirement that will allow for multipollutant co-benefits when installing equipment to reduce S02 and NOx. The timeline in Michigan's Part 15 mercury rules could be adversely affected by the timing of the TR or contrarily, could adversely impact the timing of the TR. Michigan's mercury requirements for coal-fired EGUs could place higher demands on control installations. The DNRE believes this could raise the cost of controls for Michigan sources that are required to submit a multipollutant strategy two years prior to the compliance deadline of January 1, 2015. [EPA-HQ-OAR-2009-0491-2774.1 p.10]
Coal Switching
The proposal indicated that coal switching (for example, from higher sulfur to lower sulfur containing bituminous coal) was not a factor in determining capital, operational, or maintenance costs for the cost-of-controls analysis. The EPA indicated that most currently installed electrostatic precipitators (ESPs) could handle the switch without allowing an increase in sulfur dioxide emissions, thus not resulting in an increase of costs. [EPA-HQ-OAR-2009-0491-2774.1 p.10]
The DNRE disagrees with the assumption that coal switching will not impact or increase the cost of controls for sources opting to utilize lower sulfur coals. The EPA is incorrect in assuming that the majority of ESPs could handle such a conversion and failed to consider the availability of the lower sulfur coals. The operational age of an ESP can affect the ability to utilize lower sulfur coals; older units could require major reworking for the unit to be able to use these coals. Additionally, the reliability of delivery is a major concern for sources opting to switch coal. In the recent past, delivery of coal was adversely impacted when one of the two rail lines, used to deliver the coal to the Eastern states, was unavailable. This greatly impacts the economic decisions each source must make and could definitely affect the capital and operational costs of using lower sulfur coals in their units. [EPA-HQ-OAR-2009-0491-2774.1 p.10]
Response:
EPA is aware of Michigan's Part 15 mercury rule, and has included this rule in IPM modeling.  Given that IPM modeling does not project the installation of scrubbers by 2014 in Michigan for compliance with the final Transport Rule, EPA does not believe that either of these two rules will adversely impact the timing of the other.
See section VII.C.2.c of preamble for a discussion of coal switching.
Organization: Midamerican Energy Holdings Company
Comment:
Midamerican Energy Holdings Company
The Transport Proposal Punishes Early Emission Reductions and Low-Emitters
As discussed above with respect to MidAmerican's Louisa Generating Station, in certain circumstances, facilities that have already reduced emissions may be expected to further reduce emissions. The same can be said about currently underutilized facilities. Two of CalEnergy's natural gas-fueled facilities are subject to the Transport Rule for annual and seasonal NOx reductions3. These facilities are equipped with SCR and are already low-emitting facilities at which additional NOx reductions would be difficult to achieve. The Cordova Energy Center has historically been underutilized and has, under the preferred alternative, been allocated only two NOx allowances.  [EPA-HQ-OAR-2009-0491-2748.1 p.5]
As implementation of the Transport Rule moves forward and additional air quality regulations and the HAPs MACT are in place, it is likely that some smaller, marginal coal-fueled units will elect not to install controls, but, rather, shut down. Such a scenario is likely to result in increased utilization of previously underutilized, existing facilities such as Cordova Energy Center. However, increased utilization of the Cordova facility which, even though well controlled, and having contributed virtually nothing to the transport of emissions causing or contributing to nonattainment, would have to purchase all of its allowances while facilities with higher emissions, which have historically contributed substantially to transported emissions, will have sufficient allocations of allowances under the state budget cap and would not have to purchase any allowances. Sales of those allowances may be constrained by the trading and variability limitations. Increasing the utilization of the Cordova facility to accommodate shutdowns of coal-fueled generation  -  creating a positive environmental result  -  will result in negative economic consequences to the Cordova facility.  [EPA-HQ-OAR-2009-0491-2748.1 p.5]

As EPA has already recognized, implementation of the Transport Rule is likely to have (and has already had) a significant negative impact on the value of Acid Rain SO2 allowances. While the consequences of the devaluation of SO2 allowances may not be as severe in the East, due to the Transport Rule's requirement to meet state emissions budgets within the 10% variability limit, the consequences in the West are likely to be more severe where many Western utilities had previously utilized Acid Rain allowance sales to offset increases in customer rates and/or install additional controls.  [EPA-HQ-OAR-2009-0491-2748.1 p.7]
In addition, as discussed previously herein, while Western utilities are undertaking efforts to install emission controls necessitated by BART determinations and Regional Haze plans, facilities in the East will be competing for the same labor, equipment and associated resources to install controls to comply with the Transport Rule requirements. Nationwide, the demand for skilled labor and equipment is likely to outpace the level necessitated by the 1990 Clean Air Act Amendments, in a much shorter time frame, without the luxury of paying above-market rates to get equipment in place in order to meet the compliance deadlines. This impact is exacerbated given the challenging economic circumstances faced in the U.S. during a time when utility regulators are loathe to continue to increase electricity rates.  [EPA-HQ-OAR-2009-0491-2748.1 p.7]
Response:
EPA has decided to base allocations made under the FIPs on historic heat input, subject to a maximum allocation limit to any individual unit based on that unit's maximum historic emissions. Further detail on the implementation of this approach, rationale, and response to comments on the allocation method is provided in Preamble Section VII.D. as well as in the Allowance Allocation Final Rule TSD in the docket for this rulemaking.
The allocation methodology does not consider future rulemakings.  As discussed in section III of the Preamble to this rule, EPA will provide full opportunity for notice and comment on each rule as they are proposed and finalized.   EPA will include the final Transport Rule in its regulatory impact analyses of subsequent rulemakings.
Due to the national basis of the allowance market, EPA does not believe that the devaluation of Acid Rain program allowances disproportionately impacts allowance holders in the West.
EPA believes sufficient labor and equipment is available for timely compliance with the rule.  See section V.C.2 of RTC and VII.C.2 of preamble.  Furthermore, EPA projects that the impact of the Transport Rule on retail electricity rates will be negligible.  See section XII.H of preamble.
Organization: Morgan Stanly Capital Group
Comment:
Morgan Stanly Capital Group
The program will be particularly problematic for independent power plant operators as they cannot recapture their compliance costs from captive ratepayers, like facilities owned and operated by integrated utilities. [EPA-HQ-OAR-2009-0491-2819.1 P.3]
State-specific emissions caps will, at best, greatly complicate the operation of multistate Independent System Operators ("ISOs"), charged with coordinating the most optimal economic dispatch of generation resources. [EPA-HQ-OAR-2009-0491-2819.1 P.3]
Response:
Independent power producers retain the opportunity to recover costs from the market, which should incorporate the Transport Rule in the market prices for energy and capacity.
EPA is finalizing a program that incorporates interstate trading with assurance provisions, providing additional regulatory flexibility that promotes the power sector's ability to operate as an integrated, interstate system and to provide electric reliability.  As has occurred under prior market-based regulations, EPA believes that generators will incorporate the market price of emitting SO2 and NOX directly into their dispatch bidding; therefore, independent system operators (ISOs) will factor generator bids into dispatch decisions in the same manner under the Transport Rule as they currently do to operate the grid.
Organization: New Orleans City Council
Comment:
New Orleans City Council
The Council has concerns regarding the Proposed Rule insofar as it may increase the costs of electricity to retail customers by restricting trading and devaluing emissions credits banked under the Clean Air Interstate Rule ("CAIR") and insofar as it fails to consider transmission constraints in its allocation of emissions allowances to specific units. The Council requests that the Agency revise its Proposed Rule to prioritize the minimization of costs while still protecting the environment and attainment of air quality standards. We further request that the Agency make use of all authority available to it, including a broad use of its powers under Section 126 of the Clean Air Act, to implement the lowest-cost regulations which provide for the attainment of those standards. See 42 U.S.C. § 7426. [EPA-HQ-OAR-2009-0491-2719.1 p.2]
At present, the Proposed Rule sets out three options for the new trading regime. As the Council understands the options, they can be roughly described as limited interstate trading with full intrastate trading, no interstate trading but full intrastate trading, and no trading of any kind. The Agency has not proposed any approach that would permit robust interstate trading on a scale similar or near that which had existed under the prior CAIR rules. We have learned that Agency representatives have suggested publicly that the Agency prefers the "limited interstate trading" option. We also understand the Agency has not yet determined what to do with the existing CAIR credits but that the Agency is actively considering devaluing those credits from their face value. [EPA-HQ-OAR-2009-0491-2719.1 p.3]
The Council therefore requests that the Agency promulgate rules that result in the minimal necessary costs to the ratepayer. In particular, the Council is concerned that the cost of any devaluation of existing CAIR credits may be passed on to ratepayers and, to the extent that trading is constricted, that the compliance costs of purchasing or maintaining allowances will also be passed on to ratepayers without any particular improvement in air quality. [EPA-HQ-OAR-2009-0491-2719.1 p.3]
Response:
EPA projects that the impact of the Transport Rule on retail electricity rates will be negligible.  See section XII.H of preamble.
EPA does not believe that transmission constraints are relevant in the final allocation methodology, which is based on historic heat input, subject to a maximum allocation limit to any individual unit based on that unit's maximum historic emissions.
Acid Rain Program allowances, which were used in the CAIR SO2 program, will remain in the Allowance Tracking System and will continue to be usable in the Acid Rain Program.  Sources will not be able to use CAIR NOx allowances for compliance with the Transport Rule.  Instead, new allocations are being finalized with the final rule.
