apportionment of matching allowances/ERCs among the states.\38\ Any
matching allowances or ERCs that were not awarded from a state's
matching allowance or ERC apportionment by January 1, 2023 would be
retired by the EPA. The EPA requests comment on whether to include
reapportionment provisions, and the methodology that should be used for
reapportioning matching allowances or ERCs.
---------------------------------------------------------------------------

    \38\ See TSD titled ``Apportionment of the Matching Pool among
the States''.
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B. Requirements for States That Choose to Participate in the CEIP

    State plans that include implementation of the CEIP must meet
certain requirements to ensure effective administration of the state's
CEIP. Several basic requirements have already been established in the
final EGs at 40 CFR 60.5737. This section summarizes those requirements
and also proposes additional requirements necessary for implementation
of a state CEIP and the related award of EPA matching allowances or
ERCs. This section also discusses relevant proposed optional example
rule provisions for the CEIP, which would constitute a presumptively
approvable approach for meeting these CEIP requirements.\39\ In the
discussion that follows, we present requirements for allocation of
early action allowances or issuance of early action ERCs by a state.
Section III.B.2 discusses a proposed process by which EPA matching
allowances or ERCs would be awarded. Section III.B.3 reviews the
requirement finalized in the Clean Power Plan EGs to maintain the
stringency of mass-based or rate-based CO2 emission
performance by affected EGUs when implementing the CEIP, and proposes a
method for meeting this requirement for mass-based plans and rate-based
plans. Section III.B.4 proposes how states may define ``low-income
community'' for purposes of implementing the CEIP. Section III.B.5
proposes requirements for addressing potential improper allocation or
issuance of early action allowances or early action ERCs, respectively.
---------------------------------------------------------------------------

    \39\ The EPA requests comment on the use of the proposed
optional CEIP example rule provisions as suitable regulatory text in
the event of implementation of a federal plan CEIP.
---------------------------------------------------------------------------

1. State Plan Requirements for Distribution of Early Action Allowances
or ERCs
    A state plan that implements the CEIP must include requirements
that specify the process for application for, and allocation/issuance
of, early action allowances or ERCs under the CEIP, as
applicable.40 41 Many of these requirements were included in
the final EGs at 40 CFR 60.5737, and unless otherwise noted, this
action does not re-open these requirements. (We discuss these
requirements solely to help identify what new or revised requirements
we are proposing, and to provide an overall view of all the
requirements.) However, this action proposes several changes and
enhancements to these requirements. If the changes proposed in this
action are finalized, then taken together, these requirements would
include:
---------------------------------------------------------------------------

    \40\ States with rate-based state plans would issue early action
ERCs; states with mass-based state plans would allocate early action
allowances.
    \41\ Consistent with provisions in the Clean Power Plan
emissions guidelines at 80 FR 64906, section VIII.K.2.b, a state may
empower an agent to act on its behalf when administering the CEIP. A
state agent is a party acting on behalf of the state, based on
authority vested in it by the state, pursuant to the legal authority
of the state. A state could designate an agent to provide certain
limited administrative services, or could choose to vest an agent
with greater authority. Where an agent issues an ERC or allowance on
behalf of the state, such issuance would have the same legal effect
as issuance of an ERC or allowances by the state.

--Eligibility requirements for projects under the CEIP, including the
definition(s) of low-income community a state intends to use to make
CEIP awards to low-income community projects;
--Requirements for submission of project eligibility \42\ applications
to the state for the allocation/issuance of early action allowances or
early action ERCs, demonstrating the eligibility of the project under
the CEIP, including an EM&V plan for the project;
---------------------------------------------------------------------------

    \42\ CEIP-eligible project types are discussed in section III.C
of this proposal.
---------------------------------------------------------------------------

--Requirements for submission of M&V reports to the state, containing
monitored and verified MWh generation or savings results for a project;
--Requirements for submission of accompanying verification reports by
an accredited independent verifier, for both eligibility applications
and M&V reports; \43\
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    \43\ While submitted separately by an independent verifier, a
verification report constitutes part of an eligibility application
and M&V report.
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--Requirements for accreditation of independent verifiers and conduct
of independent verifiers;
--State allocation or issuance of early action allowances or early
action ERCs, based on quantified and verified MWh;
--Tracking system capabilities and infrastructure necessary to support
state administration of the CEIP; \44\
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    \44\ Following the proposal of the Clean Power Plan, the EPA
received a number of comments from states and stakeholders about the
value of the EPA's support in developing and/or administering
tracking systems to support state administration of emission trading
programs. The EPA is exploring options for providing such support
and is conducting a scoping assessment of tracking system support
needs and functionality. This scoping assessment will consider
support that could assist states with implementation of the CEIP,
should a state choose to include the CEIP in a state plan.
---------------------------------------------------------------------------

