State Senator Carl Marcellino, Environmental Conservation Committee Chair at the time had a memorable quote when discussing this legislation. The state law was eventually over-turned, but it demonstrated a need to do something about upwind states.
By limiting interstate trading and giving each state its own budget for pollution reductions based on its contribution to nonattainment in downwind areas, EPA has adequately addressed New York's concern which has been a problem for over a decade.
American Chemistry Council
III. Approach to Emissions Control
Of the three alternatives presented in this proposal, ACC supports EPA's preferred approach as providing the most flexibility for covered sources. By setting a pollution budget for the impacted states for NOx and SO2, EPA is allowing for some interstate trading while also ensuring that the states meet emission limits. Allowing for maximum flexibility will result in sources being able to achieve the required emission reductions in the most cost-effective way. [EPA-HQ-OAR-2009-0491-2716.1, p.4]
American Lung Association of the Mid Atlantic
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.32.]
We support the essence  of EPAs preferred approach for setting  pollution budgets
American Lung Association of the Upper Midwest
[These comments were submitted as testimony at the Chicago, Illinois hearing.  See Docket Number EPA-HQ-OAR-0491-1746, p.14.]
I would recommended U.S. EPA's  preferred approach of setting a pollution budget  for each of the states, which allows for limited interstate trading, but assures that each state  meet its pollution control technology.
American Petroleum Institute (API)
API also supports the use of a trading program within the rule to facilitate the most cost-effective reductions possible. API supports the option EPA has proposed for the Federal Implementation Plans (FIPs), which would use state-specific emissions budgets and allow for intrastate and limited interstate trading. This approach would assure environmental results while providing some limited flexibility to covered sources. The approach would also facilitate the transition from CAIR to the Transport Rule for implementing agencies and covered sources. [EPA-HQ-OAR-2009-0491-2649.1, p. 2]
Response:
Thank you for your comments and for your support.
Organization: Adirondack Mountain Club
Comment:
Adirondack Mountain Club
EPA's preferred alternative, which would allow for interstate trading among power plants, does not address the New York's problem with pollution hotspots. EPA acknowledges in this rulemaking that particular plants have very significant affects on very specific downwind regions. The preferred alternative, along with the first alternative to allow for unlimited trading within States and no interstate trading, do not address the regional pollution problems associated with upwind polluters. [EPA-HQ-OAR-2009-0491-2761, p.2]
While the cap and trade system for NOx and SO2 may indeed achieve reductions on a national scale, it may also provide no relief at all in locations where pollution credits are used in lieu of real controls. New York's Adirondacks and Catskills are downwind of 70 large coal-burning plants in the Midwest. These plants burn coal without scrubbers or other pollution controls and produce as much as 80 to 90 percent of the air pollutants impacting the Northeast. A strong state emissions budget must be maintained and EPA must not allow trading to increase a State's budget. More importantly, trading restrictions must be put in place for specific regions where strong linkages, as evidenced in the proposed rule, cause a significant increase in downwind air pollution and restrict counties' abilities to achieve attainment and maintenance. [EPA-HQ-OAR-2009-0491-2761, p.3]
Response:
Thank you for your comment.  In the preamble to the final Transport Rule, EPA is finalizing the air quality-assured trading program for the reasons discussed in section VII.  Section VII.J. describes why EPA believes this remedy comports with the Court's opinion in the North Carolina decision.  EPA also describes in section IV its legal authority and the environmental basis for this rulemaking.  In addition, EPA discusses in section XII.J the environmental justice analyses we have done and the results.
Organization: Attorney General of North Carolina
Comment:
Attorney General of North Carolina
[[2685.1 p.6]]
a. Lawfulness of Trading In North Carolina, the D.C. Circuit discussed the lawfulness of the interstate trading of pollution allowances under §110(a)(2)(D)(i)(I):
Section 110(a)(2)(D)(i)(I) prohibits sources "within the State" from "contribut[ing] significantly to nonattainment in . . . any other State . . ." (emphasis added). Yet under CAIR, sources in Alabama, which contribute to nonattainment of PM2.5 NAAQS in Davidson County, North Carolina, would not need to reduce their emissions at all. See CAIR, 70 Fed. Reg. at 25,247 tbl. VI-8. Theoretically, sources in Alabama could purchase enough NOX and SO2 allowances to cover all their current emissions, resulting in no change in Alabama's contribution to Davidson County, North Carolina's nonattainment. CAIR only assures that the entire region's significant contribution will be eliminated. It is possible that CAIR would achieve section 110(a)(2)(D)(i)(I)'s goals. EPA's modeling shows that sources contributing to North Carolina's nonattainment areas will at least reduce their emissions even after opting into CAIR's trading programs. 71 Fed. Reg. at 25,344-45.
531 F.3d at 907. The Court then concluded that although EPA need not measure each State's "significant contribution" solely according to the State's sources' impact on a downwind area, once EPA determines a State's "significant contribution," EPA "must actually require elimination of emissions from sources that contribute significantly and interfere with maintenance in downwind nonattainment areas." Id. at 908; see also 75 Fed. Reg. at 45,303/1-3.
EPA proposes to meet this requirement by calculating each State's budget, on a state-by-state basis and not on a regional basis. EPA proposes to allow interstate trading so long as the State's total emissions do not exceed the budget. However, due to the "unavoidable variability in baseline emissions" that "result[s] from the inherent variability in power plant operations," 75 Fed. Reg. at 45,292/1, EPA proposes that each State's sources may, during any given year, exceed the State's budget by a State-specific amount that would be established in the FIP.
EPA's decision to propose State budgets calculated on a state-by-state basis and to limit emissions to those budgets is sound under North Carolina. Further, as a legal matter, North Carolina does not disagree in principle with EPA's attempts to address utility sector emissions variability by allowing limited interstate trading. However, North Carolina disagrees with the means EPA has chosen. Under EPA's proposed remedy, State X's relevant emissions may have been relatively low during the base year and State Y's may have been high. Theoretically, EPA's variability construct would allow for sources in State X to buy allowances from sources in State Y during a normal year in order to balance this variability. This presents two conceptual problems. First, it punishes sources in State X and provides a windfall for sources in State Y based solely on the variability of electricity production during the single year EPA chose as the base year (2005). That is, had EPA chosen 2006 instead of 2005 as the base year, sources in State X may have profited at the expense of sources in State Y instead of the other way around.
Second, and more significantly from an air quality perspective, sources in State Y could very well emit up to the maximum of their variability allowance for every one-year and three-year period, despite the fact that sources in State Y were already at the high end of their variability in the base year and therefore their budget  -  without the variability limits  -  already reflects the needed variability. Put another way, although the variability limits may have been calculated in a defensible manner  -  these Comments take no position on that technical issue  -  once the limits are allowed, there is no legal assurance that the variability margins will be used by market participants to account for variability. The variability limits are simply a trading budget overage and are forever unmoored from their intended purpose. For example, if sources in State X choose or are required by state law, state rule or a consent decree to reduce emissions to a level below that State's budget, the remaining allowances may be purchased year after year by sources in State Y not because the sources in State Y need the allowances to account for variability but only because they desire them for economic reasons to avoid having to reduce emissions, i.e., to avoid eliminating their "significant contribution" from  "within the State." 531 F.3d at 907. As such, the variability limits, although stemming from a defensible theory, are themselves not consistent with the Clean Air Act.
Response:
Thank you for your comments.  Please see section V.B for a discussion on the base year.  Please see sections VI.E and F for a discussion on the variability limits and assurance, and section VII.E for a discussion on the assurance provisions.  Please see section IV of the preamble to the final Transport Rule for a discussion of EPA's legal authority and the environmental basis of this rulemaking.  Please see section VII J of the preamble to the final Transport Rule for a discussion of how the remedy EPA is finalizing is consistent with the Court's opinion in the North Carolina decision.  Based on these and other sections of the preamble, EPA believes we have finalized a rule that addresses the Court's concerns and meets the statutory requirements under section 110(a)(2)(D)(i)(I) of the Clean Air Act.
Organization: Calpine Corporation
Comment:
Calpine Corporation
The limitations on interstate trading in the proposed rulemaking, while potentially creating issues regarding market liquidity, responds to the D.C. Circuit Court of Appeals (Court) decision that unlimited interstate trading cannot guarantee the necessary reductions in all the upwind states. Further, creating new allowance currencies solves the problem of directly affecting the Title IV SO2 program. With the exception of the unit specific allocation method, Calpine supports EPA's preferred option in the proposed rulemaking. [EPA-HQ-OAR-2009-0491-3614, p.2]
Response:
Please see section VII of the Preamble regarding the allocation method used in the final rule.
Organization: City of Tallahassee
Comment:
City of Tallahassee
Preferred Options for Implementing the Transport Rule.
EPA has asked for comments on the three options for implementing the Transport Rule reductions, among which it has its preferred choice.  The City prefers any option which allows specific emission limits that are technology driven and allows enough flexibility for a utility to make timely, cost-conscious, environmentally beneficial decisions that will not overwhelmingly, negatively impact its customers.  In lieu of this, the EPA's preferred option (state budgets with limited interstate trading) is the lesser of three evils, in that it would allow limited interstate trading of allowances and banking of allowances. The direct control remedy, where pollution limits are set for each state and an allowable emission rate limit is determined for each EGU, with some emissions averaging amongst an entity's generating fleet is also preferred, provided that the State would make determinations of emissions rates.  However, it would appear that under the EPA's direct control remedy, a company could meet all of its obligations under this alternative and meet all of its individual emission reduction requirements, yet be penalized by the failure of other companies within its state to meet theirs.  As one can imagine, this is an untenable situation. [EPA-HQ-OAR-2009-0491-2669.1, p.4]
Response:
Thank you for your comment.  EPA is not finalizing the direct control alternative, but is finalizing the air quality-assured trading remedy.  As EPA explained in the proposal, a state's SIP submission to replace the Transport Rule FIP might propose to use any remedy of the state's choosing that actually eliminates the emissions that significantly contribute to nonattainment or interfere with maintenance downwind. Additional information on the SIP process may be found in section X of the preamble to the final Transport Rule.
Organization: Class of '85 Regulatory Group
Comment:
Class of '85 Regulatory Group
The Class of '85 appreciates EPA's efforts to develop the Proposal. The Group supports EPA's preferred option for implementing the requirements of CAA § 110(a)(2)(D), subject to the comments provided herein. The preferred option provides the most environmental benefit of any proposed option while offering important flexibility for EGUs, which provide a vital service to society by producing a reliable supply of electricity. However, the Class of '85 believes that EPA can improve its preferred option by making several changes to the proposed program, including refinements to trading and variability provisions, and clarifications to opt-in, penalty, and other provisions. These changes will ensure a smooth transition from the Clean Air Interstate Rule ('CAIR') and increase the overall effectiveness of CATR. [EPA-HQ-OAR-2009-0491-2854.1,p.1]
The Preferred Option's Interstate Trading Mechanism Provides the Most Efficient Mechanism for Reducing Emissions.
Any interstate emissions reduction program implemented by EPA must contain flexibility mechanisms to help assure highly cost-effective emissions reductions and address real-world fluctuations in electricity demand. [EPA-HQ-OAR-2009-0491-2854.1,p.2]
Response:
Thank you for your comment.  EPA is finalizing the air quality-assured trading remedy in the preamble to the final Transport Rule for the reasons cited in section VII.  EPA describes the transition from CAIR to the Transport Rule is section IX.  Based on these and other sections of the preamble, EPA believes we have finalized a rule that addresses the Court's concerns and still affords sources the flexibility to comply with a market-based program that delivers the reductions necessary to meet the statutory requirements under section 110(a)(2)(D)(i)(I) of the Clean Air Act.
Organization: Cogentrix Energy, LLC
Comment:
Cogentrix Energy, LLC
Cogentrix supports the Preferred Option for a number of valid and proven reasons. First, Cogentrix has opted in to EPA's successful Acid Rain program at both the Hopewell and Portsmouth sites. The Acid Rain program allowed for interstate trading, and yet it has proven highly successful in its goal to reduce acid deposition in Northeastern states. Second, the Preferred Option allows for the most economical reductions among affected facilities through a 'cap and trade' approach. The economic efficiency of the First Alternative is significantly reduced from the Preferred Option because covered sources in different states, even within close proximity would be precluded from trading with each other. To bar trading among proximate sources based on arbitrary state lines that have no influence on air transport of emissions would be economically inefficient. The Second Alternative Option is not a 'cap and trade' program at all and provides none of the economic efficiency of a trading program. Rather. it merely dictates emissions reductions similar to EPA's less successful Reasonably Available Control Technology (RACT) programs. By allowing for trading among affected facilities the likelihood for excessive control costs and the use of unproven control technologies is reduced. [EPA-HQ-OAR-2009-0491-2772.1, p.4]
Further, Cogentrix believes that the Preferred Option also adequately addresses the identified issues of the Clean Air Interstate Rule (CAIR) since it uses geographical boundaries on trading of allocations. [EPA-HQ-OAR-2009-0491-2772.1, p.4]
Response:
Thank you for your comment.  EPA is finalizing the air quality-assured trading option, known as the preferred option in the proposal,  for the reasons discussed in section VII.A of the preamble to the final Transport Rule.