Organization: Public Utilities Commission of Ohio
Comment:
Public Utilities Commission of Ohio
The aggressive nature of the proposed rule, including both the required reduction levels and the implementation schedule, will assuredly impact wholesale power costs, putting upward pressure on customer (ratepayer) bills. A 2012-2014 time frame, as proposed in the rules, will cause early retirement or aggressive, accelerated, and costly plant installations, imposing the necessity of quickly implementing flue gas clean-up technology. These retrofits will undoubtedly have a direct ratepayer impact which may not be capable of being 'phased in' due to the accelerated nature of implementation in the rule. Further, due to timing issues and attempts to avoid rate shock, there may be requests for deferrals, further exacerbating cost concerns and negatively impacting future generations of ratepayers. [EPA-HQ-OAR-2009-0491-2855.1 p.9]
The proposed rule, in concert with anticipated rules, will accelerate the retirement of coal fired electric generating plants. The cost of premature retirements will have a direct impact on rates, not only as a result of necessary amortization and other closure costs, but also due to the fact that the lower-cost, locally available power will be removed from the market, making the marginal unit a higher-priced energy source, and driving the need for additional generating capacity. Compounding this concern is the consideration that many of the electric distribution utilities that may be negatively impacted, as discussed above, serve as the Provider of Last Report (POLR) to our native load customers. The current and foreseeable economic environments indicate that Ohio's ratepayers will be hard-pressed to absorb 'rate shock' due to the overly aggressive implementation schedule advanced in the proposed rule. [EPA-HQ-OAR-2009-0491-2855.1 p.10]
EPA has estimated some costs associated with the proposed rule. EPA utilized the Integrated Planning Model in its analysis. This model provides for very high-level analysis, with unfortunately little granularity. The direct cost estimates presented by EPA are installation and operation of advanced pollution control equipment and fuel switching in the amount of $2.8 billion (in 2006). EPA estimates the societal costs (loss of household utility) borne by consumers due to the regulation to be $2.2 billion annually. This estimate is for the EPA preferred approach and grows substantially with the two alternative approaches, which provide less flexibility in meeting the requirements. [EPA-HQ-OAR-2009-0491-2855.1 p.10]
These estimates do not include the capital costs already incurred for compliance with CAIR. The Regulatory Impact Analysis (RIA) for the proposed rule indicates that the pollution controls that were installed by power plants in order to comply with CAIR were not included in the annual societal cost because the Transport Rule did not lead to their installation. In the RIA, EPA states that it "assumes away" any CAIR reductions achieved its is base case analysis.4 In fact, EPA goes on explain that the 2012 base case shows emissions higher than current levels in some states. We disagree with this approach, as both industry and ratepayers previously expended a significant amount of money in order to comply with EPA's regulation (CAIR). We feel that ignoring previous investments in pollution control technology, i.e., those demanded by CAIR, inaccurately represents the relative cost-effectiveness of this rule as a means to meet the NAAQS. [EPA-HQ-OAR-2009-0491-2855.1 p.11]
We also believe that the cost estimates advanced in the Transport Rule may be low for a number of other reasons. We believe that the cost of pollution equipment installations may be underestimated due to difficult construction scenarios relative to the timeline as well as the geographic configurations. Further, an assumption that any plant can simply switch fuels is unsound. Installations/capital investments that will be necessary to enable fuel switching have not been included in the model, or, alternatively, early retirement costs have not been included. Further, as it explains, EPA admits that the model it has used disregards some transaction costs, institutional barriers, and monitoring and reporting costs, in addition to assuming that utilities have "perfect foresight," thereby understating costs. [EPA-HQ-OAR-2009-0491-2855.1 p.11]
In addition to the statistics delineated above, Ohio is a heavily industrialized state. The current economic situation has brought double digit unemployment rates to our state. Given the global competition in the industrial/manufacturing sector, if the rulemaking with the proposed timeframe were adopted and electricity rates are permitted to soar, Ohio will most certainly lose additional industry and jobs, and it will not be alone. [EPA-HQ-OAR-2009-0491-2855.1 p.12]
We also believe that the information used in the Regulatory Impact Analysis (RIA) to justify cost is, unfortunately, counterintuitive. With regard to coal production assumptions, the inputs used would likely result an increase in off-peak prices and with increased coal-fired energy costs, as use of more marginal units of various types becomes necessary. The pricing information used by EPA is additionally counterintuitive because the gas price forecasted by EIA trends upward in 2011. Due to the effects of the 2008 recession, 2010 price impacts should be utilized. [EPA-HQ-OAR-2009-0491-2855.1 p.12]
Further, EPA projects that 1.2 GW of coal-fired capacity will become uneconomic as a result of the Transport Rule. EPA predicts that power sector coal production will decrease, to the degree of 15% less coal production in our region. Gross Domestic Product and consumption levels will be affected nationally.6 Given, however, the current industrial electricity load in our region, as well as the current economic climate, the effects of the proposed rule will be more seriously more impactful in Ohio than other areas. [EPA-HQ-OAR-2009-0491-2855.1 p.12]
Response:
EPA analysis, which considers pollution control installation as well as retirements, projects that the impact of the Transport Rule on retail electricity rates will be negligible.  See section XII.H of preamble.
EPA's analysis both properly considered all capital investments made in response to CAIR and properly recognized that, after CAIR is terminated, the emission limitations imposed by CAIR will cease to exist.  See section V.B. of preamble.
EPA has addressed the comment regarding retrofit costs in section V.C.2 of Response to Comments document.
EPA updated IPM modeling to reflect the comment regarding coal switching.  See IPM Documentation.
EPA projects that the benefits of the final rule far outweigh the costs, and impacts on the manufacturing sector are projected to be minimal.  See RIA Chapter 8.
The final RIA reports that, relative to the base case, coal price is projected to decline slightly, related to the small decrease in coal demand.  EPA does not believe that this price behavior is counterintuitive.  Regarding natural gas price, IPM modeling now incorporates a gas supply model which better reflects current gas supply assumptions.  See Chapter 10 of IPM Documentation.

V.F. Transition from the CAIR Cap-and-Trade Programs to Proposed Programs

Organization: Indiana Cast Metals Association (INCMA)
South Carolina Department of Health and Environmental Control
Comment:
Indiana Cast Metals Association (INCMA)
The EPA has not determined the effect that recent actions to comply with the Clean Air Interstate Rule (CAIR) will have on ambient and downwind air quality. Because of actions already taken, the Transport Rule may not be necessary. [EPA-HQ-OAR-2009-0491-2178.1, p.1]
Before the EPA imposes new reductions on sulfur dioxide and nitrogen oxide emissions, it should take into account the progress that the nation has made under CAIR. Though the Rule was remanded by the D.C. Circuit Court of Appeals in 2008, it remains in effect and generation companies have necessarily moved ahead with implementation of compliance measures. Before new rules are imposed on a still-weak economy, it makes more sense to determine what improvements in air quality have already occurred. To ignore the improvement the nation has made to date could impose needless substantial costs on our members and region with limited incremental environmental benefit. As we continue to climb out of recession, the last thing that government should do is create additional costs to the economy without substantiated reasons. [EPA-HQ-OAR-2009-0491-2178.1, p.2]
South Carolina Department of Health and Environmental Control
DHEC is concerned that the unexpected budgets in the proposed Transport Rule result from the EPA's decision to ignore controls that facilities installed to comply with the CAIR. The EPA makes a few arguments in support of this decision.20 First, the EPA contends that it cannot prejudge which states it would include in Transport Rule modeling, and that the CAIR and the proposed Transport Rule affects different states. DHEC does not see this as a reason to not include controls installed to comply with the CAIR in Transport Rule modeling. The EPA could simply list CAIR-based controls for facilities that installed them, and not list CAIR-based controls for facilities that did not install them, a process that would not affect the inclusion or exclusion of states in the Transport Rule. Second, the EPA contends that because the Court ruled that the CAIR is unlawful, it cannot include CAIR-based controls in modeling. The EPA specifically notes: [EPA-HQ-OAR-2009-0491-2677.1 p.8]
If EPA's base case analysis were to ignore this fact and assume that reductions from CAIR would continue indefinitely, areas that are in attainment solely due to controls required by CAIR would again face nonattainment problems because the existing protection from upwind pollution would not be replaced.21 [EPA-HQ-OAR-2009-0491-2677.1 p.9]
DHEC notes two problems with this line of reasoning. First, the CAIR is in effect. The Court would have to revisit its December 28, 2008, decision22 to remand the CAIR for it not to be in effect. The EPA should assume that the CAIR would remain in effect through the 2012 base year in the proposed Transport Rule modeling. Such an assumption seems more likely than the Court vacating the CAIR and eliminating its public health benefits. We are not suggesting that EPA should rely on the CAIR for longer than the Court would allow. Rather, we are simply suggesting that the CAIR's continued existence is likely enough to warrant inclusion in Transport Rule modeling. The EPA further argues that in a world without the CAIR, the NOX Budget Program would govern NOX emissions, thus limiting the amount by which the Transport Rule modeling would overestimate emissions. DHEC questions this assumption. The emissions trading program under the NOX SIP Call led to the emissions reductions in the NOX Budget Program, and the emissions trading program is no longer in place. In the world that the Transport Rule modeling is assuming, states would have to institute command and control emissions limits in thousands of Title V Operating Permits by 2012 to attain the emissions reductions required by the NOX SIP Call. DHEC argues that this is an untenable assumption. A far more likely scenario to include in the modeling is that the Court would agree to a short extension of the remand period. [EPA-HQ-OAR-2009-0491-2677.1 p.9]
The EPA's final contention in support of its decision to not include CAIR-based controls in the Transport Rule modeling is that in a world without the CAIR, utilities would comply with the less stringent Acid Rain Program, thus limiting the Transport Rule's overestimation of emissions. This contention assumes that the Acid Rain Program is always more stringent than the Transport Rule and this is not the case in South Carolina. Our sulfur dioxide ("SO2") budget under the Acid Rain Program for 2010 and later is 111,342 tons, and our proposed Transport Rule SO2 budget is a less stringent 116,483 tons. [EPA-HQ-OAR-2009-0491-2677.1 p.9]
DHEC contends that the EPA's modeling should recognize the limits and controls put in place to meet the requirement of the CAIR because utilities are not operating in a world without the CAIR. South Carolina's utilities, and their rate payers, committed considerable resources to installing and operating controls on several coal-fired units to meet the requirements of the CAIR. DHEC predicts that its major utilities will continue to run controls installed to comply with the CAIR, and the EPA's Transport Rule modeling should take into account the operation  of these controls. The EPA also omits controls installed to comply with the NOX SIP Call.23 By making these changes, the EPA can ensure that it develops the Transport Rule based on the best available science. [EPA-HQ-OAR-2009-0491-2677.1 p.10]
Response:
Preamble section V.B. explains why CAIR reductions are not included in the base case.
Organization: Massachusetts Department of Environmental Protection
Comment:
Massachusetts Department of Environmental Protection
The transition from CAIR to the Transport Rule will raise a number of reporting, compliance and enforcement issues. EPA notes that certain EGUs that currently monitor and report NOx in the ozone season but are not already reporting annually under in EPA's Acid Rain Program would need to monitor and report NOx and S02 on an annual basis under the proposed Transport Rule. Presumably the majority of these units can simply amend existing Part 75 monitoring plans. It would be helpful for EPA to clarify the details of, and deadline for, these amendments. We recommend a deadline of January 1, 2011 to provide a year's worth of data to ensure all monitoring, recordkeeping and reporting issues have been addressed at these facilities prior to the start of the initial Transport Rule compliance period.  [EPA-HQ-OAR-2009-0491-2787.2 p.7]
Response:
Please see section VII. H of the preamble.