--Actions to be taken if early action allowances or early action ERCs
are found to have been improperly issued;
--A mechanism for ensuring maintenance of CO2 emission
performance by affected EGUs, considering state implementation of the
CEIP; \45\
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    \45\ As established in the Clean Power Plan EGs (and not re-
opened here), any state that chooses to participate in the CEIP must
demonstrate in its plan that it has a mechanism in place that
enables issuance of early action ERCs or early action allowances in
a manner that would have no impact on the aggregate emission
performance of affected EGUs required to meet rate-based or mass-
based CO2 emission standards during the compliance
periods (80 FR 64831). For a mass-based program, maintenance of
stringency is addressed through the established emission budget for
affected EGUs, as discussed in this section. The mechanism by which
rate-based states may meet this requirement is discussed in this
section.

    We note the requirement in the final EGs, which we are not
reopening, that if a final state plan includes CEIP provisions, the
entire plan, including the CEIP, is subject to the requirements for
meaningful engagement and public comment. In addition, the EPA is
proposing in this action that a state plan must not prohibit an
eligible CEIP project from receiving early action allowances or ERCs on
the basis that the project is located in Indian country.
    Many of the requirements listed previously were established in the
final Clean Power Plan EGs (80 FR 64692). This proposal includes
additions and

revisions to certain requirements in the final Clean Power Plan EGs
necessary to allow for implementation of the CEIP. This action proposes
no changes to, and does not in any way re-open, any aspects of the
final Clean Power Plan other than those expressly proposed or on which
we expressly request comment, and all such potential changes are solely
related to the CEIP. We are also proposing optional example regulatory
text for the CEIP, which when finalized, would provide presumptively
approvable approaches for implementing the CEIP by a state as part of a
mass-based emission budget trading program or a rate-based emission
trading program.\46\ The EPA has structured the proposed optional
example regulatory text for the CEIP in a manner that would enable it
to be integrated with the proposed model trading rules for mass-based
and rate-based emission trading programs.\47\ The CEIP optional example
regulatory text in this proposal replaces proposed provisions for the
CEIP included in the October 23, 2015, model trading rules proposal. In
addition, the EPA requests comment on utilizing this presumptively
approvable optional example regulatory text as CEIP provisions under a
federal plan.
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    \46\ While the proposed optional example regulatory text
provides a presumptively approvable approach for a state's
participation in the CEIP, the EPA recognizes that states may choose
alternate approaches, provided they meet the requirements for CEIP
participation included in amendments to the Clean Power Plan EGs
included in this action, once finalized.
    \47\ 80 FR 64966-65116 (October 23, 2015)
---------------------------------------------------------------------------

    As finalized in the Clean Power Plan EGs, states opting into the
CEIP must include requirements in their plans for allocation or
issuance of early action allowances or early action ERCs, respectively,
that meet the requirements for the issuance of ERCs (see final rule
preamble, section VIII.K.2, and regulatory text at 40 CFR 60.5737(e)).
Such a requirement applies to both mass-based and rate-based state
plans including the CEIP, as the CEIP is based on eligible MWh of
energy savings or RE generation, and these MWh must be quantified and
verified appropriately in order to demonstrate eligibility for awards
of early action and matching allowances or ERCs. Where relevant, the
proposed CEIP optional example regulatory text cross-references
applicable provisions in the proposed mass-based and rate-based model
trading rules, respectively, that address such requirements.\48\ The
EPA is proposing two sets of CEIP optional example regulatory text--one
set of provisions for inclusion in a mass-based trading program, and
one set of provisions for inclusion in a rate-based trading program. As
a result, each set of proposed CEIP optional example regulatory text
makes relevant cross references to provisions in the proposed mass-
based and rate-based model trading rules. These cross references
include references to provisions in the proposed mass-based and rate-
based model trading rules that would, in the Agency's view (pending its
review of public comments and ultimate finalization of the model
trading rules), meet the requirements in the final EGs for the process
for state issuance of ERCs. (The final EGs themselves are not re-opened
with respect to the requirements for ERC issuance.) This includes
provisions in the proposed mass-based and rate-based model trading
rules that address: Requirements for eligibility applications
(including EM&V plans),\49\ EM&V requirements for different types of
eligible projects and programs,\50\ M&V reports,\51\ verification
reports (included with both eligibility applications and M&V reports),
requirements for independent verifiers,\52\ and provisions that address
potential improper issuance of ERCs or improper allocation of
allowances.\53\
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    \48\ The cross-referenced provisions themselves are not re-
proposed by this action.
    \49\ See id. at 64998.
    \50\ See id. at 65002.
    \51\ See id. at 65096.
    \52\ See id. at 65001.
    \53\ See id. at 64998.
---------------------------------------------------------------------------