Organization: Consumers Energy
Comment:
Consumers Energy
:: Consumers Energy is an advocate of the use of emissions trading to arrive at cost effective solutions to air quality issues. Consequently, we support an approach similar to EPA's preferred methodology. We believe that the collaborative approach described above will enable EPA to craft an allowance allocation scheme that will be more robust, yet still in accordance with the rulings of the D.C. Circuit Court. [EPA-HQ-OAR-2009-0491-2837.1, p.16]
:: EPA must recognize that the affected sources have been making substantial plans and progress towards the implementation of controls, in accordance with CAIR, which remains final and enforceable. Any changes to CAIR must take these plans into account. The changes to the schedule contained in the proposed Transport Rule are not attainable. Any attempt to meet them will result in limited success, substantial noncompliance across the region, with substantial cost penalties. [EPA-HQ-OAR-2009-0491-2837.1, p.16]
Response:
Thank you for your comments.  Please see section VII.D. in the preamble to the final rule for a discussion of the allocation methodology.  Please see section VII.C for a discussion of compliance with the programs.
Organization: DiMeo, Daniel
Comment:
DiMeo, Daniel
[These comments were submitted as testimony at the Chicago, Illinois public hearing on August 19, 2010.  See Docket Number EPA-HQ-OAR-0491-1746, pp.89-90.]
And as far as EPA's preferred approach to the trading of pollution limits, it's my vision that the more trading that's allowed generally the less pollution control you can expect, and when the costs are, again, shown to be so significantly less than the benefits overall, I believe that the best option, like the EPA's second or third alternative, especially in terms of eliminating interstate trade, it's very easy for companies to see those pollution limits as more allowances that they have, and that it's a budget that they must spend as much of as possible in order to cut down the cost.
And so we need to make sure that those budgets are as low as possible for the sake of the rest of us as it were.
Response:
Thank you for your comment and participation in the Chicago public hearing.  EPA benefits from public involvement in the rulemaking process.
EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A in the preamble to this final Transport Rule.  EPA discusses how we developed budgets for this rule in section VI.D.  EPA has also included assurance provisions beginning in 2012, the start of the program, to ensure that each state eliminates its significant contribution and interference with maintenance as required under Clean Air Act section 110(a)(2)(D)(i)(I).  You can read about the assurance provisions in section VII. E of the preamble to the final Transport Rule.
Organization: DTE Energy
Comment:
DTE Energy
We support EPA's preferred option proposing to permit some degree of interstate allowance trading. This option will provide very restricted flexibility within the constraints of Michigan's proposed budget, but at least provides some flexibility for more cost-effective compliance than the alternative approaches. While DTE supports the preferred proposal over the alternatives, trading of emission allowances for compliance purposes under this proposal will be at best limited. The preferred option creates significant risk with EPA's after-the-fact variability analysis. This concern could be moderated to a degree if the variability limits were such that the company would not be unexpectedly found in a noncompliance situation. [EPA-HQ-OAR-2009-0491-2851.1, p.2]
Response:
Thank you for your comment. EPA is finalizing the air quality-assured trading remedy in the final Transport Rule.  EPA notes that there are no limits on trading in the Transport Rule.  For SO2 compliance purposes, however, a source in a group 1 state (such as Michigan) must surrender for compliance a group 1 allowance for each ton of emissions.  For compliance in the annual NOX and ozone-season trading programs respectively, sources may use annual NOX and ozone-season allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.  For a discussion on the interstate trading programs, see section VII.A of the preamble to the final Transport Rule.  Variability limits are discussed in the preamble to the final Transport Rule in section VI.E and F.  Further detail is provided on state variability limits in the Technical Support Document called Power Sector Variability Final Rule.
Organization: Duke Energy
Comment:
Duke Energy
As explained in the following comments, Duke Energy agrees with certain aspects of the PTR, including EPA's preferred limited interstate trading remedy that allows some degree of allowance trading, EPA's proposal not to auction allowances under this approach, the ability to bank allowances from the beginning of the program, and not applying the assurance limits at the start of the program. [EPA-HQ-OAR-2009-0491-2689.1, p.1]
Duke Energy Supports EPA's Proposed Limited Interstate Trading Remedy.
Duke Energy supports EPA's proposed limited interstate trading remedy over the intrastate trading and direct control remedy alternatives. The fact that this option permits at least some degree of allowance trading provides more potential compliance flexibility and will provide for more cost-effective compliance options than the alternative remedies. This flexibility will be especially important in the early years of the program, especially if EPA does not alter the unreasonable proposed compliance schedule and continues to overstate the ability of existing emission controls to reduce emissions. [EPA-HQ-OAR-2009-0491-2689.1, pp.2-3]
Response:
EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  For information on the compliance deadlines, see section VII.C of the preamble to the final Transport Rule.
Organization: E.ON U.S.
Comment:
E.ON U.S.
We support EPA's preferred option allowing limited interstate allowance trading, as opposed to the alternative options under consideration. [EPA-HQ-OAR-2009-0491-2797.1, p.8]
EPA's preferred trading option that allows unlimited intrastate trading and limited interstate trading is the best of the three allowance trading options identified by EPA. EPA's proposal to allow at least some degree of allowance trading in order to provide flexibility is the most cost-effective option among those being considered by EPA. In addition, we support EPA's proposal to delay the variability limits until 2014. However, even with the delay until 2014, Kentucky and many other states will face a significant allowance shortfall which simply cannot be avoided by installation of additional controls or costly fuel switches or boiler modifications. Therefore EPA should not begin the variability limits until 2014 and then they should be phased in over a six-year period perhaps starting with 25% then stepping down to 10%. [EPA-HQ-OAR-2009-0491-2797.1, p.8]
Response:
Thank you for your comment.  EPA is finalizing the air quality-assured remedy for the reasons discussed in section VIIA of the preamble to the final Transport Rule.  For reasons discussed in section VII E, EPA has decided to begin the variability limits and assurance provisions in 2012.  Discussions on the variability limits may be found in section VI.E.2 of the preamble to the final Transport Rule.  More details on variability are also available in the Power Sector Variability Technical Support Document in the docket for this rulemaking.  EPA is finalizing a different allowance allocation methodology from what was proposed in the Transport Rule proposal that bases allocations on historic heat input.  For reasons discussed in section VII J of the preamble to the final Transport Rule, EPA believes we are finalizing a rule that comports with the Court's decision in North Carolina while still providing sources the flexibility they need to comply with the regulatory programs.
Organization: Edison Electric Institute (EEI)
Comment:
Edison Electric Institute (EEI)
[These comments were submitted as testimony at the Chicago, Illinois public hearing on August 19, 2010.  See Docket Number EPA-HQ-OAR-0491-1746, pp.28-29.]
EEI supports, among EPA's stated options, the Agency's preferred approach that would allow limited interstate trading.
However, even with EPA's preferred approach for limiting emissions trading, EEI is concerned that some of the companies may choose to avoid emissions trading because they would seek to avoid the risk that EPA's after-the-fact variability analysis brings to the compliance demonstration process.
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII A of the preamble to the final Transport Rule.  For a discussion of the variability limits and assurance provisions, please see sections VIE, VIF, and VII E of the preamble to the final Transport Rule.  An example of how compliance works is found in Table VII.E-1 of section VII E of the preamble to the final Transport Rule.  Section VII.J discusses why EPA believes we are finalizing a remedy that comports with the Court's decision in North Carolina while still providing flexibility to sources to comply with the regulatory requirements of the program.
Organization: Environmental Defense Fund (EDF)
Comment:
Environmental Defense Fund (EDF)
EDF strongly supports the preferred remedy, State Budgets/Limited Interstate Trading, over the two alternatives identified in the Proposed Rule. At the same time, EDF recommends that EPA strengthen and streamline the assurance provisions to align them even more closely with the Agency's statutory obligation while simultaneously enhancing flexibility and cost-effectiveness. EDF also urges EPA to consider ways of allowing even more robust interstate trading to secure expansive emissions reductions and public health protections while hewing its statutory obligations.
In the proposed Transport Rule, EPA considered three alternative remedies that varied in the scope of trading allowed: one with limited interstate trading, one with only intrastate trading, and one with no trading at all. EDF strongly supports utilizing EPA's preferred Limited Interstate Trading approach to secure expansive emissions reductions and greater human health protections than provided for under the proposed Transport Rule. As EPA recognizes in the proposed Transport Rule, there is strong theoretical and empirical support for flexible regulatory mechanisms such as emissions trading. Trading is widely recognized to be cost-effective, i.e., achieve reductions at the lowest total cost.40 Furthermore, the United States and EPA in particular have substantial practical experience with trading programs that have been resounding successes, including the Acid Rain Program under Title IV of the 1990 Clean Air Act Amendments and the NOx Budget Program that would be superseded by the proposed Transport Rule. [EPA-HQ-OAR-2009-0491-2834.1 p.15]
Indeed, EPA's own analysis shows that the preferred approach will offer greater net benefits than the two alternatives, which would limit trading to differing degrees. The Direct Control alternative applies controls directly to affected units with no trading at all, while the Intrastate Trading alternative allows for intrastate trading, but prohibits interstate trading. The EPA's RIA finds that the net estimated benefits of the Limited Interstate Trading remedy exceed those of both the Direct Control and Intrastate Trading alternatives by billions of dollars a year.41 [EPA-HQ-OAR-2009-0491-2834.1 p.16]
Moreover, these additional economic benefits come at no cost in terms of the effectiveness of the policy or its alignment with the goals and requirements of Section 110(a)(2)(D)(i)(I). Indeed, there are strong statutory grounds for using the preferred approach. To carry out the Agency's statutory mandate to prohibit interstate air pollution consistent with Section 110(a)(2)(D), EPA must address the emissions that significantly contribute to downwind nonattainment and interfere with maintenance. As we have already argued, this can be effectively achieved with greater emissions reductions and tighter variability limits. With an appropriate increase in the stringency of emissions reductions, the mechanisms that EPA proposes  -- the combination of carefully constructed state emissions budgets and assurance provisions tied to the variability limits  --  will ensure that the remedy satisfies the requirement of Section 110(a)(2)(D)(i) [EPA-HQ-OAR-2009-0491-2834.1 p.16](I).