Organization: Northern Indiana Public Service Company (NIPSCO)
Comment:
Northern Indiana Public Service Company (NIPSCO)
Should EPA implement NIPSCO's recommended approach to keep CAIR in place for the entire CAIR Phase I period and begin the Transport Rule in 2015, EPA could as an alternate allow states a limited time period in which to develop state-specific rules to implement the Federal Transport Rule. If EPA does not extend CAIR Phase I and rather agrees with a heat input based allocation, due to concerns about the robustness of the trading program it may be necessary to include a transition period or transition provisions during the initial years of the program to ensure all covered sources have a path to achieve compliance. Consistent with the proposed Transport Rule, the objective of the transition period would be to operate existing and planned pollution controls to ultimately meet the state emission budgets. [EPA-HQ-OAR-2009-0491-2747.1 p.5]
Again assuming that EPA proceeds with its proposed FIP approach, as one component of the transition process, NIPSCO recommends that EPA consider use of banked NOx allowances from the CAIR. While NIPSCO recognizes that the Transport Rule is completely replacing the CAIR, the CAIR, nevertheless, has been the applicable regional program requiring reductions of NOx and S02 emissions for the past three years. Regardless of the court's decision in North Carolina, CAIR allowances have been allocated, traded, and surrendered during those years. EPA itself acknowledges that program produced reductions in regionwide NOx and S02 levels that have benefitted nonattainment and maintenance areas in the region. Therefore, to aid in the transition from the CAIR program to the Transport Rule program, NIPSCO suggests that EPA provide for the banking forward of CAIR allowances into the Transport Rule program at full value to allow sources the time to comply with the reduced caps and the addition of variability limits in 2014. [EPA-HQ-OAR-2009-0491-2747.1 p.6]

NIPSCO firmly believes that the emission allowance allocation conflicts mentioned above are the result of the premature initiation of the Transport Rule. We believe it would be preferable for CAIR to survive through the entire CAIR Phase I period (until 2015). This approach provides extra time for States to develop their SIPs, allows for better synchronization with the Utility MACT rule, combines the Transport Rule with Transport Rule II for better coordination of the implementation of the revised ozone NAAQS and also avoids the conflicts in the emission allowance allocation process discussed in the preceding paragraphs. [EPA-HQ-OAR-2009-0491-2747.1 p.7]
Response:
In response to the North Carolina decision, EPA is finalizing a replacement to the Clean Air Interstate Rule as quickly as possible.  Therefore, CAIR will not remain in place for the entire CAIR Phase I period.  EPA has the authority and legal obligation to promulgate the FIPs in this rule.  (See discussion in the preamble to the final rule, the TSD entitled "Status of CAA 110(a)(2)(D)(i)(I) SIPs Final Rule TSD", and responses to comments in this document, particularly in Section III.A.)
EPA has evaluated the feasibility of the compliance dates in the rule--a discussion can be found in the preamble to the final rule, Section VI.  The final Transport Rule does not allow the banking forward of CAIR allowances--a discussion can be found in the preamble to the final rule, Section IX.
The final allocation methodology does rely on heat input and is described in Section VII of the preamble to the final rule.  Additionally, there are provisions for states to submit SIPs for state allocation of allowances which will allow further specific consideration of other requirements specific to sources in a particular state.  This discussion can be found in the preamble to the final rule, section X.
Organization: Tennessee Valley Authority (TVA)
Comment:
Tennessee Valley Authority (TVA)
B. Issue: In developing CAIR, EPA set forth its general view of the approach it expected to take in responding to any section 126 petition that might be submitted relying on the same record as CAIR. Under that approach, so long as an upwind state remained on track to comply with CAIR, EPA would defer making the Section 126 findings. In the proposed Transport Rule, EPA does not discuss how petitions under Section 126 will be handled. [EPA-HQ-OAR-2009-0491-2782.1, p. 16]
TVA Comment: Similar to what it did in promulgating CAIR, EPA should set forth a position in the rulemaking record for the Transport Rule that as long as an upwind state remains on track to comply with the Transport Rule, EPA will defer making Section 126 findings. The reason for deferring to make a Section 126 finding would be that the affected State's SIP would fulfill the Section 110(a)(2)(D) requirements, so that there would no longer be any basis for the Section 126 finding with respect to that State. By clearly enunciating its position in this regard, EPA harmonizes the requirements of the Transport Rule and Section 126, provides greater certainty to the regulated community, and avoids the unnecessary expenditure of agency resources in reviewing premature Section 126 petitions. [EPA-HQ-OAR-2009-0491-2782.1, p. 16]
Response:
EPA does not have an obligation to make a determination under CAA 126 in this rulemaking.  EPA is not making a determination with regard to CAA 126 in this rulemaking.

V.F.1. Sunsetting of CAIR, CAIR SIPs, and CAIR FIPs

Organization: Allegheny Energy
Comment:
Allegheny Energy
AE believes the existing allowance trading scheme, as established in the Acid Rain Program (ARP) and NOx State Implementation Plan Call (NOx SIP Call) and carried through into CAIR, is effective at achieving EPA's goals as evidenced by the significant reductions actually realized by the electric generating industry since the late 1990's. AE recommends that EPA continue the established trading scheme, but at minimum supports the EPA preferred option retaining at least some limited interstate trading and unlimited intrastate trading. [EPA-HQ-OAR-2009-0491-2605.1, pp.2-3]
Response:
EPA is finalizing the preferred approach from the proposal.  See Section VII. of the preamble for further details.
Organization: Attorney General of North Carolina
Comment:
Attorney General of North Carolina
Upon EPA's findings of failure to submit, States, including North Carolina, submitted implementation plans to comply with the interstate transport provisions. North Carolina submitted its CAIR SIP, regarding the 1997 ozone and PM2.5 standards, which was approved. Approval & Promulgation of Air Quality Implementation Plans; N.C.; Clean Air Interstate Rule, 74 Fed. Reg. 62,496 (2009). North Carolina later certified that its existing SIP complied with its requirements under §110(a)(2)(D)(i)(I) regarding the 2006 daily PM2.5 standard as well. Ltr. from B.K. Overcash, Dir., N.C. Div. Air Quality, to A.S. Meiburg, Acting Reg'l Adm'r, EPA Region 4 (Sept. 21, 2009). EPA is now threatening to deny North Carolina's SIP certification on the basis of a guidance memorandum that was issued four days after North Carolina submitted the certification  -  a memorandum that provided absolutely no substantive guidance regarding how to determine whether a State had appropriately evaluated its regulatory structure against the requirements of §110(a)(2)(D)(i)(I). See E-Mail from Joel Huey, EPA Region 4, to Heather Hildebrandt, N.C. Div. Air Quality (Aug. 27, 2010).
It is imperative that EPA reaffirm and work to ensure that, under the Clean Air Act, "air pollution control at its source is the primary responsibility of States and local governments[.]" 42 U.S.C. §7401(a)(3). The Transport FIP rulemaking puts the cart before the horse. Without providing the States any real guidance regarding how to meet their obligations and threatening to deny submissions made in good faith based on existing practices, EPA now plans to impose a one-size-fits all solution before any State has had any real opportunity to address the problem first. This undermines one of Congress' underlying principles of the Clean Air Act.
As indicated, North Carolina respects the need for swift action in this area. The State brought a petition for judicial review of CAIR in part to force EPA to expedite controls to address interstate transport. The hole in which EPA now finds itself is due in large measure to its own promulgation of a "fundamentally flawed" rule, North Carolina, 531 F.3d at 929, and is not the fault of States such as North Carolina that acted on their own to reduce emissions from EGUs significantly even before CAIR was proposed. See N.C. Gen. Stat. §143-215.107D. Accordingly, EPA should commit to prioritizing review of State SIP submittals.
The simplest and most defensible way to effectuate the mandate in §110(a)(2)(D)(i)(I) is for EPA to determine each State's significant contribution level and then allow the State to determine how to reduce its emissions to a level below that. For example, each State should be permitted to decide for itself whether to establish a new unit set-aside and, if so, what the magnitude of that set-aside should be. Again, EPA's ability to promote State-specific solutions before imposing a FIP is hamstrung by the delays engendered by its previous, unlawful attempt to address this issue. Nevertheless, EPA still has not even informed States what their budgets are. First, the State budgets in the Transport FIP are only proposals. Second, it is entirely unclear how a State could develop a compliant SIP. One can infer that EPA would require each State to comply with its State budget without the variability bonus, which is the approach EPA took in the intrastate trading option. However, EPA also claims that variability is "inherent" and "unavoidable . . . ." 75 Fed. Reg. at 45,292/1. If that is the case, then the intrastate trading option may not be an appropriate yardstick for a State developing its own SIP because it fails to take variability into account. A State electing to adopt its own SIP instead of an EPA-run interstate trading program (which presumably EPA will offer as an option to replace the FIP) could never know whether it is forcing its sources to over-control or under-control. A downwind State would likewise never know if the upwind States have done enough.
EPA must promptly develop clear, cogent, and rational guidance for States to develop their own SIPs so States are not forced to adopt EPA's FIP primarily due to EPA's failure in the first instance to promulgate a lawful rule and failure to issue timely and informative guidance. EPA then should commit to expediting review of State SIP submittals to give States every opportunity to implement their own programs before the FIP becomes effective.
Response:
See preamble section IV, responses to other comments primarily in section III.A. of this document and the TSD entitled "Status of CAA 110(a)(2)(D)(i)(I) SIPs Final Rule TSD."  Additionally, preamble section X discusses state Transport Rule SIP requirements.
Organization: Kentucky Chamber of Commerce
Comment:
Kentucky Chamber of Commerce
Companies have already taken steps to comply with CAIR and that makes the Transport Rule premature. The EPA should determine the full impact of CAIR compliance before proposing new rules.  [EPA-HQ-OAR-2009-0491-2760.1 p.2]
Response:
EPA must replace CAIR in accordance with the North Carolina decision.  Because the Transport Rule will fully replace CAIR, there will be no requirement to meet CAIR provisions when this rule becomes final.  Actions taken under CAIR by sources were carefully considered and are discussed in Section V.B. of the preamble to the final rule.