    The state plan requirements for implementation of the CEIP
summarized previously apply regardless of whether a state is allocating
early action allowances under a mass-based emission budget trading
program or issuing early action ERCs under a rate-based emission
trading program. In addition, these provisions must specify
requirements for eligible projects under the CEIP, including the
requirement that EE projects are implemented in ``low-income
communities.'' \54\ These provisions must also include requirements for
the quantification and verification of MWh results, as well as a two-
step administrative process for determination of project eligibility
and allocation or issuance of either early action allowances or ERCs.
These requirements, for rate-based and mass-based programs,
respectively, are discussed in the sections that follow.
---------------------------------------------------------------------------

    \54\ Section III.B discusses low-income definitions.
---------------------------------------------------------------------------

a. Requirements for State Plans that Include Mass-Based Emission Budget
Trading Programs
    Where a state plan includes a mass-based emission budget trading
program, the plan will need to include requirements that support the
allocation of early action allowances under the state CEIP. A number of
these are additional requirements that are not necessary under an
approvable mass-based emission budget trading program that does not
include a state CEIP. However, many of these additional requirements
are similar to those that would be entailed for the administration of
allowance set-asides to address potential leakage to new sources in the
absence of the CEIP, if the state chooses such set-asides as the means
for addressing potential leakage. In general, administering an
allowance set-aside involves provisions to address entities that are
eligible to receive allowances from a set-aside and specification of
the method for allocating allowances from the set-aside. As a result,
to the extent that a state decides to implement one or more allowance
set-asides as part of its plan, even in the absence of the CEIP, a
similar framework to the one summarized previously would likely be
established in many cases.
    These additional requirements include regulatory provisions that
address the eligibility of resources for state allowance allocation
under the CEIP, and the process for such allocation, including:
Requirements for submission of eligibility applications, which include
EM&V plans; requirements for EM&V requirements for submission of
periodic M&V reports; requirements for accreditation of independent
verifiers; requirements for independent verifier reports (which must
accompany both eligibility applications and M&V reports); and necessary
tracking system capabilities that provide for the required two-step
process for application for early action allowances that is consistent
with the required two-step process for the issuance of ERCs.
    In addition, the requirements for allocation of early action
allowances under a state CEIP must include provisions for how
allowances will be allocated based on the number of quantified and
verified MWh reported by an eligible resource (i.e., the MWh-to-
allowance award ratios for CEIP-eligible RE, and low-income community
projects). The EPA is proposing that early action allowances allocated
under a state CEIP must be allocated in conformance with the provisions
included in section III.A of this preamble.

b. Requirements for State Plans that Include Rate-Based Emission
Trading Programs
    Where a state is implementing a rate-based emission trading
program, the state plan will include necessary provisions for the
issuance of ERCs, as previously described. These are the same
requirements that are necessary to support state issuance of early
action ERCs under the CEIP. As a result, the state plan would require
limited additional requirements in order to implement the CEIP, beyond
those required for a rate-based state plan in general. These additional
requirements include provisions establishing the eligibility of
projects under the CEIP and provisions to address maintenance of
CO2 emission performance by affected EGUs, as described in
section III.B.3. In addition, an approvable state plan that includes a
rate-based emission trading program will already include an identified
tracking system that has the necessary capabilities and infrastructure
to support the issuance of early action ERCs.
2. Process for the Award for EPA Matching Allowances or ERCs
    The EPA is proposing that state plan requirements for the request
of EPA matching allowances or ERCs must be consistent with the
following process.
    The EPA is proposing that it will establish an EPA matching
allowance or ERC account for each state in the relevant tracking system
for each state mass-based emission budget trading program (in the case
of matching allowances) and rate-based emission trading program (in the
case of matching ERCs). The EPA proposes to grant states the ability to
transfer EPA matching allowances or ERCs from the EPA matching account,
on behalf of the EPA, under the conditions described later in this
preamble.
    The state plan must specify the conditions under which the state
will authorize such transfers of EPA matching allowances or ERCs from
the EPA matching account to the designated account of an eligible CEIP
project. Those state plan provisions must specify that a transfer of
EPA matching allowances or ERCs may only occur subsequent to a state
allocation or issuance of early action allowances or ERCs, in
accordance with requirements for such state early action awards
specified in the state plan; must be made in accordance with the award
ratios established in the EGs (and specified in the state plan); and
must correspond with the number of early action allowances or ERCs
allocated or issued to an eligible CEIP project. The EPA is also
proposing that, when awarding matching allowances or ERCs on behalf of
the EPA, a state must assign a vintage for each awarded matching
allowance or ERC that corresponds to the vintage of the related early
action allowance or ERC on the basis of which the matching allowance or
ERC was awarded.\55\ The EPA requests comment on this provision.
---------------------------------------------------------------------------