First, EPA has painstakingly and carefully constructed state emission budgets that are tied directly to the significant contribution and interference with maintenance attributable to individual upwind states. These budgets, which were developed using state-of-the-art modeling of air quality impacts and abatement costs, establish a clear connection between the proposed trading system and EPA's statutory responsibility. [EPA-HQ-OAR-2009-0491-2834.1 p.16]
Second, the assurance provisions in the Proposed Rule play a crucial role. By requiring facilities to submit additional allowances for every ton in excess of state-specific variability limits, the Proposed Rule creates a strong economic disincentive to emit above those limits. The result is a very high degree of confidence that emissions from upwind states will remain within the defined variability limits, helping to align the proposed remedy with the objectives of Section 110(a)(2)(D). [EPA-HQ-OAR-2009-0491-2834.1 p.16]
Nonetheless, EDF believes that an even better approach is possible  --  one that would provide increased flexibility to regulated facilities and encourage a more robust emissions market (thereby lowering the costs of compliance with the program even further) while simultaneously aligning the rule even more closely with the statutory language in Section 110(a)(2)(D)(i)(I). We recommend that EPA consider two improvements to its preferred approach  -- the first streamlining and strengthening the assurance provisions, the second allowing trade between States in different groups. We emphasize that these two changes are independent, so that one could be adopted without the other. [EPA-HQ-OAR-2009-0491-2834.1 p.17]
a. Streamline and strengthen the assurance provisions. As noted above, the Proposed Rule includes assurance provisions that, when combined with appropriately stringent emissions budgets and variability limits, ensure that emissions from individual States will not make significant contributions to downwind nonattainment. [EPA-HQ-OAR-2009-0491-2834.1 p.17]
While the assurance provisions clearly satisfy the legal test, the specific way in which they would be implemented is unnecessarily complicated and puts undue weight on the specific mechanism used to allocate emission allowances to individual facilities. In the event that emissions in a state exceed the variability limit, the proposed approach lacks a clear or automatic means of allocating responsibility for that excess among sources within the state. EPA's proposed solution to this problem relies heavily on the initial facility-level budgets and introduces unnecessary uncertainty. As a result, the proposed approach might have the unintended effect of limiting banking and trading of allowances. [EPA-HQ-OAR-2009-0491-2834.1 p.17]
EDF recommends an alternative approach that would be even more closely aligned with EPA's statutory obligation, while improving and strengthening the performance of the assurance provisions from an economic point of view.42 [EPA-HQ-OAR-2009-0491-2834.1 p.17]
i. Facilities would be required to hold two distinct types of permits, or allowances, emission allowances and assurance allowances. The approach would work as follows:
ii. Emission allowances would function just as in the Proposed Rule, with each allowance authorizing the emission of one ton of SO2 or NOx. At the end of each annual compliance period, facilities would be required to submit one emission allowance for each ton of pollution emitted. [EPA-HQ-OAR-2009-0491-2834.1 p.17]
iii. As in the Proposed Rule, each state would be allocated a quantity of emission allowances equal to its State budget as determined by EPA. The total number of emission allowances available in a given year would be the sum of all the state budgets. Emission allowances would be fully tradeable and bankable. [EPA-HQ-OAR-2009-0491-2834.1 p.18]
iv. Assurance allowances would be a novel aspect of this approach. At the end of each annual compliance period, facilities would also be required to submit one assurance allowance for each ton of pollution emitted.43
v. Each State would be allocated a quantity of assurance allowances equal to the State budget plus the variability limit as determined by EPA. As in the case of emission allowances, there would be distinct assurance allowances for each pollutant. [EPA-HQ-OAR-2009-0491-2834.1 p.18]
vi. Importantly, assurance allowances would be State-specific: that is, they would only be valid in the state of issuance. As a result, assurance allowances could not be traded across State lines. Moreover, assurance allowances would not be bankable. In this way, the assurance allowances would guarantee that emissions in a state could not exceed the state emissions budget plus variability limit.44 [EPA-HQ-OAR-2009-0491-2834.1 p.18]
vii. EPA would administer an emissions market for each pollutant and an assurance market for each pollutant in each state.45 [EPA-HQ-OAR-2009-0491-2834.1 p.18]
This approach has a number of important advantages over the EPA's proposed approach:
:: While setting up separate assurance and emission markets might appear complicated at first, in fact it is a much simpler and more streamlined approach over all. The existence of a separate assurance market completely obviates the need for any method of allocating responsibility for excess emissions among facilities within a State. Each facility must submit an emission allowance and an assurance allowance for each ton of pollution: that is it. No further formulas or computation is needed. [EPA-HQ-OAR-2009-0491-2834.1 p.18]
Under the EPA's proposed approach, in contrast, facilities have no inherent or distinct responsibility to account for their contribution to a State's emissions in excess of the budget plus variability limit. As a result, EPA must propose a complicated scheme to apportion responsibility based on each EGU's "proportional share of the amount by which state emissions exceed the state budget with the variability limit."  [EPA-HQ-OAR-2009-0491-2834.1 p.18]
:: For the same reason, the approach proposed here is also much more flexible in that it would be compatible with any method of allocating emission allowances. For a range of reasons, individual States may want to propose alternative methods of initial allowance allocations. For example, there are strong economic reasons to support auctioning emission allowances (as in the Regional Greenhouse Gas Initiative already underway in the Northeastern U.S.) Alternatively, States might reasonably prefer simpler allocation rules that are directly tied to heat rates, or that reward facilities that have already made significant emissions reductions in the past and/or built up large banks of allowances under the pre-existing Acid Rain Program. [EPA-HQ-OAR-2009-0491-2834.1 p.19]
EPA's proposed approach for allocating responsibility for excess emissions among facilities within a State is entirely dependent on the proposed approach for allocating emission allowances among facilities, since the definition of an EGU's "proportional share" of excess emissions is based on the EGU's initial allocation. In effect, the EPA's proposed approach "locks in" a potentially suboptimal allocation approach, and would not allow individual States the flexibility to institute their own approaches to allowance allocation.[EPA-HQ-OAR-2009-0491-2834.1 p.19]
Response:
Thank you for your comments and your thoughtful alternative proposal.  EPA gave it thorough consideration and decided to finalize the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  Regarding your proposal for assurance allowances, we have given your proposal due consideration but do not find that it improved our ability to address interstate transport under CAA section 110(a)(2)(D)(i)(I), in line with the Court decision, in an administratively practical way.  In addition, EPA analyzed the degrees of power sector market concentration in each state using the Herfindahl-Hirschman index, that indicates only 6 Transport Rule states have power markets sufficiently diffuse to assure fair access to intrastate allowances.  The remaining states have highly concentrated power markets where individual allowance holders could impair liquidity and increase allowance prices.  EPA believes intrastate trading would require the Agency to conduct at least 58 separate auctions annually for at least 22 states, with state-specific screening of auction participants to ensure fair access to intrastate allowances.  For discussion on the assurance provisions, please see sections  VII E in the preamble to the final Transport Rule.  Variability and assurance are discussed in sections VI E and F.  For these reasons and the reasons discussed in section VII.J of the preamble to the final Transport Rule, EPA believes we have finalized a rule that comports with the Court's decision in North Carolina while providing sources with the most flexibility through cost-effective trading programs that are administratively manageable.
Organization: EquiPower Resources Corp.
Comment:
EquiPower Resources Corp.
In sum, there is no basis to support EPA's assertions that the (i) assurance provisions will be triggered infrequently and will not be punitive, and (ii) Rule's limited trading provisions are sufficient, as both are premised on the notion that EPA based its allocations on accurate assumptions and that unit utilization will not vary in the future. These deficiencies mean that the Transport Rule effectively implements a command-and-control program (with operational restrictions), which is why various groups have projected that compliance costs will be high because interstate trading will be dramatically limited under the Rule. Thus, it is unclear how EPA can support its suggestion that the cap-and-trade mechanism in the Proposed Rule will, "even without assurance provisions ... succeed[] in reducing emissions below allowance levels." Trading programs that have achieved such reductions (e.g., the NOx Sip Call and Title IV programs) have done so because those programs, unlike the Transport Rule, allowed unfettered trading. Such trading is not permitted under the Transport Rule, and therefore the Rule cannot take advantage of the efficiencies offered by cap-and-trade mechanisms. As explained below, EquiPower submits that there are alternative mechanisms that the Agency could have considered which would have addressed the D.C. Circuit's concern in North Carolina v. EPA that there be reasonable assurances that upwind emissions do not contribute to downwind nonattainment, while still permitting unfettered trading in the Transport Rule States. [EPA-HQ-OAR-2009-0491-2704.1, p.8]
Response:
EPA disagrees with the commenter's assertions regarding the assurance provisions and the trading provisions.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII A of the preamble to the final Transport Rule.  EPA believes this final rule strongly hews to the Court's decision in North Carolina and addresses the Court's concerns.  Please see section VII J of the preamble to the final Transport Rule for the reasons why we believe this approach comports with the Court's opinion.  For further discussions on the variability limits and assurance provisions, please see sections VI E and F of the preamble to the final Transport Rule, as well as section VII E.  The Transport Rule does not preclude trading; rather sources in Group 1 states may only use SO2 allowances allocated to group 1 states for compliance with the SO2 program, and sources in group 2 states may only use allowances allocated to group 2 states for compliance with the SO2 trading program. For compliance with the annual and ozone season NOx trading programs sources may use annual and ozone season allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.   The discussion of EPA's legal authority and the environmental basis for the rule is found in section IV of the preamble for the final Transport Rule.  While EPA appreciates the thoughtful suggestions that EquiPower has put forth, we do not find that they improve our ability to address interstate transport under CAA section 110(a)(2)(D)(i)(I), in line with the Court decision, in an administratively practical way.  Therefore, we have decided to finalize a different alternative from what you suggest in order to address the court decision in North Carolina requiring us to align compliance schedules and attainment schedules, quantify and address each upwind state's significant contribution, give an independent meaning to the interfere with maintenance prong of CAA section 110(a)(2)(D)(i)(I); properly establish state-level emission budgets for SO2 and NOx; and provide adequate assurance that necessary reductions would occur within each state.  We believe the approach that we are finalizing is consistent with the decisions of the Court and will ensure the reductions necessary to meet statutory requirements while still providing flexibility for covered sources to comply with the program.
Organization: Florida Municipal Electric Association (FMEA)
Comment:
Florida Municipal Electric Association (FMEA)
The EPA preferred cap and trading program is overly complicated: Trading intrastate is unlimited but interstate trading is limited to approximately 10% of the state's budget. However, Florida can only trade with Group 2 states. These include Alabama and Mississippi, but not Georgia which is a Group 1 state. Since the EGUs with controls in place or planned are given allowances based on estimated emissions with controls operating at full rated capability, what is there left to trade? The key principle of the cap and trade methodology is over-control of some units to allow under control of others with utility decisions based on where the cheapest reductions can be made. Again, FMEA urges EPA to use a methodology for allocating allowances for compliance with the Transport Rule based on heat input. This would operate similar to the NOx allowance allocation methodology without a fuel factor. [EPA-HQ-OAR-2009-0491-2731.1, p. 10]
Response:
Thank you for your comments.  EPA is finalizing an allowance allocation methodology based on heat input for the reasons discussed in section VIID of the preamble to the final Transport Rule.  Please also see the technical support document titled Allowance Allocations in the Transport Rule FIPS Final Rule available in the docket of this rule.  Additionally, your comments are based on modeling assumptions in the proposed Transport Rule which showed Florida covered for annual SO2 and NOx reductions.  In the final Transport Rule, Florida is now covered only for ozone-season NOx reductions.  Sources in Florida may trade with any state.  In fact, any source may trade with any other source in any other state.  The only limit is on allowance surrender for SO2 program compliance.  In this case, a group 1 source can only use SO2 allowances allocated to group 1 states for compliance with the SO2 trading program.  A source in a group 2 state can only use SO2 allowances allocated to Group 2 states for compliance with the SO2 trading program.  For compliance in the annual NOx and ozone season NOx trading programs, sources may use annual and ozone season NOx allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.  EPA believes the approach we are finalizing addresses the Court's concerns in the North Carolina decision while providing sources with flexibility to comply with the program requirements.
Organization: George Washington University Regulatory Study Center
Comment:
George Washington University Regulatory Study Center
The D.C. Circuit's rejection of CAIR in North Carolina v. EPA has created substantial uncertainty about future regulation of NOx and SO2 emissions through emissions-trading programs. Members of Congress and the EPA have both reacted to this uncertainty with proposals for new cap-and-trade programs for these pollutants.  [EPA-HQ-OAR-2009-0491-2573.1, p.5]
The EPA's proposed Transport Rule, like the CAIR rule that it would replace, would create new cap-and-trade programs: two programs for SO2 (one for core coal-using states and another for peripheral states), one for ozone-season NOx, and one for annual NOx. It is almost entirely a creature of the North Carolina v. EPA decision in that most of its provisions are carefully worded and constructed so as to comply with the holdings in that case. Perhaps most notably, the rule would sharply restrict or eliminate interstate trading of SO2 and NOx allowances because the EPA determined that doing so would be the only way to comply with the court's requirement that each state's emissions not interfere with NAAQS compliance in downwind states.  [EPA-HQ-OAR-2009-0491-2573.1, p.5]
In addition, the Transport rule proposes to restrict the use of banked allowances through the "assurance provisions" in the proposal. [EPA-HQ-OAR-2009-0491-2573.1, p.5]
Response:
Thank you for your comments.  For the reasons discussed in section IV and VII J, EPA believes we are finalizing a rule that comports with the Court decision in North Carolina while providing flexibility to covered sources in complying with program requirements to reduce emissions that significantly contribute to or interfere with maintenance of downwind air quality.  Regarding your assertion that the proposed Transport Rule "restricts the use of banked allowances through the assurance provisions", EPA disagrees.  The Transport Rule neither restricts the use of banked allowances, nor limits trading.  Please see section VII.E of the preamble to the final Transport Rule for a discussion of the assurance provisions.  See also the technical support document titled Assurance Level Penalty Level Analysis in the docket to this rulemaking. As regards trading, any source may trade with any other source in any other state.  The only limit is on allowance surrender for SO2 program compliance.  In this case, a group 1 source can only use SO2 allowances allocated to group 1 states for compliance with the SO2 trading program.  A source in a group 2 state can only use SO2 allowances allocated to Group 2 states for compliance with the SO2 trading program.  For compliance in the annual NOx and ozone season NOx trading programs, sources may use annual and ozone season NOx allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.  EPA believes the approach we are finalizing addresses the Court's concerns in the North Carolina decision while providing sources with flexibility to comply with the program requirements cost-effectively.