Organization: National Rural Electric Cooperative Association (NRECA)
Comment:
National Rural Electric Cooperative Association (NRECA)
The unreasonable and unnecessary proposed compliance deadlines in the proposed CATR present further complications for EPA as the agency attempts to circumnavigate its responsibilities under the CAA Section 110 that clearly requires states be given opportunities to implement Section 110 obligations through the SIP process. NRECA reiterates an earlier comment that CAIR need not be eliminated by the 2012 date certain. Nothing in the North Carolina decisions suggests otherwise. If CAIR would remain in effect until a date after the proposed 2012 deadline, air quality in the proposed CATR 32 state region would continue to improve under its mandates [EPA-HQ-OAR-2009-0491-2723.1, pp.9-10]
The proposal itself recognizes that under Section 110(a)(2) states have three years to submit SIPs to address interstate significant contribution to NAAQS nonattainment. In EPA's view, state SIPs under CAIR do not meet state SIP Section 110 requirements because CAIR was struck down by the court's decision in 2008, even though any state that submitted a SIP approvable under CAIR was doing exactly what EPA dictated it needed to do to comply with the law. In this type of circumstance where EPA itself fails in its obligation to fulfill its CAA responsibility, case law dictates the time period for states to submit SIPs should be extended. EPA has not addressed why it does not intend to restart the clock on time periods for SIP submissions with CATR finalization when the agency itself is responsible for SIP failures. Rational rulemaking dictates that it does so. [EPA-HQ-OAR-2009-0491-2723.1, p.9]
EPA recognizes that under the proposed CATR timelines, states have virtually no time to follow SIP procedures to submit an approvable SIP, but nonetheless contends states rights under the CAA are not legally infringed because a state can submit a SIP that would replace the CATR FIP. Clearly, an after-the-fact SIP is not what the CAA contemplates, and EPA has cited no case law to support this view. Section 110(k)(5) clearly requires states be given a reasonable time to submit SIP revisions. Clearly, a reasonable time cannot be virtually no time. To comply with the CAA, EPA must allow states a reasonable time to meet Section 110(a)(2)(D)(i) mandates. Accordingly, CATR proposal should be re-proposed and amended so as to allow states the option through the SIP process to choose methods for allowance allocations based on state emissions budgets necessary to meet state requirements to address interstate transport. [EPA-HQ-OAR-2009-0491-2723.1, pp.9-10]
Response:
A discussion of the rationale for compliance deadlines in the Transport Rule can be found in Section IV of the preamble to the final Transport Rule.  As discussed elsewhere in response to a similar comment, EPA has an obligation to replace CAIR expeditiously.  Also addressed in other comments is the justification for not extending SIP deadlines under the provisions of CAA 110(a)(2)(D)(i)(I).  Section X of the preamble to the final rule has specific information on how a state can replace FIP requirements with a SIP at any time in the future.
Organization: NRG Energy
Comment:
NRG Energy
Excess CAIR allowances should be transitioned to TR markets NRG acknowledges EPA's critical need to maintain the integrity of allowances and believes this can be achieved while transitioning excess CAIR NOx allowances into the TR markets. The turmoil in the CAIR emission markets reflects the uncertainty regarding those allowances as well as the expectation that excess allowances will be worthless in 2012. In 2012, the regulated utilities will face uncertain, nascent markets for both SO2 and NOx. Clearly, Title IV SO2 allowances cannot be used in CATR, but EPA can bring some market stability by transitioning CAIR NOx allowances. An issue remains because these allowances were allocated based on fuel factors, which the District Court rejected in its decision. EPA could provide for continuity in allowance markets and recognize the sunk investment in the CAIR by applying surrender ratios to banked allowances similar to the flow control factor used in the NOx SIP program. NRG suggests that the use of an adjustment factor for CAIR NOx allowances might help reduce the risk of subsequent litigation and stabilize emission markets. [EPA-HQ-OAR-2009-0491-2749.1, p. 4]
Response:
The final rule does not allow CAIR NOx allowances or Title IV allowances to be used in Transport Rule.  EPA feels that the North Carolina ruling does not allow Title IV allowances cannot be used in the Transport Rule.  EPA carefully considered whether to allow CAIR NOx allowances to be recognized in the final transport rule.  As discussed in preamble Section IX, there are several reasons EPA decided that there would be no carryover of CAIR allowances.  EPA specifically examined whether surrender ratios could be used.  In order to use surrender ratios and allow a portion of the Transport Rule allocations to recognize unused CAIR allowances, a portion of each state budget would not be allocated until after CAIR true up (Spring 2012), which would be highly disruptive to the start up of Transport Rule markets (scheduled now to start in September 2011 when FIP allocations are recorded).  Additionally, large amounts of CAIR allowances are held in general accounts which are not associated with any state.  Therefore, it would be impossible to determine the appropriate amount of allowances to allocate based on a CAIR surrender ratio in any given state.
Organization: PowerSouth Energy Cooperative
Comment:
PowerSouth Energy Cooperative
State regulatory participation is necessary for successful implementation of any CAIR replacement rule.  EPA has unfairly and unnecessarily usurped the State of Alabama's role in assigning unit allocations.  Alabama and other states have successfully administered state emissions budgets for the NOx State Implementation Plan (SIP) Call and the Clean Air Interstate Rule (CAIR) program and should be allowed to set and administer unit allocations based on the state budget.  PowerSouth sees no compelling reason to circumvent the normal SIP process to rush to implement this Proposal.  CAIR should remain in effect to allow the typical rulemaking and SIP Call process to occur.  EPA should relinquish control of program implementation back to the states, including changing the compliance schedule such that any replacement rule is implemented no sooner than 2015. [EPA-HQ-OAR-2009-0491-2693.1,p.3]
Response:
EPA has the authority and legal obligation to promulgate al the FIPs in the final rule as described in the preamble to the final rule, the TSD entitled "Status of CAA 110(a)(2)(D)(i)(I) SIPs Final Rule TSD", and responses to other comments, particularly in Section III. A. of this document.  The timing of the start of the Transport Rule is explained in Section VII C of the preamble to the final rule.
States have the option to replace FIP allocations with State-determined SIP-based allocations beginning as soon as 2013.  A description of these provisions is found in preamble Section X.
Organization: State of Missouri Department of Natural Resources
Comment:
State of Missouri Department of Natural Resources
Due to the modeling analysis used by EPA to determine significant contribution, Missouri and some other states were not included as states that negatively affect nonattainment or interfere with maintenance in downwind states for the 1997 8-hour ozone standard, and therefore were not listed as ozone states under the Transport Rule. Once the final rule is promulgated, Missouri will no longer have any federal Nitrogen Oxide (NOX) ozone season trading program. The state's ability to meet its NOX State Implementation Plan (SIP) Call budget obligations will be limited, which creates backsliding and emission budget issues not only for Missouri, but also for areas downwind that depend on the budgets that Missouri set through the NOx SIP Call. [EPA-HQ-OAR-2009-0491-3806, p.1]
As you may know, the eastern one-third of Missouri was included in the NOX SIP Call. In addition, when the Clean Air Interstate Rule (CAIR) was promulgated, the entire state of Missouri was included in the ozone season NOX CAIR rule. Currently in Missouri's SIP, the ozone season CAIR rule reverts to the NOx SIP Call ozone season rule if CAIR is voided by federal code, as is proposed in this Federal Register notice . Therefore, the amendments proposed in this Federal Register notice will leave Missouri without a federal ozone season NOx trading program. Missouri and downwind states rely on federal NOX ozone season budgets to attain and maintain the 1997 8-hour ozone standard. [EPA-HQ-OAR-2009-0491-3806, p.1]
The ozone season limits, for which Missouri sources are accountable in the NOx SIP Call, were used in EPA's determination that Missouri does not significantly contribute, to downwind areas in nonattainment or maintenance of the 1997 ozone standard. It should be understood that these limits may no longer be enforceable, when the final Transport Rule is promulgated. [EPA-HQ-OAR-2009-0491-3806, p.2]
Missouri is currently in the process of redesignating the St. Louis area to attainment under the 1997 8-hour ozone standard. Without federally enforceable limits set by a NOx ozone season trading program, whether that be with the NOx SIP Call, CAIR, or the Transport Rule; the state's efforts to redesignate the St. Louis area to attainment would be negatively impacted. [EPA-HQ-OAR-2009-0491-3806, p.2]
Response:
EPA recognizes that a number of states relied on CAIR or modifications to CAIR to meet the requirements of the NOx SIP Call for large EGUs and large non-EGUs.  Section IX of the preamble to the final Transport Rule contains a discussion of the impacts to NOx SIP Call requirements.  EPA will assist individual states to determine the SIP revisions necessary for continued compliance with the NOx SIP Call.  Modeling conducted for the final rule changes the states for which this is an issue.  For instance, the final modeling shows that Missouri is significantly interfering with nonattainment or maintenance with regard to the 1997 ozone NAAQS.  EPA is addressing this change in a Supplemental Notice of Proposed Rulemaking to the Transport Rule.
Organization: Tennessee Department of Environment and Conservation, Division of Air Pollution Control
Comment:
Tennessee Department of Environment and Conservation, Division of Air Pollution Control
Comment on CAIR SIP Revisions: It appears that EPA will not require SIP revisions to resolve issues with offsets and automatic penalties for a source that failed to hold sufficient allowances to cover its 2011 control period emissions under CAIR. Since Tennessee used the limited SIP approach to implement CAIR, it also appears that a SIP revision would not be required to sunset the CAIR provisions after December 31, 2011. Please confirm if this is correct. [EPA-HQ-OAR-2009-0491-0553.1, p.5]
Response:
This is correct.
Organization: Texas Commission on Environmental Quality
Comment:
Texas Commission on Environmental Quality
The EPA should provide guidance for states whose participation in the Transport Rule program is fundamentally different from their participation in the CAIR program. Texas was previously included only in the CAIR annual S02 and NOx trading program (for interstate pollution from PM2.S), but is now proposed for inclusion in the Transport Rule only for the ozone-season NOx trading program. A number of other states' inclusion has changed from that required in the CAlR. To the extent that states may have relied upon CAIR to address section 110(a)(2)(D)(i)(I) obligations, or to fulfill certain other SIP obligations, the EPA should provide specific guidance, in a timely manner, to address any potentially outstanding SIP obligations. [EPA-HQ-OAR-2009-0491-2857.2, p.16]
Response:
EPA discusses in the preamble to this final rule several aspects of the impacts of the North Carolina decision on CAIR SIPs and other SIPs that rely on CAIR reductions.  In Section IX, information on the transition from CAIR to the Transport Rule is discussed.  In that same section, there is also information on other SIPs that may have relied on CAIR reductions.  As explained in Section IV, CAIR SIP approvals are being rescinded.  If a state has an approved SIP that fully replaces the CAIR FIP, EPA is taking action to rescind the approval of the SIP.  If the state has an approved SIP that modifies the requirements of the CAIR FIP, also called an abbreviated CAIR SIP, the state is subject to a CAIR FIP.  CAIR FIPs are fully replaced by the Transport Rule.  EPA assist individual states as they work to identify, develop and submit necessary SIP revisions resulting from the replacement of CAIR.
Organization: West Virginia Department of Environmental Protection
Comment:
West Virginia Department of Environmental Protection
WVDAQ will most likely issue emergency rules in December 2011 to eliminate state CAIR provisions in 2012. However, the CAIR ozone season rule 45CSR40, may continue with a limited scope that carries forth seasonal reduction requirements for NOx SIP Call Phase II sources such as internal combustion engines and cement kilns. West Virginia would not be able to submit a full SIP revision eliminating CAIR until Summer 2013. [EPA-HQ-OAR-2009-0491-2790.1, p. 3]
Response:
In the final rule, EPA does not require States to make modifications to their CAIR rules.  (See preamble, Section IX. A.)