    \55\ For an ERC, ``vintage'' refers to the calendar year in
which the MWh on which issuance of the ERC is based occurred. For an
allowance, ``vintage'' refers to the emission budget year of the
allowance. Both ERCs and allowances may be banked for future use
without limitation, as established in the final CPP. Borrowing of
allowances is not allowed under the final CPP. For allowances, this
means that only allowances for budget years that fall within a
current or past compliance period may be used to demonstrate
compliance. Borrowing is also prohibited for ERCs, but is not
relevant from a practical standpoint, as ERCs may only be issued
after quantification and verification of MWh generation or savings.
As a result, by default, borrowing of ERCs is not possible.
---------------------------------------------------------------------------

    The state plan must adequately describe how the tracking system
used to administer the state mass-based emission budget trading program
or rate-based emission trading program will provide transparent public
access to transfers of EPA matching allowances or ERCs from the EPA
matching account. This includes tracking system access to CEIP project
documentation related to the state allocation or issuance of early
action allowances or ERCs, respectively. Furthermore, the tracking
system must provide a mechanism for tracking the awarded EPA matching
allowances or ERCs back to the relevant CEIP project documentation, and
documentation of the state award of early action allowances or ERCs for
which the EPA matching award was made.\56\ The EPA notes that such
requirements are consistent with the tracking system requirements in
the EGs for the issuance of ERCs. In addition, the EPA is proposing
optional example regulatory text for the CEIP that specifies this
required process under both a mass-based emission budget trading
program and a rate-based emission trading program.
---------------------------------------------------------------------------

    \56\ This includes access to the eligibility application for the
relevant CEIP resource, the relevant M&V report on which the state
award of early action allowances or ERCs is based, related
independent verifier reports (for the eligibility application and
relevant M&V report), and documentation of the state award of early
action allowances or ERCs.
---------------------------------------------------------------------------

    These state plan provisions must specify that the state will
transfer EPA matching allowances or ERCs from the EPA matching account
on a regular established schedule, and no sooner than 60 days from the
date of the relevant state award of early action allowances or early
action ERCs for an eligible CEIP project. Prior to this date, the EPA
may place a hold on state transfers from the EPA matching account, if
it has questions about the proper state allocation of early action
allowances or issuance of early action ERCs consistent with the
requirements and process established in the approved state plan, or if
there is evidence of potential improper state awards. The EPA believes
that this approach balances streamlined implementation of the CEIP with
appropriate safeguards to ensure the integrity of the CEIP. The EPA
requests comment on this provision to provide for a delay between
allocation or issuance of early action allowances or ERCs and the award
of matching allowances or ERCs.
3. Addressing Requirement To Maintain Stringency of Mass-Based or Rate-
Based Emission Performance
    The Clean Power Plan EGs require that states opting in to the CEIP
include in their state plans a mechanism that ensures that the
allocation of early action allowances or issuance of early action ERCs
to CEIP-eligible parties will not impact the CO2 emission
performance of affected EGUs required to meet rate-based or mass-based
CO2 emission standards during the plan performance
periods.\57\ This mechanism is not required to account for matching
ERCs or allowances that may be issued to the state by the EPA.\58\ This
section proposes approaches for such mechanisms, for both mass-based
emission budget trading programs and rate-based emission trading
programs. Several commenters provided suggestions for how to address
stringency maintenance for early action allowances allocated or early
action ERCs issued. Commenters generally supported the inclusion of
requirements that stringency must be maintained. Several commenters
stated that EPA should not adjust state goals during the compliance
period as a mechanism for maintaining stringency and that doing so may
be too complicated of a methodology. For rate-based plans,

several commenters suggested that EPA include provisions that account
for early action ERCs and either allow for retirement of ERCs that
would have been issued during the compliance period or require a
`discounting' or adjustment factor be applied to ERCs issued during the
compliance period.
---------------------------------------------------------------------------

    \57\ For a description of this requirement, see the preamble to
the final Clean Power Plan EGs at 80 FR 64830-64831 and the final
rulemaking regulatory text at 40 CFR 60.5737(c).
    \58\ In addition, for states adopting a state measures plan
type, we note that the EGs require inclusion of a federally
enforceable backstop and associated implementing measures such as
triggers based on reported emissions. See 40 CFR 60.5740(a)(3)(i).
The EPA is proposing here that any trigger for the backstop required
by the EGs for a state measures plan would not need to include or
account for emissions authorized per EPA-awarded matching allowances
under the CEIP. The EPA solicits comments on this proposal and any
alternatives.
---------------------------------------------------------------------------

a. Addressing Maintenance of Stringency for Mass-Based Programs
    Addressing maintenance of stringency under a mass-based state plan
is straightforward. A state must address this plan requirement by
implementing the CEIP through an allowance set-aside from the
established state emission budget. Since allowances are being
distributed from a finite emission budget, allocation of allowances
from that budget for CEIP early actions cannot result in an increase in
the allowable CO2 emissions from the fleet of affected EGUs
when complying with their emission standards.\59\ Stringency is
therefore maintained by the structure of an emission budget trading
program, because the emission budget is established under the state
plan and early action allowances related to a state CEIP are allocated
from that emission budget.\60\ As a result, the state-established
emission budget is not increased as a result of the state allocation of
allowances from a CEIP set-aside. The EPA further proposes that early
action allowances must be allocated only from a state's emission budget
established for the first interim step plan performance period (i.e.,
2022-2024).
---------------------------------------------------------------------------