Organization: Great River Energy
Comment:
Great River Energy
The Transport Rule proposes three options. Great River Energy can only support EPA's State Budgets/Limited Trading Proposed Remedy (the 'Preferred Option') subject to comments provided herein. The Preferred Option has numerous limitations and contains critical errors, as discussed. Our support is contingent upon a viable and active interstate trading program and we have strong reservations about the existence of such activity. With respect to EPA's State Budgets/Intrastate Trading Remedy Option ('Option 2'), Great River Energy questions the 'flexible and cost effective' nature of this program for Minnesota, given the effective monopoly that two utilities will have on the state's allowances. (See Attachment 3, Transport Rule Minnesota Allocations by Company.) More specifically, Great River Energy will be placed at a competitive disadvantage and in an inflexible compliance position due to our limited allowance allocations as viewed in the context of our historical emissions and projected operational capacity. Further, with respect to EPA's Direct Control Remedy Option ('Option 3'), EPA projects NOx lb/mmBtu emission rates, as an example, for Great River Energy simple cycle combustion turbines. Specifically, EPA has determined that Lakefield Junction Station would be limited to an annual lb/mmBtu emission rate at 0.033 lb/mmBtu. Pleasant Valley Station is generally at 0.1 lb/mmBtu. Cambridge Station at 0.086 lb/mmBtu. Upon reviewing recent operational data, it is clear that the existing DLN burners may not be sufficient to consistently meet these projected emission rates on a continuous basis. Therefore, under Option 3, GRE could be expected to install SCR as the final level of NOx control in order to meet the projected emission rates, even though at one of our sources, six units have BACT controls in the form of DLN burners and water injection. In essence, with Option 3, EPA places us in a position of having to go beyond BACT in order to comply with the Option 3 requirement. These additional control costs, like Option 2, would place Great River Energy at a competitive disadvantage in the state and region. As a member of MISO, our simple cycle combustion turbines would effectively be priced out of the market, especially for contiguous states not subject to Transport Rule controls. It would also cause rate increases to our member cooperatives, which have struggled as a result of recent increases and demand reductions due to economic downturn. EPA should not underestimate the significance of these costs with respect to small cooperatives, reliant upon peaking turbines, across the Transport Rule region. [EPA-HQ-OAR-2009-0491-2758.1 p.8]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA notes that we are finalizing an allowance allocation methodology based on historical heat input as discussed in section VII.D of the preamble to the final Transport Rule.  Section VII.J explains why EPA believes this program structure is consistent with the Court's opinion in the North Carolina decision.  EPA discusses price increases in section XII.H, which EPA projects to be within the range of price variability that is regularly experienced in markets.  Projected retail electricity prices are also discussed in Chapter 7 section 9 of the Regulatory Impact Assessment (RIA) in the docket to this final rule.
Organization: Greater Philadelphia Chamber of Commerce
Comment:
Greater Philadelphia Chamber of Commerce
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.206.]
The EPA preferred option, which allows for intrastate trading and limited interstate trading among power plants, but assures that each state will meet its pollution control obligations, would seem to make sense for our region.
Response:
Thank you for your comments.
Organization: Independence Power & Light (IPL)
Comment:
Independence Power & Light (IPL)
For the reasons stated herein, IPL requests that EPA modify the proposed Rule by:
3. replacing the allowances for IPL's Blue Valley 3 unit listed in Appendix A with the following allowances:
2012 S02: 4300 tons of S02
2014 S02: 4300 tons
2012 NOx: 330 tons [EPA-HQ-OAR-2009-0491-2741.1, p.18]
Response:
Thank you for your comment. EPA is finalizing a heat input methodology for allowance allocations that is indexed to historic data as described in section VII.D of the preamble to the final Transport Rule.  For additional information, please see the Allowance Allocations in the Transport Rule FIPS Final Rule technical support document in the docket to this rulemaking.
Organization: JEA
Comment:
JEA
JEA supports EPA's proposal to permit at least some degree of allowance trading. Permitting interstate allowance trading would provide for increased flexibility and permit more cost-effective compliance options. Increased flexibility will be particularly important in the early years of the program, especially if EPA does not change the proposed rule's unreasonably accelerated compliance schedule. [EPA-HQ-OAR-2009-0491-2713.1, p.4]
Response:
Thank you for your comment.  EPA is finalizing the air quality-assured trading remedy in the preamble to this final Transport Rule for the reasons discussed in section VII A.  EPA discusses responses to comments on compliance deadlines in section VII.C.
Organization: Kansas City Power and Light Company (KCP&L)
Comment:
Kansas City Power and Light Company (KCP&L)
8. While KCP&L generally supports interstate trading versus intrastate-only trading or specific limits, to provide some flexibility and allow cost-effective compliance options, the relatively small size of the variability pools will not provide enough flexibility.
a. EPA should consider increasing the variability limit threshold from 10% to perhaps 20% of each state's budget.
b. Since it would have a negligible impact on the regional dispersion modeling used to develop the rule, KCP&L suggests EPA allow unlimited interstate trading between units within a certain distance from shared state borders (e.g., 10 miles or less).[EPA-HQ-OAR-2009-0491-2709.1, p.4]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA notes that trading is not restricted between sources or states under the Transport Rule.  However, an SO2 source in a Group 1 state can only use SO2 allowances allocated to Group 1 states for compliance with the SO2 trading program.  Likewise, a source in a Group 2 state can only use SO2 allowances allocated to Group 2 states for compliance with the SO2 trading program.  For compliance in the annual NOx and ozone season trading programs, sources may use annual NOx and ozone season allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.  Section VII.J of the preamble to the final Transport Rule discusses how the program structure comports with the Court's opinion in the North Carolina decision.  EPA discusses the use of variability limits in the Transport rule in the technical support document entitled Power Sector Variability Final Rule in the docket for this rule.  Information on the variability limits may also be found in sections VI.E and F of the preamble for the final Transport Rule.
Organization: Large Public Power Council (LPPC)
Comment:
Large Public Power Council (LPPC)
Although LPPC supports EPA's decision not to propose "direct control" and "intrastate trading" approaches to regulation of interstate emissions, we have also identified aspects of the proposed Transport Rule that needlessly increase the cost and complexity of the regional trading program. These features  -  such as the three-year variability limit, the mechanism for enforcing the variability limits, and limitations on banking  -  are not needed to achieve the environmental objectives of the Transport Rule or ensure consistency with North Carolina. [EPA-HQ-OAR-2009-0491-2667.1, p.2]
Briefly stated, our principal recommendations to EPA are:
- Eliminate the proposed three-year variability limit, which is problematic to apply, is not required by North Carolina, and reduces the benefits of interstate trading;
- Replace the proposed "assurance provisions" for enforcing the variability limits with a straightforward financial penalty linked to the market value of allowances. The current assurance provisions would remove allowances from circulation and unfairly penalize all sources subject to the Transport Rule.
- Ensure that banked Transport Rule allowances do not count against a source's allowed share of the state budget plus variability limit;
- Consider various options to preserve the value of banked CAIR allowances, a step that would both be fair to sources that have achieved early and aggressive emission reductions under CAIR, and avoid discouraging similar reductions under the Transport Rule;
- Allow states to propose alternative allowance allocation methodologies for inclusion in FIPs; and
- Maintain the proposed 3% set-aside for new electric generating units (EGUs) and the seven-year period for allocation of allowances to retired EGUs. [EPA-HQ-OAR-2009-0491-2667.1, p.2]
As a general matter, LPPC believes that a cap-and-trade system is the most efficient and effective means of controlling interstate emissions of NOx and SO2, and strongly supports EPA's decision to adopt this approach (albeit in a limited form) in the proposed Transport Rule. Emissions trading encourages abatement at facilities that have the most cost-effective opportunities to control emissions; promotes innovation in the field of pollution control; is administratively more efficient than source-by-source "command-and-control" regulation; and has a proven track record in controlling both NOx and SO2. [EPA-HQ-OAR-2009-0491-2667.1, p.10]
Even so, LPPC believes that the emissions trading system described in the proposed Transport Rule includes features that would needlessly reduce the system's efficiency and increase its complexity. These features  -  which include the three-year variability limit; the "assurance provision" mechanism for enforcing the variability limits, and the restrictions on banking that result from the variability limit  -  are not compelled by the North Carolina decision and in most cases do not have compensating environmental benefits. Each of these issues is discussed below. [EPA-HQ-OAR-2009-0491-2667.1, pp.10-11]
Response:
Thank you for your comments.EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA is not finalizing the 3-year variability limit.  For information on variability and the variability limits used in the Transport Rule, see sections VI.E and F of the preamble to the final Transport Rule, as well as the technical support document entitled, Power Sector Variability Final Rule, in the docket for this rule.  The Transport Rule FIPs include assurance provisions specifically designed to ensure that no state's emissions will exceed that state's emission budget plus the variability limit, i.e., the state's assurance level.  The assurance provisions are discussed in section VII.E of the preamble to the final Transport Rule.  Penalty provisions are discussed in section VII.F of the preamble to the final Transport Rule.  A technical support document entitled, Assurance Penalty Level Analysis Final Rule, provides additional information on the assurance provisions and is available in the docket to this rule.  EPA is not restricting banking or trading.  A source may trade with any other source in any other state.  Allowances may be banked without penalty or restriction.  However, for SO2 trading program compliance, a source in a group 1 state can only use SO2 allowances allocated to group 1 states.  Likewise, a source in a group 2 state can only use SO2 allowances allocated to group 2 states for compliance with the SO2 trading program.  For compliance in the annual NOx and ozone season NOx trading programs, sources may use annual NOx and ozone season allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.  EPA has decided not to carry-over banked CAIR allowances for the reasons discussed in section IX.A.2 of the preamble to the final Transport Rule.  EPA is finalizing ways for states to manage Transport Rule allowance allocations as early as 2013.  See section X of the preamble to the final rule for more information on the Transport Rule SIP process.  Discussion of the new unit set aside and information on the retired unit allocation are found in section VII.D.2 of the preamble to the final Transport Rule.  EPA discusses its legal authority and the environmental basis for this rule in section IV of the preamble to the final Transport Rule.  EPA discusses how the program structure is consistent with the Court decision in North Carolina in section VII.J of the preamble to the final Transport Rule.  Section VI.G of the preamble to the final Transport Rule discusses how the emission reduction requirements are consistent with judicial opinions.
Organization: Midamerican Energy Holdings Company
Comment:
Midamerican Energy Holdings Company
Of the Alternatives Presented, MidAmerican Supports EPA's Preferred Approach to Emissions Trading
Subject to the other concerns expressed herein, MidAmerican supports the EPA's preferred approach that allows limited interstate trading and unlimited intrastate trading. This approach fundamentally frustrates the underlying purpose of the Clean Air Act's Acid Rain program and calls into question the continued value of implementing that program. Nonetheless, limited trading, while not optimal, is preferable to no trading. While the variability limits provide a slight degree of flexibility, given their significant constraints based on the state budgets, the practical effect is that most facilities will attempt to control their emissions as much as possible to avoid the significant penalty provisions. [EPA-HQ-OAR-2009-0491-2748.1 4]
MidAmerican believes that EPA's alternative direct control option is not only unnecessary, but also unachievable. An examination of the EPA allocation table's direct control alternative allowable rate presents a 2014 emissions rate for SO2 of 0.059 lbs/mmBtu for MidAmerican's Louisa Generating Station. The Louisa Generating Station was equipped with a state-of-the-art dry scrubber and baghouse in 2007; however, the well-controlled emission rate at the Louisa Generating Station averages 0.10 lb/mmBtu SO2 -- almost twice the emission rate under the direct control alternative rate for the facility. Regardless of how well the Louisa scrubber performs, it is not capable of achieving an emissions rate of 0.059 lbs/mmBtu. Control equipment that is designed to achieve a 90% reduction in emissions cannot achieve an additional 45 - 50% reduction in emissions. A scrubber installed in 2007 is not, under any circumstances, contemplated to be replaced in 2014. Presumably, EPA calculated the requisite emission reduction without the recognition that controls had already been installed. [EPA-HQ-OAR-2009-0491-2748.1 5]
Response:
Thank you for your comments.  EPA is not finalizing the direct control remedy in the proposal but is finalizing the air quality-assured trading remedy.