V.F.2. [Reserved]

V.F.3. Applicability, CAIR Opt-ins and NOx SIP Call Units

Organization: Council of Industrial Boiler Owners (CIBO)
Comment:
Council of Industrial Boiler Owners (CIBO)
In the Preamble (75 FR 45338) EPA incorrectly claims that, as a group, non-EGU boilers did not make any emissions reductions as a result of the NOx Budget Trading program. This is simply untrue and EPA should correct the record on this point. EPA included non- EGUs as covered sources in the NOx Budget Trading Program. As covered sources, non- EGUs were required to reduce emissions by 60% from their 1995 baseline emission rate. Compliance with the tighter standards was achieved through either installation of emissions controls or the purchase of allowances. Some CIBO members' emissions were reduced through NOx RACT requirements as early as 1994.[EPA-HQ-OAR-2009-0491-2751.1, p.7]
CIBO has members with plants that are directly regulated by this Proposed Rule as EGUs or as EGU/Cogenerators. Therefore, it is important to accurately reflect the emissions reductions achieved by these sources. Since these NOx Budget Plan boilers are still part of the NOx SIP Call, they will be stranded with a non-existent or severely reduced allowance market when EPA orphans them from the related sources under the Transport Rule. EPA has not fully evaluated the impact of this rule on the existing trading programs, nor has the short comment period permitted an adequate analysis by CIBO members of such impacts. [EPA-HQ-OAR-2009-0491-2751.1 p. 7-8]
Response:
EPA carefully considered the comments on this topic.  While EPA does recognize that some of the units in the non-EGU group have made reductions, the commenter has provided no information on particular plants which EPA could use to compare to the information available to the Agency.  EPA is not allowing expansion of the Transport Rule ozone season program to include non electric generating units that were part of the NOx Budget Program because as a group the non-EGUs did not reduce emissions as a result of the NOx SIP Call or CAIR.  In order to meet the requirements of the NOx SIP Call, a state must address the emissions as a group (or identify other sources from which to achieve equivalent reductions).  Because the group of non-EGU units emits far less than the amount of allowances that could be added to the program and less than the group has ever emitted, no reductions have been achieved.  Allowing this group of non-EGU units to trade with TR-affected units could jeopardize a state's ability to show that it has eliminated its significant contribution to nonattainment or interference with maintenance.
See also preamble section IX, the TSD regarding non-EGUs that was developed for the proposed rule, and responses to other comments primarily in this section.
Organization: International Paper
Comment:
International Paper
International Paper was alerted to the fact that its units were listed on Transport Rule Allocation tables associated with the proposed Transport rule. International Paper operates its Augusta Mill under Part 70 Permit 2631-245-0006-V-02-0; Facility AIRS Number 04-13-245-00006 [EPA-HQ-OAR-2009-0491-2784.1 p.1]
Specifically, International Paper-Augusta Mill's Kraft pulping liquor recovery furnaces, RB2A No.2 Recovery Boiler and RB3A No.3 Recovery Boiler, were listed as affected units (ORIS 54358) in Georgia. These units, prior to EPA revising the cogeneration definition on October 19, 2007 72FR59,190, where affected facilities under the CAIR rule. However, based on EPA's current definition RB2A and RB3A are cogeneration units and not subject to CAIR or the Transport rule. [EPA-HQ-OAR-2009-0491-2784.1 p.1]
Augusta Mill's Recovery Boilers meet the definition of cogeneration units with useful power efficiencies consistently in the 100% to 10,000 % range for the RB2 and RB3. The high power efficiencies are a result of the boilers primarily being biomass burners. [EPA-HQ-OAR-2009-0491-2784.1 p.1]
Recovery Boilers at Augusta are not subject to the various sections of the Transport Rule as outlined in the proposed applicability sections (§§ 97.404 and 97.405, 97.504 and 97.505, 97.604 and 97.605, and 97.704 and 97.705-Applicability). Specifically, these units are not applicable unit because they qualify as exempt cogeneration units as outlined in, for example, 97.404(b)(1 )(i). [EPA-HQ-OAR-2009-0491-2784.1 p.1]
We support EPA's applicability definitions. However, please remove the recovery boilers from the applicable units table.' If you would like to contact us, feel free to call or write<EMAIL_ADDRESS>or<PHONE_NUMBER>. Thank you. [EPA-HQ-OAR-2009-0491-2784.1 p.1]
[[These comments are also posted under section V.D.2.b.i.]]
Response:
See Section V.D.2.b.i. of this document for the response to this comment.
Organization: Massachusetts Department of Environmental Protection
Comment:
Massachusetts Department of Environmental Protection
MassDEP recommends that EPA provide states that have been in the CAIR ozone-season control program with the ability to opt-in to the Transport Rule ozone season trading program. We believe that granting states this flexibility will insure continuity and consistency in the application of these programs for both states and their facilities.
Under the proposed Transport Rule, EPA concludes that emissions from Massachusetts sources have an impact on downwind states only with respect to PM2.5. Consequently, Massachusetts will be in the annual program for NOx and S02, but not the ozone season NOx program. (Under CAIR, Massachusetts was determined to contribute to ozone nonattainment, but not PM, so was only in the ozone season CAIR program.) This switch of Massachusetts from the CAIR ozone season program, which EPA proposes to terminate in 2011, to the Transport Rule annual program, starting in 2012, is understandable given that the Transport Rule analysis is based on a number of updated considerations as compared to the CAIR analysis. However, with the issuance of a second Transport Rule to address the anticipated 2010 ozone NAAQS, Massachusetts may be brought back into an ozone season control program. This creates considerable uncertainty for Massachusetts and, we expect, for other states in this situation.
We believe that providing states that have been in the CAIR ozone-season control program with the ability to opt-in to the Transport Rule ozone season trading program will address this issue of dropping in-and-out of CAIR versus Transport Rule trading programs. We urge EPA to provide this flexibility to states in the final Transport Rule FIP and to consider this, and other options, to keep states and sources from dropping in and out of trading programs given the anticipated promulgation of future transport rules and SIP obligations based on trading program requirements.
Exclusion of Certain Massachusetts CAIR Units from Transport Rule
We recommend that EPA allow Massachusetts and other states that have included smaller EGUs in their CAIR trading programs to opt them into the Transport Rule. Under CAIR, fourteen states that were part of the NOx SIP Call were allowed to include in their CAIR ozone season program additional units not covered by EPA's CAIR program but included within the states' NOx Budget Trading Program. This allowed these states to continue to meet the state's State Implementation Plan reduction requirements for these units. 13 As one of these fourteen states, Massachusetts brought into its CAIR program units that burn more than 50% fossil fuel and have a maximum heat input capacity of 250 million British thermal units (MmBtu) or more, or serve a generator with a nameplate capacity of 15 MW or more, whether or not they produce electricity for sale. The proposed Transport Rule does not apply to these units and does not include provisions to allow states to include them. EPA notes in the Transport Rule preamble that states remain obligated for NOx reductions from all EGU and non-EGU units included in the CAIR NOx Ozone Season program. 14 EPA has asked for comment on this approach.
In Massachusetts, the Transport Rule NOx and S02 annual programs are applicable to 64 EGUs as compared to 89 EGUs and non-EGUs under the Massachusetts CAIR regulation, (310 CMR 7.32). Exclusion of these smaller than 25 MWe EGUs and non-EGUs sources from the Transport Rule program will require alternative regulatory approaches to maintain the ozone season NOx reductions from the units that are no longer covered.
For the non-EGUs, we anticipate that EPA will address emissions from this category in the next Transport Rule so that states, like Massachusetts, that have included reductions from these units in their ozone attainment State Implementation Plan, will be able to maintain reductions from these units. However, because EPA has not indicated that it plans to require future reductions from EGUs smaller than the 25 MWe, we recommend that in the final FIP EPA allow Massachusetts and other states that have included these units in their CAIR programs to opt them into the Transport Rule, rather than having the units subject to new Reasonably Available Control Measure (RACT) regulations or single-source State Implementation Plan (SIP) revisions. If EP A brings Massachusetts into the final Transport Rule ozone season program, as we recommend, these smaller-than-25 MWe EGUs should be included in the ozone season program. If EPA leaves Massachusetts in the NOx annual trading program only, we recommend that these units be included in the annual program.   [EPA-HQ-OAR-2009-0491-2787.2 p.6-7]
Response:
The final rule does not allow a state that has not been identified as a state that significantly contributes to nonattainment or interferes with maintenance in other state to participate in the Transport Rule trading programs.  EPA believes that allowing non-affected states to trade with affected states, elimination of affected states' significant contribution could be compromised.  The additional allowances would be surplus to the budgets that have been determined under this final rule.  EPA cannot predetermine what requirements will be needed to eliminate significant contribution under a revised ozone standard.
Regarding smaller EGUs, as explained in preamble section IX.B., the final rule provides states an option to expand the general applicability provisions of the Transport Rule ozone-season NOX trading program to cover small EGUs, but not other units in the NOX SIP Call.  Specifically, consistent with the comments, EPA determined that it is appropriate to allow states to expand the applicability of the Transport Rule Ozone-Season NOX trading program to include units serving a generator with a nameplate capacity equal to or greater than 15 MWe producing electricity for sale.  This will allow states with NOXSIP Call obligations to meet those requirements with respect to these small EGUs.  These units can be brought into the program through abbreviated or full Transport Rule SIPs.  However, if a state chooses to expand the general applicability provisions, the state Transport Rule Ozone-Season NOX budget cannot be increased.  This option is not available to Massachusetts because Massachusetts is not subject to the requirements of the Transport Rule.
Organization: MeadWestvaco Corporation (MWV)
Comment:
MeadWestvaco Corporation (MWV)
While we support EPA's decision to exempt industrial boilers from further controls, we believe that EPA does not adequately address the interaction of non-EGU sources with respect to the NOx SIP Call and the Clean Air Interstate Rule (CAIR). We believe that EPA should extend the allowances afforded to these sources under the existing programs and allow those sources to continue to be included in whatever trading mechanisms are finalized. In the preamble EPA incorrectly claims that, as a group, non-EGU boilers did not make any emissions reductions as a result of the NOx SIP Call. MWV spent several million dollars to comply with these requirements. EPA correctly recognized non-EGUs in the CAIR rule in a way that allowed these sources to be rolled into that program without additional controls and allowed them to continue to participate in the trading program authorized by CAIR. Under the proposed Transport Rule, EPA would require additional rulemaking by forcing states to institute SIP revisions to account for non-EGUs. We believe it would be more efficient and consistent for EPA to adopt its previous position under CAIR with respect to these units, allowing non-EGU allowances to roll into the new program. [EPA-HQ-OAR-2009-0491-2650.1, pp. 2-3]
Response:
EPA carefully considered the comments on this topic.  EPA is not allowing expansion of the Transport Rule ozone season program to include non electric generating units that were part of the NOx Budget Program because as a group the non-EGUs did not reduce emissions as a result of the NOx SIP Call or CAIR.  EPA does recognize that some of the units in the non-EGU group have made reductions.  In order to meet the requirements of the NOx SIP Call, a state must address the emissions as a group (or identify other sources from which to achieve equivalent reductions).  Because the group of non-EGU units emits far less than the amount of allowances that could be added to the program and less than the group has ever emitted, no reductions have been achieved.  Allowing this group of non-EGU units to trade with TR-affected units could jeopardize a state's ability to show that it has eliminated its significant contribution to nonattainment or interference with maintenance.  Additional information can be found in preamble section IX.