    \59\ Under an emission budget trading program, the emission
standard that applies to an individual affected EGU is a requirement
to surrender allowances equal to reported CO2 emissions
for a given compliance period. Allowances are generally allocated in
an amount that equals the CO2 emission budget (i.e., the
CO2 emission constraint that applies to the combined
group of affected EGUs subject to the program).
    \60\ To meet the requirement to maintain stringency, the state
plan must allocate early action allowances from within the
established emission budget. The state may not increase the budget.
---------------------------------------------------------------------------

b. Addressing Maintenance of Stringency for Rate-Based Programs
    For a rate-based emission trading program included in a state plan
implementing the CEIP, addressing the plan requirement to maintain the
stringency of CO2 emission performance requires a different
mechanism than that required under a mass-based program. The very
nature of a rate-based approach, which does not limit total emissions,
poses certain challenges for demonstrating that stringency will be
maintained.
    In this program context, the state is implementing the CEIP by
issuing early action ERCs for MWh of generation or savings achieved by
CEIP-eligible projects during 2020 and/or 2021, before the plan
performance period begins in 2022.\61\ These early action ERCs may be
used by affected EGUs to comply with a rate-based CO2
emission standard during the plan performance period.
---------------------------------------------------------------------------

    \61\ Outside the context of the CEIP, ERCs may only be issued by
a state for MWh of generation or savings by eligible resources that
occur in 2022 and subsequent years (i.e., during the plan
performance period). Thus, in contrast with the discretion available
to states implementing a mass-based program to allocate allowances
for early action outside the context of the CEIP (though without the
availability of any EPA matching allowances), states implementing a
rate-based program may not issue ERCs for early action other than
through the CEIP. This result is a natural consequence of the
requirements for eligible resources that can be issued ERCs
established in 40 CFR 60.5800 and is not open for comment in this
action.
---------------------------------------------------------------------------

    State-issued early action ERCs for CEIP-eligible MWh generation or
savings in 2020 and/or 2021 will result in a larger total number of
potential ERCs available for use by affected EGUs than would have
otherwise been available in the absence of the CEIP. As finalized in
the EGs, a state plan must account for these early action ERCs during
the plan performance period, or there will be an impact on the
aggregate CO2 emission performance achieved by affected EGUs
during the plan performance period when complying with their rate-based
CO2 emission standards. For purposes of fulfilling this plan
requirement, the EPA is proposing that, for each early action ERC a
state issues under the CEIP, the state must, during the interim plan
performance period, either permanently withhold (i.e., not issue) one
ERC for a quantified and verified MWh achieved by an eligible ERC
resources, or permanently retire one unused ERC \62\ such that it
cannot be used for CPP compliance. Unless such an adjustment is applied
during the plan performance period to account for the issuance of early
action ERCs, this total increase in potential available ERCs would
allow affected EGUs to emit more CO2 than would occur
through the application of the CO2 emission performance
levels or state rate-based CO2 goal during the plan
performance period beginning in 2022.
---------------------------------------------------------------------------

    \62\ ERCs that can be retired for this purpose may be produced
by eligible ERC resources within the state or in other states that
share the same rate-based approach (i.e. CO2 emission
performance levels or a state rate-based CO2 goal). They
may also be early action ERCs issued under the CEIP.
---------------------------------------------------------------------------

    As described later in this preamble, the EPA is proposing a
specific presumptively approvable approach that rate-based states
opting in to the CEIP may choose to use to meet the plan requirement to
maintain the stringency of CO2 emission performance by
affected EGUs. (The EPA anticipates that it would use this approach if
the EPA were to implement the CEIP under a rate-based federal plan.)
The EPA is also soliciting comment on other approaches that could be
considered presumptively approvable in a rate-based state plan that
includes the CEIP.
    The proposed presumptively approvable approach is as follows: A
rate-based state opting in to the CEIP would apply an adjustment factor
to all quantified and verified MWh from eligible ERC resources that are
achieved during the first interim step (2022-2024) of the plan
performance period, to account for the number of early action ERCs
issued by a state under the CEIP for MWh achieved during 2020 and/or
2021. The state would apply this adjustment factor to the quantified
and verified MWh reported by each eligible ERC resource, regardless of
whether that resource received early action ERCs under the CEIP. This
presumptively approvable approach would enable a state to fully account
for the issuance of early action ERCs during the first interim step
(2022-2024) of the plan performance period (i.e., the number of early
action ERCs issued by the state would be equal to the number of
quantified and verified MWh from eligible ERC resources for which ERCs
would be permanently withheld during the first interim step of the plan
performance period), and thus demonstrate that its state plan is
maintaining the stringency of CO2 emission performance by
affected EGUs.
    The adjustment factor to be used in the presumptively approvable
approach is determined by the following equation:
[GRAPHIC] [TIFF OMITTED] TP30JN16.014