Organization: Morgan Stanly Capital Group
Comment:
Morgan Stanly Capital Group
It should be noted that these problems disproportionately affect independent generators and peaking plants. Independent generators, including many peaking facilities, compete for customers and, unlike regulated utilities, have no captive rate base to which they can pass on operating costs.12 Consequently, it is very important for independent generators to accurately project their costs in order to effectively manage operations. Under the Proposed Rule, facilities are permitted to operate up to their allocation of allowances.13 If they can attain additional allowances from the market, they may also emit up to their portion of the state's "variability limit," but can only exceed it if the state meets its overall compliance obligation for the applicable period.14 Facilities will not have the information necessary to ascertain whether the state will be within its limits for the compliance period. Yet, they will be subject to penalties, including the surrender of two allowances for every ton of excess emissions, as well as unknown discretionary civil penalties under the CAA, if they emit over their portion of the state's variability limit and the state fails to meet its overall cap. An independent generator cannot manage this exposure.  [EPA-HQ-OAR-2009-0491-2819.1 P.4]
These problems are compounded for peaking plants, which are brought online in times of high demand or unusual system events to ensure system reliability. When called upon to run, system reliability typically requires them to come online immediately. Yet, many peaking plants, including MSCG's facilities, have been functionally denied an emissions budget. In fact, in all but one instance, MSCG's peaking plants are not allocated any allowances.15 As designed, the Proposed Rule also would not allow them much, if any, portion of the state's variability limit. Consequently, peaking plants may violate the Proposed Rule if the state has exceeded its variability limit. This would act as a strong disincentive against operation of such plants to meet system demands because they would risk violating the provisions of the CAA every time they run. Moreover, even if they are able to operate in compliance with the Proposed Rule, they still have no allowances and could have difficulty procuring them at a reasonable price and on a timely basis  -  assuming they can procure them at all. [EPA-HQ-OAR-2009-0491-2819.1 P.4]
MSCG believes that the concerns described above can be addressed by modifications to the Proposed Rule that meets the requirements of North Carolina v. EPA while ensuring that:
-Electrical generating units with little or no allowance allocations can obtain the allowances needed to ensure reliable and cost effective power generation;
-Such electrical generating units are provided with a sufficient increment of the applicable state variability limit;
-The compliance provisions are structured so as not to unduly penalize facilities whose modes of operation makes it particularly difficult to project their annual emissions; and
-All currently banked allowances are fully transferable for use under the new program.
[EPA-HQ-OAR-2009-0491-2819.1 p.5]
As discussed above, MSCG generally supports the concept underlying the Administrator's primary proposal for a multi-state, cap-and-trade program to reduce SO2 and NOx emissions, and appreciates that the Administrator has tried to design a program consistent with the D.C. Circuit Court's decision in North Carolina v. EPA. As explained herein, we encourage the Administrator to make certain important modifications that are consistent with the D.C. Circuit Court's directive in order to ensure that independent generators and peaking plants have the ability to start-up and operate. We welcome the opportunity to discuss these issues further with the Administrator and her staff. [EPA-HQ-OAR-2009-0491-2819.1 p.11]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA is finalizing an allowance allocation methodology based on historical heat input instead of projected emissions as discussed in section VII.D of the preamble to the final Transport Rule.  See the technical support document entitled, Allowance Allocations in the Transport Rule FIPs Final Rule, which is available in the docket to this rule.  The use of variability limits in the Transport Rule is discussed in section VI.E and F of the preamble, and in the technical support document entitled Power Sector Variability Final Rule in the docket to this rule.  The assurance provisions and penalties are discussed in sections VII.E and F of the preamble to the final Transport Rule.  See also the technical support document entitled, Assurance Penalty Level Analysis Final Rule, also available in the docket to this rule. Section VII.J of the preamble to the final Transport Rule discusses how the program structure that EPA is finalizing comports with the Court's opinion in the North Carolina decision. EPA is not allowing carryover of CAIR allowances for the reasons discussed in section IX.A of the preamble to the final Transport Rule.
Organization: National Association of Clean of Air Agencies (NACAA)
Comment:
National Association of Clean of Air Agencies (NACAA)
[These comments were submitted as testimony at the Chicago, Illinois public hearing on August 19, 2010.  See Docket Number EPA-HQ-OAR-0491-1746, p.106. Also as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.80.]
For example, we are encouraged by EPA's provisions limiting interstate trading. These will ensure that a substantial portion of a state's assigned emissions reduction occur in that state.
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.80.]
rather than through the purchase and use of out-of-state allowances to achieve compliance deadlines with attainment deadlines for the 1997 ozone, 1997 PM 2.5 and 2006 PM 2.5 air quality standards.
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA is finalizing assurance provisions that go into effect in 2012 to ensure that the FIP requires the elimination of all emissions that EPA has identified that significantly contribute to nonattainment or interfere with maintenance within each individual state, as required under CAA section 110(a)(2)(D)(i)(I).  Information on the assurance provisions is found in section VII.E of the preamble to the final Transport Rule.  For the reasons discussed in section VII.J, EPA believes the program structure we are finalizing to achieve the needed reductions comports with the Court's opinion in the North Carolina decision.
Organization: New Jersey Department of Environmental Protection (NJDEP)
Comment:
New Jersey Department of Environmental Protection (NJDEP)
The NESCAUM states support use of a regional cap-and-trade program as a means to reduce regional NOx emissions. We recognize that an interstate trading program has a place in addressing transport, but may not be able to do handle the all transport issues completely. EPA needs to ensure that it and states have mechanisms in place to address those cases where specific controls or rules are warranted.
For example, EPA's framework for addressing significant contribution does not help states address the short-term public health effects of ozone, PM 2.5, NOx and SO2 exposures during high electricity demand days. It may even exacerbate this problem. Analyses indicate that, in the Northeast, NOx emissions are much higher, and in some cases nearly three times higher, on high electric demand days than during average summer days. Regulatory approaches that set standards, caps, or budgets that are based on annual averaging will likely be insufficient in addressing the peak exposures. EPA's proposed option for performance standards has an annual averaging time, and is therefore inappropriate for this purpose. EPA should incorporate short-term performance standards for electric generating units that apply to each upwind source. Such performance standards could co-exist with a trading program.   [EPA-HQ-OAR-2009-0491-2684.1 p.4]
Response:
Thank you for your comments and your support of cap and trade programs to reduce regional NOx emissions.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in Section VII.A of the preamble to the final Transport Rule.  EPA discusses its authority and environmental basis for the Transport Rule in section IV of the preamble to the final Transport Rule.  As NESCAUM knows, the Clean Air Act provides states with several approaches to meet the NAAQS, including Title I.  EPA believes the remedy finalized in the preamble to the final Transport Rule addresses the Court's concerns in the North Carolina decision, as discussed in Section VII.J of the preamble to the final Transport Rule, and also addresses EPA's statutory responsibility under Section 110(a)(2)(D)(i)(I).  EPA decided that performance standards in addition to the remedy finalized would not further the attainment and interference with maintenance objectives of the statute.
Organization: New York University School of Law, Institute for Policy Integrity
Comment:
New York University School of Law, Institute for Policy Integrity
EPA's preferred approach to the proposed Transport Rule will significantly advance the Agency's efforts to address the interstate transport of emissions of nitrogen oxides (NOx) and sulfur dioxides (SO2), but the Rule should be modified to improve efficiency and cost-effectiveness, and the Rule's justification should be clarified and strengthened. [EPA-HQ-OAR-2009-0491-2691.1, p.1]
EPA should adopt the preferred approach in its final rulemaking, with the following five specific improvements. [EPA-HQ-OAR-2009-0491-2691.1, p.6]
1. Create an Assurance Allowance Mechanism
Problems with the Preferred Approach
EPA's preferred approach permits the use of both intra- and interstate trading. Cap-and-trade economic models provide significant advantages over other forms of regulation by offering flexibility and by achieving emissions reductions in the most cost-effective manner. The extensive limits on trading in the two alternative approaches are inadvisable, because they impose greater costs to achieve the same level of reductions. [EPA-HQ-OAR-2009-0491-2691.1, p.6]
EPA's preferred approach takes a significant step forward in addressing the interstate transport of emissions of nitrogen oxides and sulfur dioxides. But before it finalizes new rules, EPA should reconsider its methodology and provide greater transparency in its approach. [EPA-HQ-OAR-2009-0491-2691.1, p.13]
Response:
Thank you for your comments and your thoughtful alternative proposal.  EPA gave it thorough consideration and decided to finalize the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  Regarding your proposal for an assurance allowance mechanism, we have given your proposal due consideration but do not find that it improved our ability to address interstate transport under CAA section 110(a)(2)(D)(i)(I), in line with the Court decision, in an administratively practical way.  In addition, EPA analyzed the degrees of power sector market concentration in each state using the Herfindahl-Hirschman index, that indicates only 6 Transport Rule states have power markets sufficiently diffuse to assure fair access to intrastate allowances.  The remaining states have highly concentrated power markets where individual allowance holders could impair liquidity and increase allowance prices.  For discussion on the assurance provisions that EPA is finalizing, please see sections  VII E in the preamble to the final Transport Rule.  Variability and assurance are also discussed in sections VI E and F.  EPA strives to continually improve our transparency with the public by engaging in public hearings, webinars, outreach, stakeholder meetings, etc., providing public comment periods, and putting all relevant process documents and analyses in the docket to this rulemaking and making the regulations, supporting analyses, modeling runs, technical support documents, communications materials, etc. available on our web site.  For all these reasons and the reasons discussed in section VII.J of the preamble to the final Transport Rule, EPA believes we have finalized a rule that comports with the Court's decision in North Carolina while providing sources with the most flexibility through trading programs that are cost-effective and administratively manageable.
Organization: Northern Indiana Public Service Company (NIPSCO)
Comment:
Northern Indiana Public Service Company (NIPSCO)
In order to provide for a more viable trading program in the Transport Rule, NIPSCO recommends that EPA include unlimited intrastate trading as a component of the preferred approach. The trading program in the preferred approach limits the use of out of state, banked and in-state vintage year allowance when the assurance levels are exceeded in the state. NIPSCO believes that the use of in-state allowances for the applicable vintage year to comply with the Transport Rule requirements should be unlimited and not subject to the assurance provisions. [EPA-HQ-OAR-2009-0491-2747.1 p.6]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A. of the preamble to the final Transport Rule.  EPA notes that there are no limits on trading or banking in the Transport Rule.  For SO2 compliance purposes, however, a source in a group 1 state (such as Indiana) can only use SO2 allowances allocated to Group 1 states for compliance with the SO2 trading program. Likewise, a source in a group 2 state can only use SO2 allowances allocated to group 2 states for compliance with the SO2 trading program.  For compliance in the annual NOX and ozone-season trading programs respectively, sources may use annual NOX and ozone-season allowances allocated for any state, even if that state is in a different group for SO2 than the source's state.  For a discussion on the interstate trading programs, see section VII.A.  The assurance provisions are discussed in section VII.E. of the preamble to the final Transport Rule.  See the technical support document entitled, Assurance Penalty Level Analysis Final Rule, in the docket of this rule making.
Organization: Ozone Transport Commission (OTC)
Comment:
Ozone Transport Commission (OTC)
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, pp.112 & 116-117.]
Further, the proposed rule limits the degree to which such plants can engage in interstate trading of emissions. By restricting interstate trading, EPA has taken a major step towards addressing the courts finding and the CAA requirement that each state mush reduce its share of transported pollution.
Another flaw in the proposed Transport Rule is the design of the remedy. EPA proposes to set state EGU budgets, but then allows sources within that state to emit above these already inadequate budgets up to the variability limit.
In order to meet the statutes requirement and the Courts mandate, EPA need to implement a trading program that sets a state emissions budget at the level necessary to eliminate transport and that requires mitigation in a specific state if the collective sources in the state exceed the budget.
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA is also finalizing assurance provisions that go into effect in 2012 to ensure the necessary reductions will occur within every covered state.  Information on the assurance provisions is found in section VII.E of the preamble to the final Transport Rule.  Variability and the use of variability limits in the Transport Rule are discussed in sections VI.E and F as well as in a technical support document entitled, Power Sector Variability Final Rule, that is available in the docket to this rule.  EPA discusses why we think this program structure comports with the Court's opinion in the North Carolina decision in section VII.J of the preamble to the final Transport Rule.
Organization: Pennsylvania Department of Environmental Protection
Comment:
Pennsylvania Department of Environmental Protection
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.51.]
We support EPA's approach for the Transport Rule, to the extent allowed under the Clean Air Act. This approach, which provides for intrastate trading and limited trading, requires EGU owners and operators to achieve actual emission reduction.
Response:
Thank you for your comment.