Organization: MIT Central Utility Plant
Comment:
MIT Central Utility Plant
Comment #2: Transition Process for Electric Generating Units Subject to CAIR but not CATR
As mentioned above, the MIT·CUP cogeneration unit is currently regulated under the Massachusetts CAIR program (i.e. 310 CMR 7.32) because the MA CAIR program's applicability criteria includes combustion units that are rated at greater than or equal to 15 MW, which is lower than the Proposed CATR applicability threshold. For this reason, we request that EPA discuss the transition process for combustion units that were subject to CAIR but will not be subject to the CATR. For example, will combustion units like the MIT·CUP cogeneration unit still be required to monitor emissions according to 40 CFR 75 and report quarterly EDRs? [EPA-HQ-OAR-2009-0491-2870.1 p.2]
Response:
In the final rule, the state of Massachusetts is not subject to the provisions of the Transport Rule.  However, Massachusetts is still subject to the requirements of the NOx SIP Call which requires states to impose Part 75 monitoring requirements on certain sources.  EPA will work with the state of Massachusetts and individual sources, like this commenter, to determine which requirements still apply.  There are requirements that may have come about in response to the NOx SIP Call that are now relied upon for other requirements under the CAA through other SIPs.  For this reason, each state and source needs to be considered on a case-by-case basis.  EPA recommends that sources work primarily through their state air agency to determine which requirements continue to apply, and EPA will assist the state to help make the determinations.
Organization: South Carolina Department of Health and Environmental Control
Comment:
South Carolina Department of Health and Environmental Control
DHEC requests clarification on the applicability of NOX SIP Call requirements to non-EGU sources that South Carolina had brought into the CAIR trading program. The EPA is requiring states to meet NOX SIP Call requirements for large non-EGUs that states had brought into the CAIR Ozone Season Trading Program. The EPA specifically states, "[T]he NBP [NOX Budget Trading Program] states would need to achieve their NOX SIP call emissions reductions another way in order to continue to comply with the NOX SIP call." Does this mean that states would need to ensure that its large non-EGUs (those subject to NBP applicability requirements) do not exceed the state's NBP non-EGU budget? South Carolina's NOX SIP Call plan includes a total non-EGU budget of 32,141 tons, and a total budget of 3,470 tons for large non-EGUs in the trading program.41 Which of these two budgets does the EPA expect South Carolina to meet? [EPA-HQ-OAR-2009-0491-2677.1 p.17]
How does the EPA foresee states meeting their NOX SIP Call budgets? Could states meet the NOX SIP Call requirements for non-EGUs by including NOX emissions limits in affected facilities' Title V Operating Permits? If states are to impose new emissions limits in affected facilities' Title V Operating Permits, under what specific regulatory authority would they do this? Most of 40 CFR 96, Subparts A-I, governs the operation of the NBP. Without the NBP, what independent NOX SIP Call requirements exist for states to cite when amending Title V Operating Permits? [EPA-HQ-OAR-2009-0491-2677.1 p.18]
The EPA further states that if the requirement cited above remains in the final rule, then "any state that allowed these units to participate in the CAIR NOX Ozone Season Program would need to submit a SIP revision to address their NOX SIP Call requirement for the reductions."42 Without the emissions trading schemes of the NBP or CAIR, what sort of SIP revisions is the EPA expecting? Do states need to promulgate new NOX control regulations for non-EGUs? [EPA-HQ-OAR-2009-0491-2677.1 p.18]
The EPA has provided little insight in answering clarifying questions on this, and other sections, of the proposed Transport Rule. EPA staff stated on conference calls with states that this section of the proposed Transport Rule was a rough area, and that the EPA was expecting comments on the proposal. Given the EPA's decision to limit commentary to what is in the proposal, DHEC notes that the EPA should have offered more explanation in the preamble. Without an explanation of how the EPA expects states to meet NOX SIP Call requirements in the proposal, DHEC cannot have meaningful opportunity for comment on this section of the proposal. [EPA-HQ-OAR-2009-0491-2677.1 p.18]
Response:
See preamble Section IX for a discussion of continuing NOx SIP Call requirements.  The discussion includes information on the requirements and the SIP revision options available to states.
Additionally, there are requirements that may have come about in response to the NOx SIP Call that are now relied upon for other requirements under the CAA through other SIPs.  For this reason, each state and source needs to be considered on a case-by-case basis.

V.F.4. Early Reduction Provisions

Organization: American Electric Power
Comment:
American Electric Power
The Transport Rule Drastically Limits the Use of Banked Allowances, Resulting in Higher Than Necessary Costs
In the currently-effective CAIR program, EPA currently incentives power plants to reduce SO2 and NOx emissions more than required in a given year and save or 'bank' these emission allowances for use in a later compliance year. Emissions banking allow companies to comply at a lower overall cost because very high cost reductions and expensive pollution control equipment can be delayed until the most optimal time frame by utilizing banked allowances. More importantly, banking provides a net environmental benefit, because more emission reductions and hence environmental improvement occurs sooner. Under the Proposed Transport Rule, EPA has proposed an entirely new allowance system that would eliminate the use of previously banked Title IV and CAIR SO2 allowances after the end of 2011. As a consequence, the market price of SO2 allowances has dropped to nearly zero and the SO2 market has been effectively eviscerated. In effect, electric companies and their ratepayers and various market participants who have funded extra emission reductions and environmental improvement through advanced pollution control investments over the past several years have been penalized billions of dollars. [EPA-HQ-OAR-2009-0491-2665.1, p.12]
To minimize these adverse impacts, AEP recommends that EPA extend the current CAIR rule for several more years before beginning Phase I of the Proposed Transport Rule and allow for banked allowances to be used during this time period. The use of banked allowances could help smooth the transition to any tighter emission caps under a new Transport Rule, substantially reduce the costs of compliance, and help ameliorate unit retirement and system reliability concerns. Also, the continuation of the CAIR program will ensure progress to attaining the air quality goals under the Clean Air Act. [EPA-HQ-OAR-2009-0491-2665.1,p.12]
This is continued by the fact that the SO2 and NOx reduction levels of the CAIR program were set at levels that EPA determined were appropriate to remedy interstate transport problems for both the ozone and tine particulate matter standards. [EPA-HQ-OAR-2009-0491-2665.1, p.13]
Response:
See preamble section VII for regarding the 2012 compliance start and preamble section IX regarding the prohibition of the use of CAIR and Title IV allowances in the Transport Rule.
Organization: American Forest & Paper Association (AF&PA)
Comment:
American Forest & Paper Association (AF&PA)
While we support EPA's decision to exempt these sources from further controls we believe that EPA does not adequately address the interaction of non-EGU sources with respect to the existing NOx SIP Call and CAIR. We believe EPA should roll over the allowances provided to non-EGU sources under the existing NOx SIP Call and CAIR programs and allow these sources to continue to participate in the available trading mechanisms in the final Transport Rule. [EPA-HQ-OAR-2009-0491-2643.1, p.2]
In the preamble (75 FR 45338) EPA incorrectly claims that, as a group, non-EGU boilers did not make any emissions reductions as a result of the NOx SIP Call. This is simply untrue and the record should be corrected. Numerous units within this industry installed NOx controls in an effort to meet the required reductions of the NOx SIP Call. As covered sources, non-EGUs were required to comply with a significantly more stringent NOx standard. Compliance with the tighter standards was achieved through either installation of emissions controls or the purchase of allowances. EPA recognized this in the CAIR rule that allowed these sources to be rolled into that program without additional controls and allow them to continue to participate in the trading program authorized by CAIR. Under the proposed rule, EPA would require additional rulemaking by forcing states to institute SIP revisions to account for these units. We believe it would be simpler for EPA to adopt its previous position under CAIR with respect to these units and allow these sources to roll allowances for non-EGUs into the new program. Finally, these sources should be able to participate in any trading programs, the more robust the better, created under the final Transport Rule. [EPA-HQ-OAR-2009-0491-2643.1, p.3]
Response:
Keeping non-EGUs out of the Transport Rule does not create additional rulemaking for states.  The Transport Rule FIPs do not directly address NOx SIP call requirements.  States would have to conduct a rulemaking for a SIP revision to address NOx SIP Call requirements whether EPA allowed or did not allow non-EGUs from the NOx SIP Call to be part of the Transport Rule program.  EPA is not allowing these units to be part of the Transport Rule trading program for the reasons given in preamble section IX and responses to other comments particularly in section V.F.3. of this document.
Organization: American Public Power Association (APPA)
Comment:
American Public Power Association (APPA)
The Proposed Transport Rule properly recognizes the important environmental and economic benefits of allowance banking, a feature of CAIR that was not challenged in the litigation on that rule and that the court`s opinion in no way undermines. The ability of sources to use banked allowances for compliance with the program encourages them to make early emission reductions to the extent that cost-effective early reductions are possible. Unfortunately, the nature and stringency of the proposed rule's emission reduction requirements and its proposed compliance schedule would make it very difficult for most sources to make extra emission reductions during the early years of the program. See sections VI and VIII infra for UARG`s comments (and by incorporation in the APPA comments) on the compliance schedule. Permitting allowance banking in conjunction with an adjustment to the compliance schedule that would allow sources adequate time to comply with the program (and give states adequate time to develop SIPs) could well result in greater amounts of early emission reductions and, most likely, greater emission reductions over the long run. [EPA-HQ-OAR-2009-0491-2812.1, p.11]
Response:
See preamble section VII for information on Transport Rule banking provisions.