Where:

 State-Issued CEIP Early Action ERCs = the total number of
early action ERCs issued by a state under the CEIP, for eligible MWh
achieved in 2020 and/or 2021
 Adjustment Period = 3, the number of years in the first
interim step of the plan performance period (2022-2024), to which
the adjustment factor will be applied to address maintenance of
CO2 emission performance stringency
 Quantified and Verified MWh During Reporting Year = The
total number of quantified and verified MWh reported by all eligible
ERC resources to a state for a specific year of the first interim
step of the plan performance period (2022-2024)

    This equation calculates the adjustment factor (a fraction) that a
rate-based state opting in to the CEIP would apply to the total
quantified and verified MWh reported to that state by each individual
eligible ERC resource for actions undertaken during the first interim
step of the plan performance period (2022-2024). Once applied, this
factor ``adjusts'' the number of ERCs that an eligible ERC resource may
receive for actions undertaken during the first interim step of the
plan performance period, to account for the early action ERCs the state
issued to CEIP-eligible providers for MWh achieved in 2020 and/or 2021.
    The following is an example calculation of the adjustment factor,
for a scenario that assumes that 300 early action ERCs are issued by a
state under the CEIP, and that, during the year 2022 (the first year of
the first interim step period), all eligible ERC resources report 1,000
MWh to the state:
[GRAPHIC] [TIFF OMITTED] TP30JN16.015

    Based on application of the adjustment factor, each eligible ERC
resource would receive a number of ERCs equal to the MWh it reported,
multiplied by the adjustment factor of 0.9. In aggregate, all eligible
ERC resources would receive 900 ERCs total for the 1,000 MWh total they
reported in 2022.\63\ The 100 MWh of quantified and verified MWh
achieved by the eligible ERC resources, but for which the state did not
issue ERCs, are applied toward the state's demonstration that it
maintained the stringency of rate-based CO2 emission
performance during 2022.
---------------------------------------------------------------------------

    \63\ If application of the adjustment factor resulted in a total
calculated number of MWh that ends with a fractional value of a MWh
remaining (e.g., 900.7 MWh), the EPA is proposing that the number of
MWh for which ERCs may be issued would be rounded down to the
nearest integer (e.g., 900). Such rounding is necessary, as ERCs may
only be issued in whole MWh increments.
---------------------------------------------------------------------------

    This proposed presumptively approvable approach for maintaining
stringency in a rate-based program provides a number of advantages.
First, the approach provides a transparent way of demonstrating that
the number of ERCs issued by a state under the CEIP is being fully
accounted for during the plan performance period. Second, the proposed
approach applies the same adjustment factor to all eligible ERC
resources. This approach would provide greater assurance that early
action ERCs are fully accounted for during the plan performance period
than if an adjustment was only applied to the eligible ERC resources
that received early action ERCs. It is uncertain that there would be
sufficient MWh of energy generation or savings achieved by these
resources during the plan performance period to fully account for the
early action ERCs that were issued to those individual CEIP projects
and providers.\64\ Third, this approach would not substantially dilute
the incentive provided to eligible resources that receive early action
ERCs, in keeping with the goal of the CEIP to drive early action.
---------------------------------------------------------------------------