Organization: PPL Corporation
Comment:
PPL Corporation
8. Support of EPA's Preferred, Limited Interstate Trading Option.
The EPA is proposing to regulate the state budgets through a program that would allow limited interstate trading of allowances and unlimited intrastate trading. Under this approach, there is an assurance provision starting in 2014 specifying that annual emissions within the state could only exceed the state budget (through purchase of out-of-state allowances) by up to a variability amount specified in the proposal and based on the annual variation of emissions. This is EPA's preferred regulatory alternative and the alternative that PPL supports. The EPA also identified in the proposed rule two alternatives. The first alternative would allow unlimited intrastate trading but no interstate trading. The second alternative would restrict individual EGUs on an annual basis to the specific emission rates set forth in the rule with the only caveat being that owners would be allowed to average among their own in-state units. [EPA-HQ-OAR-2009-0491-2739.1, p.9]
PPL prefers EPA's proposed and preferred option that would allow limited interstate trading because it is the lowest cost option and would attain the same region-wide reductions as the two alternative options. The integrity of reducing the state's significant contribution to downwind nonattainment would be maintained because only the annual variability amounts (10 percent per year, 5.8 percent per three-year average) could be used in interstate trading. [EPA-HQ-OAR-2009-0491-2739.1, p.9]
Response:
Thank you for your support.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA explains the variability limits in section VI E and VI F of the preamble to the final Transport Rule.  EPA discusses the assurance provisions that will begin in 2012 instead of 2014, as was proposed, in section VII.E of the preamble to the final Transport Rule.
Organization: Prairie State Generating Company, LLC
Comment:
Prairie State Generating Company, LLC
6. PSGC'S PREFERRED APPROACH
Emissions trading restricted by variability limits is one way to address the North Carolina court's concerns with the perceived failure of the Clean Air Interstate Rule ('CAIR'), 40 CFR 96, Subparts AA through IIII (nonconsecutive), to require emission reductions in certain upwind states. Of the three options that the U.S. EPA presented in the proposed Transport Rule, PSGC prefers the limited interstate trading approach, the U.S. EPA's 'preferred' approach. [EPA-HQ-OAR-2009-0491-2842.1, p.6]
However, PSGC believes that a 2012 compliance date is too soon and that the program should begin in 2014 or preferably in 2015, which would have been the beginning of Phase II of the CAIR. Although the North Carolina court remanded the entirety of the CAIR, the CAIR remains in place as an applicable requirement and, as the U.S. EPA has acknowledged, is causing reductions in region-wide NOx and SO2 levels. Therefore, it is providing the transport reductions the U.S. EPA has identified as required consistent with NAAQS attainment dates. [EPA-HQ-OAR-2009-0491-2842.1, p.6]
There are other ways to achieve this reduction certainty, including a floor rate. There is some state-wide average emissions rate that, considering the state's coal-fired generation portfolio combined with projected transport from that state, would achieve the same ends as the U.S. EPA's proposal and would still allow greater flexibility through a more robust emissions trading program. The U.S. EPA performed the type of modeling that could determine these rates for the NOx SIP call 63 Fed. Reg. 57355 (October 27, 1998). This approach would provide a more level playing field that is protective against interference with downwind attainment and maintenance while creating a more robust emissions trading regime of allowances reflective of emissions above the emissions rate floor. [EPA-HQ-OAR-2009-0491-2842.1, p.6]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VIIA of the preamble to the final Transport Rule.  For a discussion on the compliance deadlines, see section VII.C of the preamble to the final Transport Rule.  EPA believes the remedy we are finalizing addresses the Court's concerns in the North Carolina decision, as discussed in section VII J, as well as the statutory requirements in the Clean Air Act section 110(a)(2)(D)(i)(I).
Organization: PSEG Services Corporation
RRI Energy, Inc.
Empire District Electric Company (Empire District)
American Forest & Paper Association (AF&PA)
Old Dominion Electric Cooperative
American Public Power Association (APPA)
Public Interest Law Center of Philadelphia
Oren, Craig N.
Comment:
American Forest & Paper Association (AF&PA)
AF&PA supports the broadest possible trading mechanisms as we believe this allows for the most cost effective implementation of any emissions controls. We agree with the Edison Electric Institute (EEI) in supporting a broader authorization of trading [EPA-HQ-OAR-2009-0491-2643.1, p.2]
American Public Power Association (APPA)
For example APPA supports EPA`s preferred option of permitting some degree of emission allowance trading (although, as discussed subsequently in the comments, APPA urges EPA to expand the margin for trading). [EPA-HQ-OAR-2009-0491-2812.1, p.7]
EPA`s Proposed Remedy Option allows limited interstate allowance trading, while its two alternative options would not allow any interstate trading. APPA supports EPA's proposal to permit at least some degree of allowance trading. Permitting interstate allowance trading would provide for increased flexibility and permit more cost-effective compliance options. Increased flexibility will be particularly important in the early years of the program, especially if EPA does not change the proposed rule`s unreasonably accelerated compliance schedule as suggested in these comments. [EPA-HQ-OAR-2009-0491-2812.1, p.9]
APPA strongly believes that the interstate trading program described in the proposal should resolve the problems with the CAIR program`s unrestricting trading that the court cited in North Carolina v. EPA. The court held that the CAIR interstate trading program was inconsistent with the Act, based mainly on the program`s region-wide approach. Noting that "EPA is not exercising its section 110(a)(2)(D)(i)(I) duty unless it is promulgating a rule that achieves something measurable toward the goal of prohibiting sources `within the State' from contributing to nonattainment or interfering with maintenance `in any other State'," the court held that "EPA`s apportionment decisions have nothing to do with each state`s `significant contribution'." 531 F.3d at 907. Although the Proposed Transport Rule is flawed for reasons discussed elsewhere in these comments, the Proposed Remedy Option incorporates a mechanism for addressing the significant contribution of individual states to downwind nonattainment and maintenance problems. [EPA-HQ-OAR-2009-0491-2812.1, p.9]
Empire District Electric Company (Empire District)
Empire District supports EPA's preferred approach of establishing state budget and implementing a limited interstate trading program.  We do not support the intrastate trading alternative or the site-specific emission limits with limited averaging alternative.  The Title IV Acid Rain Program, NOx SIP Call and CAIR have proven that an allowance trading approach to emission control is both effective and efficient.  Given the current financial strain on our national economy and our customers' household budgets in particular we urge EPA to finalize their preferred approach. [EPA-HQ-OAR-2009-0491-2659.1, p.5]
Old Dominion Electric Cooperative
ODEC also supports the proposal's remedy option and the intrastate trading option in the second compliance period to the extent that both allow allowance trading, because program costs would be reduced without jeopardizing emission reduction goals. [EPA-HQ-OAR-2009-0491-2877.1,p.3] [[This comment is also in Section V.D.3.]]
Oren, Craig N.
The agency's trading proposal appears legally defensible and well-thought out. It is too bad, though, that EPA has had to retreat from full trading, which would probably cut compliance costs. [EPA-HQ-OAR-2009-0491-2644-cp, p.1]
PSEG Services Corporation
PSEG supports the cap and trade option with limited interstate trading. While PSEG's preference would have been for incorporating the Acid Rain Title IV allowance system, given the constraints that the DC Circuit Court imposed on EPA, PSEG believes the unlimited intra-state and limited interstate emission trading option that EPA has proposed is as vigorous as EPA could make the rule, and we believe it to be workable. [EPA-HQ-OAR-2009-0491-2726.1, pp.1-2]
PSEG supports EPA's preferred market based cap and trade emissions approach. The D.C. Circuit court's CAIR decision limited EPA's authority to allow interstate trading. Despite this constraint, our first impression is that EPA has proposed a reasonable approach that balances the industry's ability to trade allowances and implement the most cost-effective control options while at the same time recognizing that the Clean Air Act requires EPA to prohibit emissions that significantly contribute to nonattainment or interfere with maintenance in downwind states. PSEG is a strong supporter of market-based regulatory approaches because of their cost effectiveness, and we hope that EPA will, at a minimum, preserve its preferred trading approach as it develops its final rule. The cap-and-trade approach has a long history of success in regulating power plant emissions. [EPA-HQ-OAR-2009-0491-2726.1, p.4]
Although PSEG has significant concerns about EPA's use of projected emissions to allocate allowances to emission units, we strongly support the overall framework of the preferred option including unlimited intrastate trading and limited interstate trading using the variability and assurance level provisions. The preferred option stays within the constraints of the D.C. Circuit decision by ensuring the necessary emissions reductions occur in the states identified as contributing to nonattainment or interfering with maintenance in other states. At the same time, the preferred option allows owners to use market mechanisms to buy and sell allowances. Allowance markets are essential to promoting cost-effective reductions. [EPA-HQ-OAR-2009-0491-2627.1, p.10]
Public Interest Law Center of Philadelphia
The EPA's preferred approach for attaining these emissions reductions includes setting individual emissions caps for each state, and allowing unlimited intrastate trading of pollution allowances, so long as each state does not exceed its assigned emissions allowance. This proposal would also allow energy companies to engage in a limited amount of interstate emissions trading, but only as long as total statewide emissions remain below the mandated cap. [EPA-HQ-OAR-2009-0491-2817.1, p.2]
[These comments were submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-2009-0491-1938, pp.124-125.]
I want to comment specifically on the fact that EPAs preferred rule would allow unlimited intrastate trading and limited interstate trading of allowances between EGUs as part of the agency's strategy to in the words of the Transport Rules preamble 'assure environmental results while providing some limited flexibility to covered sources.'
RRI Energy, Inc.
RRI supports EPA's preferred option (State Budgets / Limited Trading) to identify the emissions reductions requirements, state budgets and variability limits (effective in 2014) in lieu of the alternate remedy options (State Budgets / Intrastate Trading option, Direct Control option and any option that utilizes trading ratios). The preferred option is consistent with EPA's Key Guiding Principles (e.g., to provide incentives and flexibility to the regulated community) while also providing the emissions reductions necessary to eliminate states' significant contribution and interference with maintenance with the applicable NAAQS. RRI notes that the 2014 state SO2 and NOx emissions budgets under the preferred option are equivalent to the state budgets under the more restrictive alternate remedy options (per Tables V.E-5 through V.E-7 of the proposed CATR). [EPA-HQ-OAR-2009-0491-2717.1 p.1]
Response:
EPA thanks you for your comments.  As discussed in the proposal, EPA has a long history of successful implementation of national and regional trading programs.  EPA has put forth a rule that we believe provides flexibility for EGUs while hewing to the Court's opinion.
Organization: San Miguel Electric Cooperative, Inc.
Comment:
San Miguel Electric Cooperative, Inc.
 Limitations on interstate allowance trading are too stringent. Both the annual and three year rolling average limitations could be loosened while still meeting North Carolina legal mandates.   [EPA-HQ-OAR-2009-0491-2641.1, p.6]
Response:
Thank you for your comment.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII.A of the preamble to the final Transport Rule.  EPA is also finalizing assurance provisions that go into effect in 2012 to ensure that the necessary reductions will occur within every covered state.  Information on the assurance provisions is found in section VII.E of the preamble to the final Transport Rule.  Section VII.J discusses why EPA believes the program structure we are finalizing comports with the Court's opinion in the North Carolina decision.
Organization: State of Missouri Department of Natural Resources
Comment:
State of Missouri Department of Natural Resources
Missouri is supportive of the preferred option proposed by EPA in the Transport Rule because it provides Missouri utilities with the greatest flexibility to meet emission reduction requirements in the most economically viable manner. However, even with the flexibility provided in the proposal, some of the restrictions included do cause some concern. For example, utility owners which have facilities in neighboring states that fall into group 1 and group 2 under the SO2 requirements cannot trade between their own facilities. Missouri recognizes the difference in the contribution to affected areas between the two (2) groups, but limited or 'ratio trading,' if only allowed within a facility or utilities in the same regional electrical grid, could alleviate this concern and further ensure greater reliability for regional electrical service. [EPA-HQ-OAR-2009-0491-3806, p.2]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII A of the preamble to the final Transport Rule.  EPA believes the program structure we are finalizing comports with the Court's opinion in the North Carolina decision, as discussed in section VII J of the preamble to the final Transport Rule.  How EPA developed the two SO2 groups of states and the reason EPA feels it is important to finalize the two groups of states for SO2 reductions that eliminate a state's significant contribution to downwind air quality are explained in sections VIB. and VID: EPA does not believe that limited or ratio trading between the two groups would improve on the remedy EPA is finalizing or enhance the assurance that reductions take place within each state, as required by statute and in the Court's North Carolina decision.