Organization: Attorney General of North Carolina
Comment:
Attorney General of North Carolina
EPA proposes to allow sources to bank allowances that are allocated under the Transport FIP's SO2, annual NOX, and ozone-season NOX programs. The shifting of emissions from year to year would allow the aggregate emissions in a State to exceed the breakpoint between lawful and unlawful emissions in some, but not all, years. Because downwind attainment is determined using annual (or seasonal) measures, time-shifting the elimination of the significant contribution across years may prejudice downwind areas. Accordingly, without more, banking may violate the Clean Air Act. [EPA-HQ-OAR-2009-0491-2685.1, p. 24]
However, the proposed rule also incorporates variability limits on annual emissions. Although EPA appears to have proposed these variability limits primarily as a brake on interstate trading, they would seem to apply equally to banking. Therefore, the same criticism also applies. Banking may allow sources to build up significant stores of allowances and then to use those banked allowances to fail to reduce emissions for several years running. If this is done, for example, as a strictly financial decision to use less catalyst in a control device because the source has a significant bank of allowances, this would not seem to be the intent of EPA's variability program. EPA must consider further controls on banking and/or use of the variability limits in order to ensure that banked allowances are not used to permit sources to emit in excess of the breakpoint between lawful and unlawful emissions. [EPA-HQ-OAR-2009-0491-2685.1, p. 24]
Finally, 2009 data indicate that emissions from several States are currently below the States' SO2 and/or NOX budgets  -  tens of thousands of tons below in the aggregate. In many, if not most, cases this is due in overwhelming measure to national economic conditions. EPA's proposal to allow sources to bank allowances during this period for use in the Transport FIP would simply permit excess emissions in the control years (2012 and beyond) due to economic conditions that have nothing to do with whether a source is controlled with highly cost effective controls. Even if EPA does not allow the importation of pre-existing allowances, EPA should adjust the budgets as necessary to account for deviations that would provide a windfall of banked allowances to sources based on temporary conditions not related to actual control of emissions. [EPA-HQ-OAR-2009-0491-2685.1, p. 24]
Response:
See Section VII of the preamble for discussion of banking and assurance provisions.
Organization: Buckeye Power, Inc.
Comment:
Buckeye Power, Inc.
f. Existing CAIR emission allowances should be incorporated into CATR.
Under the proposed rule, CAIR unused allowances would be eliminated as a means of compliance beginning in 2012. Eliminating the legacy allowances that Buckeye acquired under CAIR and its predecessor programs through allocations and purchases is unfair. Buckeye acquired the allowances as a result of incurring costs of hundreds of millions of dollars to install BACT ahead of when such technology was required. Buckeye also purchased 25 million dollars of allowances on the market to meet its requirements through 2037. Buckeye should not be punished for having taken prudent steps to meet existing environmental requirements through market purchases and early adoption of BACT. These allowances should not be rendered worthless through this rulemaking. Those allowances should be available for use under the CATR. If not, utilities will be discouraged from planning ahead and have little incentive to voluntarily take steps to improve environmental performance beyond the absolute minimum required by law. As a nonprofit operating on a cooperative basis, 100% of the cost of these purchased emission allowances will need to be recovered through rates from the members/consumers of Ohio electric cooperatives, if they are rendered useless under CATR. [EPA-HQ-OAR-2009-0491-2710.1, pp.11-12]
Buckeye has installed SCRs on both of its Cardinal Units and a SO2 scrubber on one of the Cardinal Units and is in the process of installing a JBR scrubber on the other of its Cardinal Units at a cost of approximately $1 billion. Now EPA proposes imposing additional reductions on Buckeye while other units have done nothing to install pollution control equipment and will not have to do so until 2014. Buckeye is a small utility which will suffer as a consequence of having placed controls on line prior to being required to do so. Further, EPA's proposal to do away with SO2 and NOx allowances that were obtained prior to the CATR proposal imposes a large financial burden upon Buckeye's consumers in Ohio. They have not only been impacted by the economic recession, but will face additional cost in the loss of these allowances. [EPA-HQ-OAR-2009-0491-2710.1, p.12]
Response:
See discussion in preamble section IX regarding prohibition of the use of CAIR and Title IV allowances in the Transport Rule.  See also http://epa.gov/airmarkets/business/cairallowancestatus.html, a statement by EPA which gave notice in March of 2009 that CAIR allowances might not have value in the future.
Organization: Citizens Campaign for the Environment (CCE)
Indiana Department of Environmental Management
Clean Air Task Force
Clean Energy Group
North Carolina Department of Environment and Natural Resources
Maryland Department of Environment (MDE)
Connecticut Department of Environmental Protection
Sierra Club, Georgia Chapter
Comment:
Citizens Campaign for the Environment (CCE)
Important elements of the proposed Transport Rule that CCE recommends should be maintained in the finalized rule include:
3) Prohibit the use of banked allowances from current program. Under the proposed Transport Rule, dirty power plants cannot use 'banked' excess allowances from the current acid rain program to meet the requirements of the new Transport Rule. Allowing the use of banked allowances from the current program would impair the efficacy of the new Transport Rule. CCE recommends that EPA maintain this prohibition in the final rule. [EPA-HQ-OAR-2009-0491-1937.1, p. 3]
Clean Air Task Force
EPA requests comment on the use of banked allowances from other trading schemes for purposes of compliance with TR requirements. 144 Consistent with the Court's opinion in North Carolina v. EPA, the Agency must not allow the use in the TR of any SO2 or NOx allowances banked or otherwise carried over under the CAIR program or the Title IV acid rain program, and we support EPA's proposal to exclude these allowances for TR compliance. 145 [EPA-HQ-OAR-2009-0491-2738.1, p.26; This comment can also be found at section V.F.4.b & V.G.2 of this comment summary]

Footnote:
144 75 Fed. Reg. at 45339.
145 75 Fed. Reg. at 45338-39.
Clean Energy Group
Additionally, many of the Clean Energy Group companies have made significant investments in pollution control equipment, allowing companies to bank Title IV and CAIR NOx allowances. However, as a result of the D.C. Circuit decision, EPA is not able to utilize Title IV allowances in the proposed program and the introduction of a new S02 currency greatly reduces the value of banked Title IV allowances. Although companies that made early investments are effectively penalized, the Clean Energy Group recognizes that EPA's proposal not to use Title IV allowances in the Transport Rule is the only legally-sound approach given the D.C. Circuit's decision. Therefore, we agree that EPA has proposed the only viable alternative with regard to treatment of Title IV allowances. Congressional modification of the Clean Air Act would be necessary to include Title IV allowance banks in the Transport Rule program. [EPA-HQ-OAR-2009-0491-2702.1, pp. 10-11]
Connecticut Department of Environmental Protection
Banking. CTDEP strongly supports EPA's proposal to preclude the use of any banked pre-2012 CAIR allowances in the transport rule NOx programs. CTDEP also strongly supports EPA's proposal to create a new SO2 allowance currency for the new transport rule SO2 program. [EPA-HQ-OAR-2009-0491-2780.1 p.20]
Indiana Department of Environmental Management
No allowances should be brought in from the Title IV or nitrogen oxide (NOx) budget programs. [EPA-HQ-OAR-2009-0491-2645.1 p.2]
Maryland Department of Environment (MDE)
Limited Trading
In the proposed Transport Rule, EPA outlines three options as the remedy for transport issues concerning the 1997 ozone and 2006 PM2.5 NAAQS. All three options focus on achieving reductions in NOx and SO2 emissions from EGUs, and all options are based on EPA preferences to preclude the use or inclusion of existing NOx and SO2 allowances as part of the remedy. We strongly support EPA's preference to exclude the existing NOx and SO2 allowance banks in any remedy in the proposed Transport Rule. [EPA-HQ-OAR-2009-0491-2639.2, p.14]
North Carolina Department of Environment and Natural Resources
The issue of the banking of allowances arises in two different situations: the use of pre-existing allowances (e.g., title IV and CAIR NOx allowances) and the use of allowances allocated under the Transport FIP.
EPA has proposed not to allow sources to use pre-existing Title IV S02 allowances to meet the compliance requirements of the Transport FIP. For the reasons stated by EPA, 75 Fed. Reg. at 45,338/3, NCDAQ concurs that the importation of banked Title IV allowances into the Transport FIP program would not be consistent with the Clean Air Act. Eliminating the use of the banked Title IV allowances ensures the caps in the FTR are not weakened.
EPA appears less certain regarding the fate of CAIR NOx allowances. NCDAQ suggests that CAIR NOx allowances should be eliminated. NCDAQ is concerned with the fact, as EPA readily concedes, that 'the amounts of the banks are so large that they might significantly reduce the amount of emissions reductions that would otherwise be achieved in the proposed Transport Rule NOx programs, particularly in the earlier years (e.g., 2012 and 2013).' 75 Fed. Reg. at 45,339/1.
EPA has proposed to determine that emissions reductions by 2012 and 2014 are necessary in order to ensure that the reductions are both coordinated with the downwind nonattainment deadlines and achieved 'as expeditiously as practicable,' as required. Therefore, the budgets EPA has proposed in the Transport FIP define the breakpoint between lawful and unlawful emissions. Importing any allowances from outside those calculations, not to mention the concernedly overwhelming bank of allowances remaining from the CAIR NOx program, would allow sources to delay elimination of their unlawful emissions past the point required by the only relevant considerations: downwind attainment deadlines and the associated 'as expeditiously as practicable' mandate. Thus, the importation of any pre-existing allowances violates the §llO(a)(2)(D)(i)(I). Therefore, NCDAQ does not support the continued use of CAIR NOx allowances once the Transport FIP becomes effective. [EPA-HQ-OAR-2009-0491-2767.1 p.3]
Sierra Club, Georgia Chapter
[These comments were submitted as testimony at the Atlanta, Georgia public hearing on September 1, 2010.  See Docket Number EPA-HQ-OAR-0491-1939, p.98.]
We're pleased that the emissions banking can only be used when emissions reductions go below what is already required.
Response:
EPA is finalizing the proposed approach of not allowing CAIR allowances to carry over into the Transport Rule programs or to allow the use of Title IV allowances in Transport Rule programs.  See further discussion in Preamble Section IX.
Organization: City of Dover, Delaware
Comment:
City of Dover, Delaware
Under the proposed Transport Rule existing SO2 and NOx allowances issued under CAIR would have little or no compliance value. The City, in order to ensure reliable and low cost electricity service to its customers, implemented a strategy which includes maintaining an adequate bank of allowances to hedge against future price risks. As with many peaking units, the City's covered units' emissions are highly variable and largely dependent on a variety of factors impacting electricity demand. As such, the City elected to manage their emission allowance accounts in such a way which permits the continued delivery of reliable and affordable electricity service even in years in which their units are required to run more often. [EPA-HQ-OAR-2009-0491-2636.1, p.2]
The City believes that the Transport Rule should allow for some flexibility in allowing existing CAIR allowances to count for compliance with the Transport Rule. The City is aware of the large number of CAIR allowances currently banked system-wide and recognizes the challenges EPA faces in reducing concentrations of air pollutants with allowance banks at high levels. However, in order to ensure a smooth transition from CAIR to the Transport Rule, particularly for units with high levels of variability in their emissions from year to year, the City feels that existing CAIR allowances should have meaningful compliance value in the Transport Rule. [EPA-HQ-OAR-2009-0491-2636.1, p.2]
Response:
See preamble section IX and a statement issued by EPA in March 2009 regarding future value of CAIR allowances, which was widely disseminated at the time and has remained posted on the CAIR program website continuously since that time, http://epa.gov/airmarkets/business/cairallowancestatus.html.