    \64\ The ongoing operation of individual projects or programs
that are eligible for issuance of ERCs is subject to uncertainty.
Projects or programs might be terminated, or might choose to suspend
their application for the issuance of ERCs going forward, for
multiple potential reasons unrelated to a state plan. Furthermore,
the quantified and verified MWh of electricity generation or savings
from an individual project or program could vary significantly from
year to year, for a number of potential reasons. Therefore, it is
uncertain that the projects or programs that received early action
ERCs under the CEIP would cumulatively report quantified and
verified MWh during the first 3 years of the plan performance period
equal to or greater than the number of quantified and verified MWh
reported for 2020 and 2021.
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    The EPA understands that there is a potential disadvantage to this
approach. This method of applying the adjustment factor to all eligible
ERC resources would reduce the number of ERCs issued to eligible ERC
resources that did not participate in the CEIP, relative to their total
quantified and verified MWh during the plan performance period. These
eligible ERC resources would not have received early action incentives
through the CEIP, yet would see a reduction in the potential incentives
they could receive during the plan performance period. Nonetheless, the
EPA also notes that such an incentive structure could provide further
encouragement for projects and programs to participate in the CEIP, if
it were implemented through a state plan.
    The EPA seeks comment on this proposed presumptively approvable
approach, including the timing for and duration of the adjustment
period to be incorporated into the adjustment factor equation. The EPA
also requests comment on alternative approaches the agency could
consider as presumptively approvable methods to maintain the stringency
of CO2 emission performance achieved by affected EGUs during
the plan performance period under a rate-based emission trading program
that includes the CEIP. These could include approaches by which a state
would withhold or retire ERCs during the first interim step of the plan
performance period in an amount equal to the number of early action
ERCs issued by the state under the CEIP for MWh achieved during 2020
and/or 2021. Additionally, we request information on mechanisms for
ensuring that stringency is met with any alternative presumptively
approvable approaches suggested.
4. Requirement To Establish a Definition of ``Low-Income Community''
for Purposes of Implementing the CEIP
    A key element of the CEIP as finalized in the EGs is the
establishment of incentives specific to projects implemented in low-
income communities. As discussed in the final EGs, the additional
incentive offered for low-income community projects is an effort to
help overcome historical barriers to the deployment of energy
efficiency projects in low-income communities (80 FR 64831).
Incentivizing these projects will place affected EGUs in a better
position to meet their emission reduction obligations under the EGs and
improve the cost of implementation of the EGs, consistent with
Congress' design in section 111 of the CAA. At the same time, the
Agency believes that a focus on low-income communities will also
deliver economic and environmental benefits to a more expansive set of
underserved populations, including

low-income, minority and tribal communities.\65\
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    \65\ For more information about the link between minority and
low-income communities please see Section V Community and
Environmental Justice Considerations.
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    Proposing how states may develop their definition of ``low income
community'' is a critical part of this action. In the context of the
CEIP, the EPA is interpreting the term ``community'' in a manner
consistent with the Council on Environmental Quality's Environmental
Justice Guidance Under the National Environmental Policy Act which
states ``In identifying low-income populations, agencies may consider
as a community either a group of individuals living in geographic
proximity to one another, or a set of individuals . . . where either
type of group experiences common conditions of environmental exposure
or effect.'' \66\
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    \66\ Council on Environmental Quality's Environmental Justice
Guidance Under the National Environmental Policy Act, Appendix A
(December 1997). http://www3.epa.gov/environmentaljustice/resources/policy/ej_guidance_nepa_ceq1297.pdf.
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    In establishing requirements for a definition of ``low-income
community,'' the EPA considered several key principles. One principle
is a desire to establish requirements that are clear and easy for
states to implement as they develop their plans. The EPA believes that
use of existing federal, state, and local definitions will provide the
most clarity and ease of implementation. Another principle for the
Agency is that a state's definition should provide transparency and
consistency for all stakeholders with an interest in the CEIP,
including project providers and communities that may benefit from
implementation of CEIP-eligible projects. To further these principles,
the EPA emphasizes that, by establishing clear definitions for a ``low-
income community'' in the state plan, a state can make the process
easier to implement and more transparent for all parties. Additional
guidance on low-income community project eligibility is discussed in
section III.C of this preamble.
    A state plan that includes implementation of the CEIP must
establish eligibility requirements for projects under the CEIP,
including a requirement that eligible CEIP low-income community
projects must be implemented in a low-income community.\67\ We propose
that a state choosing to participate in the CEIP must include in its
state plan one or more definitions of low-income community that the
state will apply to evaluate whether proposed EE and solar projects are
implemented in low-income communities in that state. During the public
outreach sessions for the CEIP and the comment period for the CEIP non-
regulatory docket, the EPA heard from many commenters who supported
enabling states to use existing low-income definitions, allowing both
geographic and household-based definitions, allowing flexibility to
address rural and urban areas of each state, and recognizing the
existing public benefit programs being run by states and utilities.\68\
The EPA agrees with those commenters. Due to the short-term (two-year)
nature of the CEIP, and since existing program providers have
experience with evaluating and implementing EE and RE projects in low-
income communities, the EPA recognizes the value of building on
successful existing local, state and federal programs that serve low-
income communities rather than the Agency creating a new definition of
``low-income community.'' Finally, the Agency recognizes the
variability in state economic and demographic conditions, and the range
of experiences that local, state and federal agencies have in
administering low-income programs, including low-income energy
programs. As a result, the EPA is proposing that it will neither create
a new definition nor provide a single definition of low-income
community that it will require states to use. Rather, the EPA proposes
to provide states with the flexibility to use existing local, state or
federal definitions that best suit their specific economic and
demographic conditions while ensuring that eligible projects and
programs receiving incentives are benefitting low-income communities.
Local, state or federal definitions are considered existing if they
were established prior to the publication of the final Clean Power Plan
EGs on October 23, 2015. Routine updates of underlying federal or state
data do not constitute a new definition for the purposes of this
action.
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    \67\ See the Final Clean Power EGs at section 60.5737(a)(4) and
(b)(2) (80 FR 64943).
    \68\ See CEIP non-regulatory docket at EPA-HQ-OAR-2015-0734.
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    It is reasonable to enable a state to include more than one
definition of ``low-income'' in its state plan, to allow eligibility
for a range of different types of programs (e.g., housing vs.
commercial) and geographic scale (e.g., household vs. geographic
boundary). Requiring a state to use only one could exclude projects
that would be entirely consistent with the purposes of the Clean Power
Plan EGs. There are many examples of existing federal definitions,
including, but not limited to, geographic-based definitions, such as
the New Market Tax Credits (NMTC) \69\ and the HUD Qualified Census
Tracts,\70\ and household-based definitions, such as the Department of
Energy's Weatherization Assistance Program (WAP) Income Guidelines \71\
and the Federal Poverty Level Guidelines (FPLG).\72\
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    \69\ https://www.irs.gov/pub/irs-utl/atgnmtc.pdf.
    \70\ https://www.huduser.gov/portal/datasets/qct.html.
    \71\ http://energy.gov/eere/wipo/downloads/wpn-15-3-2015-poverty-income-guidelines-and-definition-income.
    \72\ https://aspe.hhs.gov/2015-poverty-guidelines.
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    The EPA is proposing that these federal level definitions (NMTC,
HUD Qualified Census Tracts, WAP, and the FPLG) are each presumptively
approvable definitions that may be used in final state plans.\73\ The
EPA is requesting comment on other federal level definitions that could
be included as presumptively approvable. At the state level,
definitions may include established utility program definitions that
have public utility commission (PUC) or state energy office (SEO)
approval, eligibility requirements for state tax credits or incentives,
or qualification for state administered benefit programs, among others.
At the local level, definitions may include established utility program
definitions administered by a municipality, a public power entity, a
rural electric cooperative or other analogous utility provider not
subject to state oversight. Examples of state and utility administered
low-income EE and solar programs are discussed in section III.C of this
preamble.
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    \73\ See section III.C for information on requirements for
eligible EE projects.
---------------------------------------------------------------------------