Organization: State of Wisconsin, Department of Natural Resources
Comment:
State of Wisconsin, Department of Natural Resources
Wisconsin can support a trading and banking program or a simple averaging program to meet reduction targets established for the sector for NOx and S02 emission reductions within the state. With strong limits to the level of trading away emission reduction obligations, Wisconsin can also support interstate trading structures that facilitate efficient emission control retrofit schedules, so long as the needed Wisconsin and downwind state air quality improvement is not compromised in 2014 and thereafter. [Better than Intra-State or Averaging Demonstration of Air Quality effect during critical periods.] [EPA-HQ-OAR-2009-0491-2829.2, p.1]
Consequences of an inadequate remedy to significant contribution affecting Wisconsin air quality. [EPA-HQ-OAR-2009-0491-2829.2, p.3]
While EPA suggests the current proposal is a viable framework for addressing future standards, it has actually proposed a basic remedy focused only on the electric utility sector and strictly as a replacement to CAIR that can affect much, but nowhere near all, of the significant contributing (upwind) NOx and S02 emissions. This approach will likely preclude Wisconsin's capability to attain and maintain new, lower ambient ozone and PM-2.5 standards on a schedule required under the Clean Air Act. [EPA-HQ-OAR-2009-0491-2829.2, p.3]
A basic flaw of the proposed framework is that the proscribed remedy leaves Wisconsin at risk for potential continuing nonattainment status and the resultant public health concerns/costs. This places Wisconsin emission sources at risk for the need to implement incrementally more severe emission control installations compared to some of our upwind neighboring states that are contributing significantly to our ambient air quality problems. Some of the proposed state EOU 2014 budgets proposed reflect a backsliding from budget levels established in CAIR for 2015. This is, in part, due to questions regarding the feasibility of installing sufficient controls in the contributing states to meet the budgets that are equal to or deeper than final CAIR budget levels before 2015. Under the framework, as crafted, Wisconsin is unable to demonstrate a full attainment and maintenance strategy for either standard, placing the State at risk for major parts of federal funding and exposing major sources in Wisconsin to larger offsets for new S02 and NOx emissions than in neighboring states with greater emissions. Wisconsin sources will also retain much higher uncertainty into the near future regarding the level and speed of anticipated emission control installation requirements. [EPA-HQ-OAR-2009-0491-2829.2, p.4]
Response:
Thank you for your comments.  EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII A of the preamble to the final Transport Rule.  While EPA is finalizing a framework for addressing future standards, as your comments suggest, EPA also is aware that other sectors may be implicated in emission contributions to downwind nonattainment and interference with maintenance in the future and intends to look at other sectors and sources of emissions going forward, along with the electricity generating sector.  The methodologies EPA is finalizing to develop budgets and allocate emissions are found in sections VI and VIID, respectively, of the preamble to the final Transport Rule.
In the proposed Transport Rule, EPA's air quality modeling projected a wintertime PM problem in Wisconsin.  The final air quality modeling indicates that there is no longer a wintertime PM problem in Wisconsin.  That is, we project that all areas in Wisconsin will be in attainment with both annual and 24-hour PM standards by 2014.  See section VI.A. in the preamble to the final Transport Rule and the Air Quality Modeling Final Rule TSD in the docket to the rulemaking.
Organization: Texas Commission on Environmental Quality
Comment:
Texas Commission on Environmental Quality
The TCEQ finds that the EPA's proposed preferred state budget/limited trading option to be flawed in its design. The proposed option purports to be a cap and trade program; however, the trading limits and restrictions (assurance provisions) proposed undermine the goal of a cap and trade program - that is, to provide emission reductions in a cost-effective manner that utilizes market flexibility. Further, the manner in which violations are assessed under the proposed option creates an unreasonable burden on individual sources that would require interdependence among sources to determine each entity's own compliance. It is disingenuous to provide a trading program that, upon familiarity with the details, provides no viable trading alternative to comply with the rule. [EPA-HQ-OAR-2009-0491-2857.1, p.2]
Response:
EPA is finalizing the air quality-assured trading remedy for the reasons discussed in section VII A of the preamble to the final rule.  For a discussion of the assurance provisions, please see section VII E of the preamble to the final Transport Rule.  EPA disagrees with the commenter's opinion that the trading program "provides no viable trading alternative to comply with the rule."  EPA believes we have structured a flexible and effective remedy that also addresses the concerns of the Court in the North Carolina decision, as described in section VII.J of the preamble to the final Transport Rule. Sources that emit up to their state budget allocation plus share of the state's variability limit will not face penalties, if they have allowances to cover their emissions.  Other options are for sources to improve efficiency, add on pollution controls, switch fuels, or pursue other such alternatives to reduce emissions to meet the state budgets.  EPA discusses penalties in section VII.F of the preamble to the final Transport Rule.
Organization: Utility Air Regulatory Group (UARG)
American Electric Power
Metropolitan Washington Air Quality Committee
Mississippi Department of Environmental Quality
Southern Company
NRG Energy
Exelon
GE Energy Financial Services (GE EFS)
Florida Electric Power Coordinating Group, Inc. (FCG)
Dynegy, Inc.
Indiana Energy Association
Ameren Services Company
Dominion
Michigan Department of Natural Resources and Environment
Minnesota Power
Tampa Electric Company
Cogen Technologies Linden Venture, LP
Institute of Clean Air Companies (ICAC)
Sunbury Generation LP
Progress Energy Service Company
Wisconsin Power and Light Company
Oglethorpe Power
Birchwood Power Partners, L.P.
Santee Cooper
Entergy Services, Inc.
TransCanada
Owensboro Municipal Utilities (OMU)
Comment:
Ameren Services Company
Ameren supports the trading and banking option for compliance between states
EPA's Proposed Remedy Option allows limited interstate allowance trading, although its two alternative options would not allow any interstate trading. Ameren supports EPA's proposal to permit at least some degree of interstate trading in order to provide flexibility and permit more cost-effective compliance options. Ameren believes that the Intrastate Trading Remedy Option and the Direct Control Remedy Option offer no or minimal flexibility from a compliance perspective and thus would cause an undue burden on the utility sector. Ameren does not support either of these options. [EPA-HQ-OAR-2009-0491-2722.1, p.9]
American Electric Power
Aside from our preference to keep the budgets and timelines the same as the existing CAIR program, the proposed remedy option which includes interstate trading of allowances is highly preferred to the other alternative approaches proposed by EPA. The main reason for this preference is that economies of scale are lost when taking a smaller (i.e. state or unit level) approaches to emissions trading or averaging, which will ultimately drive up cost to customers and increase the risk of stranded or misplaced investments. Secondly, administration of the alternative approaches may be more challenging by creating additional allowance markets and/or limitations which need to developed, implemented and monitored. AEP agrees with EPA's selection of the interstate trading option. [EPA-HQ-OAR-2009-0491-2665.1,p.11]
Birchwood Power Partners, L.P.
E. Birchwood Power Supports the Broadest Trading Program That Can be Implemented in Accordance with the Court's Decision in North Carolina v. EPA
Birchwood Power supports the Proposed Transport Rule's proposed remedy of using state-specific control budgets and allowing for intrastate and limited interstate trading. This option would allow flexibility for generators to undertake the most cost-effective reductions available, while assuring (through the 'assurance provisions') that the resulting reductions occur within particular states, in accordance with the requirements articulated by the D.C. Circuit in North Carolina v. EPA, 531 F.3d 896 (DC Cir. 2008). In general, Birchwood Power would support the broadest trading program that EPA determines can be accomplished consistent with the court's decision. Birchwood Power does not support EPA's proposed alternative of implementing a direct control program without any emissions trading. [EPA-HQ-OAR-2009-0491-2706.1, p.6]
Cogen Technologies Linden Venture, LP
:: Linden Cogen supports EPA's proposed limited trading option and, in general, would support the most robust and flexible trading program that can be implemented in accordance with the principles articulated by the court in North Carolina v. EPA. [EPA-HQ-OAR-2009-0491-2712.1, p.5]
N. Linden Cogen Supports the Broadest Trading Program that Can Be Implemented in Accordance with the Court's Decision in North Carolina v. EPA
Linden Cogen supports the Proposed Transport Rule's limited trading option because it would allow flexibility for generators to undertake the most cost-effective reductions available, while assuring that the resulting reductions occur within particular states, in accordance with the requirements articulated by the D.C. Circuit in North Carolina v. EPA, 531 F.3d 896 (DC Cir. 2008). In general, Linden Cogen would support the broadest trading program that EPA determines can be accomplished consistent with the court's decision. [EPA-HQ-OAR-2009-0491-2712.1, p.23]
Dominion
Interstate Trading
Dominion supports EPA's preferred approach that would allow limited interstate trading and unlimited intrastate trading and commends the Agency for its continued application of a market-based approach in achieving emission reductions. EPA's proposal to permit at least some degree of allowance trading will provide some flexibility for companies to target reductions at units where it is more cost-effective to do and reduce the potential for forced investments or even unit shutdowns at units for which major pollution control investments are not economically feasible. The alternative approaches discussed by EPA in the rulemaking (allowing only intrastate trading and imposing emission limits at the unit level) would provide much less flexibility and unnecessarily increase costs of emission reductions. [EPA-HQ-OAR-2009-0491-2715.1, pp.2-3]
Dynegy, Inc.
Dynegy Supports Interstate Trading
Dynegy, which owns and operates EGUs in several affected states, supports EPA's proposal to allow interstate allowance trading. While Dynegy would prefer unlimited interstate trading to the extent permitted by the Clean Air Act, even EPA's proposed limited interstate trading as described in its Preferred Remedy Option would improve compliance costs. Limited interstate trading would give companies such as Dynegy the flexibility to decide where to make its most cost effective emission reductions and then move allowances between its units (within the proposed variability limits) rather than purchasing allowances from other out-of-state sources. [EPA-HQ-OAR-2009-0491-2698.1,p.8]
Entergy Services, Inc.
We also agree that allowing unlimited intrastate trading combined with limited interstate trading among power plants is an effective means to assure each state will meet its pollution control obligations and minimize downwind contributions.  [EPA-HQ-OAR-2009-0491-2847.1, p.1]
Exelon
EPA'S PREFERRED ALTERNATIVE OF STATE BUDGETS/LIMITED TRADING WILL COST-EFFECTIVELY REDUCE INTERSTATE EMISSIONS CONSISTENT WITH THE REQUIREMENTS OF THE CAA, BUT CAN BE MADE MORE EFFECTIVE WITH CERTAIN CHANGES.
EPA'S STATE BUDGETS/LIMITED TRADING REMEDY WILL MORE COST-EFFECTIVELY LIMIT INTERSTATE INTERFERENCE WITH MAINTENANCE OF NAAQS AND SIGNIFICANT CONTRIBUTION TO NONATTAINMENT THAN THE OTHER ALTERNATIVES CONSIDERED BY EPA.