Organization: Dominion
Comment:
Dominion
For reasons discussed in detail in Section V of these comments, we believe the initial 2012 compliance requirements as well as the 2014 subsequent reductions for S02 are unrealistic and will be very difficult to achieve. To the extent EPA retains this schedule of reductions, we offer the following recommendations for EPA consideration that would enhance the positive aspects of EPA's preferred approach noted above and provide additional compliance flexibility for affected sources, particularly in the initial years of the program: [EPA-HQ-OAR-2009-0491-2715.1, p.4]
Compliance Deadlines for 2012 and 2014 are Unreasonable [EPA-HQ-OAR-2009-0491-2715.1, p.12]
The 2012 and 2014 compliance deadlines are unreasonable and will be difficult to achieve. This may be especially true in the Group 1 states where electric generating units(EGUs) would need to reduce their S02 emissions by at least 50 percent from current levels by 2014. The proposed Transport Rule establishes new reduction requirements that must be met only 6-12 and 30 months after the final Transport Rule is issued. By contrast, the Phase 1 deadlines for the Clean Air Interstate Rule (CAIR) allowed almost 5 years from promulgation of the final rule until the first compliance year for S02 and almost 4 years for NOx. [EPA-HQ-OAR-2009-0491-2715.1, p.12]
For 2012, EPA generally assumes switching to lower sulfur fuels as a viable compliance option. As noted above in Section III.6, EPA's assumptions concerning the availability of low sulfur coal are outdated and do not reflect recent shifts of coal supply in the Appalachian region and subsequent trends of decreasing supply of low sulfur coal in this region. In addition, the use of low sulfur western PRB coal is not a viable option in the short term for boilers and coal operation and handling systems in the Eastern U.S. designed around the use of eastern coals due to costs and the time often needed to complete needed modifications to coal handling systems and acquire necessary environmental permits. [EPA-HQ-OAR-2009-0491-2715.1, p.12]
We believe EPA is overly optimistic in concluding that all of the necessary retrofits can be completed in time to meet the proposed 2014 compliance deadline. Second, EPA greatly underestimates the amount of time that it takes sources to design, permit, construct and begin operation of retrofit control equipment and assumes that affected units will be able to construct scrubbers and SCRs on a timeline similar to what was accomplished for compliance with the initial phase of CAIR. In fact, EPA relies on the very same information (a now outdated 2005 analysis) used in developing the CAIR rule. While CATR included widespread trading across 28 states, the proposed Transport Rule has less flexibility with deeper reduction requirements and geographic trading constraints (in terms of two distinct trading zones for S02 and limited interstate trading for both S02 and NOx) that will likely require more emission control retrofits. Consequently, sources may not be able to install controls in the timeframe the EPA assumes is reasonable. [EPA-HQ-OAR-2009-0491-2715.1, pp.12-13]
EPA assumes it would take an average of 21 months to install an SCR on a single unit, and about 27 months to install a scrubber. Dominion's experience has shown that the process from planning and engineering to permitting and construction for a major capital project to install emission control technology can take as much as 45 to 58 months. [EPA-HQ-OAR-2009-0491-2715.1, p.13]
[See EPA-HQ-OAR-2009-0491-2715.1, p.13-14 for additional comments pertaining to Compliance Deadlines for 2012 and 2014 are Unreasonable]
To the extent that EPA retains the deadline, it should consider provisions that would allow extensions for situations that indicate a confirmed demonstration of reliability concerns, technical unfeasibility or other extenuating circumstances, or would provide opportunities to offset potential retrofit delays through the establishment of early reduction credits and supplemental allowances as it did in the NOx SIP Call rulemaking. [EPA-HQ-OAR-2009-0491-2715.1, p.14]
Response:
See preamble Sections Vi and VII for information regarding compliance deadlines.
Organization: Duke Energy
Comment:
Duke Energy
There are policies that EPA can put in place to encourage the downward trend in EGU emissions to continue under the PTR even if the initial binding compliance date under the rule was not until some years later. One possible approach would be to set "shadow" allowance allocations, using the best data available, for 2012 and each subsequent year until the new program begins. Then, during the period leading up to the new program's initial compliance year, EPA (or, more properly, a state) could credit sources with additional allowances corresponding to the number of tons they emitted below their shadow allowance allocation levels in those years, with those allowances eligible to be banked and used beginning in the first compliance year. The ability to earn allowances -- usable once the new program begins -- for early reductions would give sources a meaningful incentive to reduce their emissions prior to the start of the program, while allowing them the time they need to make the adjustments necessary for compliance.  [EPA-HQ-OAR-2009-0491-2689.1, p.11]
Response:
The Transport Rule will start in 2012, so the need for the commenter's suggested provisions is not needed.
Organization: Edison Electric Institute (EEI)
Comment:
Edison Electric Institute (EEI)
[This comment was submitted as testimony at the Chicago, Illinois public hearing on August 19, 2010.  See Docket Number EPA-HQ-OAR-0491-1746, p.28.]
and to allow banking of surplus emission reductions.
Response:
Comment is vague.  Surplus emission reductions may be banked under the Transport Rule (see preamble section VII).  Surplus emission reductions from CAIR may not be used in the Transport Rule (see preamble section IX).
Organization: Environmental Markets Association (EMA)
Comment:
Environmental Markets Association (EMA)
[These comments were submitted as testimony at the Atlanta, Georgia public hearing on September 1, 2010.  See Docket Number EPA-HQ-OAR-0491-1939, pp.49-50.]
EMA believes that EPA could provide for continuity in allowance markets by electing to apply surrender ratios to banked allowances as it is proposed in the rule. We suggest that it might help to reduce the risk of subsequent litigation if EPA set the fuel factors in a way that would reverse the impact -- if it set the fuel factors in a way that reverse the impact of the original allocation method, for example, if a 100-percent coal-fired company converted its allowances at a higher ratio than a gas-fired company.
EMA supports efforts such as EPA's to promote market-based mechanisms for responding to environmental issues because emissions trading is reducing emissions earlier at lower costs than any other form of regulation.
We encourage EPA to maintain the continuity of existing programs by providing for the convertibility of current period allowances to subsequent trading rule programs.
Response:
See preamble section IX.
Organization: First Energy
Comment:
First Energy
CAIR NOx and SO2 Allowances
FE recommends the EPA allow the future use of CAIR allowances as a method to meet the aggressive CATR 2012 & 2014 program timeframe. EPA's proposed approach effectively penalizes sources that have meet CAIR requirements by installing control equipment prior to 2012, and moots the value of the future stream of allowances on which those decisions were made. Banked Title IV SO2 allowances and CAIR NOx allowances should remain in the control of the utility for future use. [EPA-HQ-OAR-2009-0491-2657.1,p.12]
Response:
See preamble section IX.A. for a discussion of allowances used in the CAIR program.
Organization: Florida Electric Power Coordinating Group, Inc. (FCG)
Comment:
Florida Electric Power Coordinating Group, Inc. (FCG)
The Proposed Transport Rule properly recognizes the important environmental and economic benefits of allowance banking and that allowance banking as an element of EPA's program was in no way undermined by the court's decision in North Carolina v. EPA. Additionally, the FCG supports approaches that would permit the use of banked CAIR NOx allowances for compliance with the Proposed Transport Rule. Such banking allowances should allow for unlimited banking along with no 'expiration period' attached to the allowances accrued each year. [EPA-HQ-OAR-2009-0491-2658.1, p.12]
Response:
See preamble section IX regarding the use of CAIR NOx allowances.
Organization: George Washington University Regulatory Study Center
Comment:
George Washington University Regulatory Study Center
In addition, the Transport rule proposes to restrict the use of banked allowances through the 'assurance provisions' in the proposal and prohibit the transfer of banked allowances from the Title IV SO2 program and from the CAIR NOx programs. The current totals of banked SO2 and NOx allowances under CAIR and the predecessor CAA programs are substantial: 12 million SO2 (Title IV) allowances, 600,000 ozone-season NOx allowances, and 720,000 annual NOx allowances. [EPA-HQ-OAR-2009-0491-2573.1, p.5]
If the proposed Transport Rule is implemented, emissions will likely increase in the short term as emitters must "use or lose" banked allowances and lack an incentive to make early emissions reductions. While it is less certain, it is possible that prohibiting the transfer of banked allowances would result in a reduced level of long-term banking of allowances and a broader loss of buy-in to cap-and-trade systems. The facilities and firms subject to regulation under the Transport Rule's NOx and SO2 provisions participate in other EPA and state emissions trading markets and would likely participate in any such future market for greenhouse gases or other pollutants. Almost all of these markets rely on banked allowances, and as discussed in the next section, regulated firms' (and investors') confidence in those allowances has ramifications that cross the boundaries between programs. [EPA-HQ-OAR-2009-0491-2573.1, p.11]
C. Background: Emissions-Trading Programs and Allowance Banking
1. Principles of Allowance Banking
As many scholars have identified, creation of property rights is associated with more efficient use of resources. The CAA and EPA regulations explicitly state, however, that the emissions allowances created do not convey property rights. A more useful way to understand emissions allowances is therefore not to consider them to be full-fledged property, but as carrying some (but not all) of the rights in the property bundle. For example, holders can exclude others from using allowances they hold. But the statutory provisions and government agency decisions that create allowances limit allowance holders' rights. [EPA-HQ-OAR-2009-0491-2573.1, p.12]
Because emissions allowances convey certain rights, it is important that emissions-trading programs maintain clear and consistent rules on the use of allowances in order to limit uncertainty and assure a smoothly functioning market.23 After the basic rules for an emissions-trading program are in place, changes by regulators in the rules governing the use of allowances can significantly affect the certainty and credibility of the emissions-trading programs and the value of allowances. Such changes may lead to undesirable market behavior, including an emissions increase as sources use up or dump their banked allowances. In addition, such changes also may undermine the credibility of other trading programs within the jurisdiction of the regulator. [EPA-HQ-OAR-2009-0491-2573.1, p.12]
One key element of an emissions-trading program is the extent to which the program permits the banking of emissions allowances. Banking has advantages and disadvantages. It lets sources reduce emissions in one period and save their unused allowances for future time periods. Banking also encourages early reductions in emissions and early improvements in air quality. [EPA-HQ-OAR-2009-0491-2573.1, p.12]