Experience with the Title IV program, the NOx SIP Call program that preceded CAIR and the California RECLAIM program have confirmed that trading-based programs provide a powerful tool to achieve cost-effective reductions in emissions. Accordingly, some level of interstate trading, as proposed by EPA in its selected State Budgets/Limited Trading remedy, can be expected to lower the cost to achieve the emission levels set out in Transport Rule. EPA forecasts 2012 power industry implementation costs would be more than 10% lower under the preferred option of State Budgets/Limited Trading compared to either the State Budgets/Intrastate Trading option or the Direct Control option. [EPA-HQ-OAR-2009-0491-2666.1, p.21]
Neither the State Budgets/Intrastate Trading remedy option nor the Direct Control option will achieve the Transport Rule emission levels as inexpensively as EPA's preferred option. A remedy allowing emission trading will promote fuel and technology switching, supplementing the reductions that can be achieved with cost-effective installation of emission control equipment at fossil fuel generators. In particular, the Direct Control option will not encourage switching to less polluting fuels or technologies to nearly the same extent. Exelon also agrees that the State Budgets/Intrastate Trading remedy option would be less flexible than the preferred option, and potentially more susceptible to market manipulation. [EPA-HQ-OAR-2009-0491-2666.1, pp.21-22]
Florida Electric Power Coordinating Group, Inc. (FCG)
While the FCG requests that EPA wait and develop a single, accurate rule, as explained above, if EPA finalizes the proposal, the FCG's preference is that EPA choose its preferred option, which would allow limited interstate trading of allowances. The alternatives of allowing only intrastate trading, and unit-specific limits are much less desirable. [EPA-HQ-OAR-2009-0491-2658.1, p.11]
GE Energy Financial Services (GE EFS)
GE EFS supports the Proposed Transport Rule's proposed remedy of using state-specific control budgets and allowing for intrastate and limited interstate trading. This option would allow flexibility for generators to undertake the most cost-effective reductions available, while assuring that the resulting reductions occur within particular states, in accordance with the requirements articulated by the court in North Carolina v. EPA. In general, GE EFS would support the broadest trading program that EPA determines can be accomplished consistent with the court's decision. [EPA-HQ-OAR-2009-0491-2701.1, pp.4-5]
Indiana Energy Association
a. The Indiana Utility Group supports EPA's preferred approach (limited interstate trading) over other less flexible alternatives and, specifically, supports trading across Group 1 and Group 2 states, at a minimum for the initial program phase when all states are in the same phase of the program. [EPA-HQ-OAR-2009-0491-3711 p.5]
Institute of Clean Air Companies (ICAC)
a. ICAC Acknowledges and Supports EPA's Efforts to Respond to the CAIR Remand and to Finalize a Legally-Defensible Transport Rule. ICAC acknowledges the constraints EPA faces in responding to the Court's remand of the Clean Air Interstate Rule (CAIR), and believes that EPA has proposed a remedy that will answer the Court's legal objections to CAIR. In particular, EPA proposes its preferred remedy that incorporates flexibility for sources while still measuring each state's significant contribution and giving independent meaning to the interference with maintenance prong of section 110(a)(2)(D)(i)(I) of the Clean Air Act (CAA). Also, EPA's has coordinated the 2012/2014 compliance deadlines with the 1997 PM2.5 National Ambient Air Quality Standard (NAAQS) April 2015 extension of the April 2010 attainment date, the 2006 24-hour PM2.5 NAAQS December 2014 attainment date, and the 1997 8-hour ozone NAAQS attainment date of June 2013 for serious nonattainment areas. [EPA-HQ-OAR-2009-0491-2695.1, p. 2]
ICAC supports EPA's analysis of and response to the CAIR ruling, and EPA's unstated effort to finalize a critically needed Transport Rule that is legally defensible. A new Transport Rule that will not be delayed by litigation is vitally important to providing not only the health benefits promised by the CAA, but the regulatory certainty that sources need to plan their pollution control investments. [EPA-HQ-OAR-2009-0491-2695.1, p. 2]
b. ICAC Supports EPA's Efforts to Provide Maximum Flexibility to Sources. ICAC realizes that EPA is attempting to provide as much flexibility to sources within the constraints of responding to the legal objections of the District of Columbia Circuit Court of Appeals in its 2008 vacatur and remand of CAIR, and we support those efforts. We believe that the greatest source of flexibility in the proposed rule is EPA's preferred remedy of allowing unlimited and intrastate and limited interstate allowance trading thereby allowing sources to achieve compliance at least cost.  [EPA-HQ-OAR-2009-0491-2695.1, p. 3]
c. ICAC Supports EPA's Preferred Remedy. ICAC supports EPA's preferred remedy in the proposed rule which will provide sources the maximum amount of flexibility within the legal constraints imposed by the CAIR remand as allowance trading will allow each source to make the best and most economical decision with respect to compliance timing. [EPA-HQ-OAR-2009-0491-2695.1, p. 3]
Metropolitan Washington Air Quality Committee
MWAQC supports the proposed remedy of state budgets with limited interstate trading. Restricting trading to only intrastate transactions would require development of state-by-state trading programs resulting in a patchwork of systems that would be an inefficient use of state government resources. Source-specific control requirements may be overly burdensome on the regulated community in that it would remove flexibility for sources to install controls where it may make most economic or logistical sense at any given time. Such an approach may also not result in real improvements to air quality depending on how EPA specifies controls for individual sources. [EPA-HQ-OAR-2009-0491-2618.1, p.2]
Michigan Department of Natural Resources and Environment
The EPA requested comments on the proposed preferred method of compliance and two alternative methods. The preferred compliance option would use state-specific control budgets and allow for intrastate and limited interstate trading of emissions, allowing for four trading regions. These regions are ozone season NOx, annual NOx, Group 1 S02 and Group 2 S02. [EPA-HQ-OAR-2009-0491-2774.1 p.5]
The DNRE supports the preferred compliance method because it provides the most flexibility to affected sources. [EPA-HQ-OAR-2009-0491-2774.1 p.5]
Minnesota Power
Limited interstate trading.  Minnesota Power agrees with EPA's preferred option that would provide for limited interstate trading of Transport Rule allowances (e.g. up to 10%), acknowledging that EPA's year to year unit production variability analysis provides a reasonable supportive basis for such interstate emissions allowance trading.  [EPA-HQ-OAR-2009-0491-2750.1, p.6]
Mississippi Department of Environmental Quality
We would like to comment that Mississippi supports the proposed allowance trading approach which allows intrastate trading with limited interstate trading.  [EPA-HQ-OAR-2009-0491-2634.1, p.1]
NRG Energy
NRG supports the EPA's preferred limited interstate trading approach in that it achieves the goals of the Transport Rule while providing the flexibility of a market based program. [EPA-HQ-OAR-2009-0491-2749.1, p. 4]
Oglethorpe Power
IX. Alternatives to EPA's Preferred Option
While there are numerous deficiencies and problems with the current proposal, Oglethorpe Power believes that the remedy option preferred by EPA is greatly superior to the other proposed options. neither of  which provide for any interstate trading of allowances. Interstate trading - even limited trading - is very important, to provide increase flexibility and allow for more cost-effective options for compliance. As a not-for-profit utility, any cost savings realized in an emissions reduction program (as compared to other, optional and less flexible programs) will necessarily flow directly to Oglethorpe Power's Members, all of which are also not-for-profit utilities. Here, the preferred option will produce reductions more efficiently than either of the other approaches. Option one, while allowing intrastate trading, prohibits interstate transactions of any kind. Some interstate trading of allowances is clearly allowed for under the CAA (more we think than EPA is proposing even in its preferred remedy), and we strongly encourage EPA to include that feature in any control program it finalizes to reduce interstate transport of ozone and tine particulate precursors. The direct 'command-and-control' option will be the most inefficient of the three approaches, as it removes any economic incentives to reduce emissions beyond those needed for compliance. As the Agency proceeds toward finalization of the Transport Rule, it should reject any control option that prohibits the creation and trading of allowances. [EPA-HQ-OAR-2009-0491-2732.1, pp.13-14]
Owensboro Municipal Utilities (OMU)
OMU supports the approach that allows the maximum amount of trading among electric generating units (EGUs) but still assures that each state will meet its pollution control obligations. [EPA-HQ-OAR-2009-0491-2811.1,p.1]
Allowing interstate trading would increase flexibility to meeting reduction goals and minimizes increases in power costs. [EPA-HQ-OAR-2009-0491-2811.1,p.1]
Progress Energy Service Company
Progress Energy understands that development of an effective replacement rule for CAIR that complies with the court's decision in North Carolina v. EPA is a difficult task. While the proposed rule contains a number of issues that concern Progress Energy, we agree with several aspects of the proposal, such as (i) allowance banking beginning in 2012, (ii) some degree of interstate allowance trading, (iii) the curb on allowance auctions, and (iv) the decision not to apply higher cost-effectiveness thresholds in the determination of emission reduction requirements.  [EPA-HQ-OAR-2009-0491-2831.1 p.2]
EPA's Proposed Remedy Option allows limited interstate allowance trading, although its two alternative options would not allow any interstate trading. Progress Energy supports EPA's proposal to permit at least some allowance trading in order to provide as much flexibility as possible given the court's decision and permit the development of more cost-effective compliance options.  [EPA-HQ-OAR-2009-0491-2831.1 p.2]
Santee Cooper
SANTEE COOPER SUPPORTS THE LIMITED INTERSTATE TRADING APPROACH OVER EPA's ALTERNATIVE REMEDIES
Santee Cooper generally supports EPA's decision to implement the Transport Rule by means of statewide NOx, and S02 budgets with limited interstate trading, instead of the 'direct control' and 'intrastate trading only' alternatives the agency also considered. Of the three remedies considered, the proposed State Budgets Limited Interstate trading approach allows EGUs to achieve the environmental objectives of Section 110 with maximum compliance flexibility within the constraints imposed by the D.C. Circuit's opinion in North Carolina v. EPA. Although Santee Cooper would prefer unlimited regional NOx and SO2 trading, and our comments below detail numerous respects in which the mechanics of the proposed trading system could be improved (most importantly by eliminating the 3-year variability limit and the prohibition on trading between EGUs in Group 1 and Group 2 states), we do not believe EPA should opt for one of the suggested (less flexible) alternative remedies in the final Transport Rule. [EPA-HQ-OAR-2009-0491-2820.1, pp.3-4]
Southern Company
XIV. EPA Should Adopt an Interstate Trading Program and Abandon the Alternatives Offered for Comment
EPA's proposed limited interstate trading option provides a limited amount of flexibility and allows more cost-effective compliance options. EPA has historically allowed interstate trading in transport rules and should do so in this case. The intrastate trading option (Alternative 1) is completely unworkable and cumbersome. And EPA has no authority for the direct control option (Alternative 2), which provides for little to no flexibility. As stated, Southern Company strongly supports a flexible interstate trading program. Although EPA's interstate trading option is preferable to either of the two proposed alternatives, as explained in Section V, EPA should evaluate whether less stringent limits on trading can be adopted without compromising the anticipated air quality benefits of the Transport Rule. [EPA-HQ-OAR-2009-0491-2864.1, p. 50]  [This comment can also be found at section V.D.1, V.D.3. and V.D.4 of this comment summary.]
XVI. Southern Company Supports Several of EPA's Decisions in the Proposed Transport Rule As discussed throughout these comments, Southern Company has many concerns with the Proposed Transport Rule. However, we support several of EPA's decisions in the proposed rule including: EPA's decision to allow interstate trading, albeit overly limited, in the preferred approach; as discussed earlier, EPA should consider additional trading flexibility and EPA's decision to not establish allowance auctions in the preferred approach.  [EPA-HQ-OAR-2009-0491-2864.1, P. 52]
Sunbury Generation LP
To the extent that EPA nonetheless proceeds with implementation of one of the three options discussed in the Proposed Rule, Sunbury supports the use of the remedy option proposed by EPA through the Proposed Rule - i.e., the State Budgets/Limited Trading option. [EPA-HQ-OAR-2009-0491-3615, p.8]
Tampa Electric Company
Tampa Electric Supports Some Elements of the Proposed Rule
Tampa Electric supports EPA's preferred approach, which allows limited interstate trading among power plants but assures that each state will meet its pollution control obligations consistent with the requirements of § 110(a)(2)(D)(i)(I) of the Clean Air Act [42.U.S.C. § 7410(a)(2)(D)(i)(I)].  We believe this proposal generally results in a reasonable approach to meeting reduction goals and could help to minimize the cost increase for power assuming the allocations are not too restrictive to allow market dynamics to occur. [EPA-HQ-OAR-2009-0491-2745.1 p.2] [These comments were also submitted as testimony at the Philadelphia, Pennsylvania public hearing on August 26, 2010.  See Docket Number EPA-HQ-OAR-0491-1938, p.74.]
Although we believe that the implementation schedule is unreasonable, we agree with EPA that banking should be allowed beginning the first year of the program. [EPA-HQ-OAR-2009-0491-2745.1 p.2]
The 1st alternative, "intra-state trading only" is unfavorable for our customers because it unnecessarily limits the trading market and the ability to achieve the greatest cost reductions and would cause unnecessary increases in the cost of electricity at a time when our customers can least afford it. The 2nd alternative is potentially more detrimental because it further reduces compliance flexibility and ignores the highly successful market-based system of emission reduction.  This option intuitively results in higher overall compliance costs without guaranteeing any additional environmental benefit. [EPA-HQ-OAR-2009-0491-2745.1 p.2]
[These comments were also submitted as testimony at the Chicago, Illinois public hearing on August 19, 2010.  See Docket Number EPA-HQ-OAR-0491-1746, pp.53-54.]
TransCanada
Comment 3: Support for EPA's Preferred Approach to the Allowance Trading Options
Of the stated options contained in the proposed Transport Rule, TransCanada supports the EPA's preferred approach that would allow intrastate trading of NOx and SO2 allowances and limited interstate trading of allowances. The alternative approaches contained in the proposed Transport Rule, as opposed to the preferred approach, would provide much less flexibility and unnecessarily increase the cost of the significant emission reductions required by the proposed Transport Rule. Additionally, having a larger market that allows for some interstate trading of excess allowances may provide more of an incentive for facilities to reduce emissions so that allowances can be freed up and sold on the market. [EPA-HQ-OAR-2009-0491-2827.1, p.3]
Utility Air Regulatory Group (UARG)
UARG supports EPA's preferred option of permitting some degree of emission allowance trading (although, as discussed subsequently in the comments, UARG urges EPA to consider expanding the margin for trading). [EPA-HQ-OAR-2009-0491-2756.1, p.9]
EPA's Proposed Remedy Option allows limited interstate allowance trading, while its two alternative options would not allow any interstate trading. UARG supports EPA's proposal to permit at least some degree of allowance trading. Permitting interstate allowance trading would provide for increased flexibility and permit more cost-effective compliance options. Increased flexibility will be particularly important in the early years of the program, especially if EPA does not change the proposed rule's unreasonably accelerated compliance schedule as suggested in these comments. [EPA-HQ-OAR-2009-0491-2756.1, pp.10-11]