    If a state includes more than one definition, it must have clear
and consistent criteria for applying the multiple definitions. For
instance, a state may use one definition for one type of program and
another definition for another type of program, but it should not
choose between the definitions for a specific program in such a way
that would allow for arbitrary inclusion or exclusion of individual
projects.
    During the public outreach sessions on the CEIP in the fall of
2015, commenters raised concerns about the appropriateness of using
state-based definitions. Specifically, some commenters stated that some
state-specific definitions may either exclude some low-income
electricity consumers or be overly inclusive of higher-income
households or institutions that do not serve low-income residents. The
EPA is requesting further comment on these

concerns as well as potential remedies to address these concerns.
    Additionally, some commenters have expressed concerns over needing
appropriate safeguards to ensure that low-income communities are the
beneficiaries of eligible CEIP energy-efficiency projects. Some
commenters have suggested that states consider limiting the total
population within a state that could be considered as `low-income'.
Others have suggested that states consider evaluating the number of
high-income households that would be included under their proposed
definition of low-income. Another commenter asked that states consider
whether restrictions on the types of commercial and transmission and
distribution projects are appropriate, (e.g., whether the entities are
public, private, or not-for-profit). In response to these concerns, the
EPA is also requesting comment on restrictions or safeguards that may
be needed to ensure that projects receiving incentives from the low-
income community reserve are limited to those that benefit low-income
communities.
    The EPA requests comments on the suitability for a federal plan of
the existing federal definitions listed previously (specifically: NMTC,
HUD Qualified Census Tracts, WAP, and the FPLG), as well as any
existing state or local definitions for programs in that state. This
would be consistent with the flexibility granted to states under a
state plan, as discussed previously.
    As a state contemplates possible definitions of ``low-income
community'' it may be appropriate to consider the range of factors
specific to the state that impact the energy burden \74\ on low income
ratepayers (e.g., disparities in median income across the state,
utility prices, EJ concerns, or state median income in comparison with
national median income). This can help states select a definition that
maximizes inclusion of communities and households in which there are
significant energy burdens and barriers to energy efficiency programs.
---------------------------------------------------------------------------

    \74\ Energy burden is defined broadly as the burden placed on
household incomes by the cost of energy, or more simply, the ratio
of energy expenditures to household income. Nationally, the energy
burden for households that qualified for federal low-income
weatherization programs in 2014 was 16.3%, while the energy burden
for non-eligible households was 3.5%. Expenditures on electricity
represent a portion of the larger energy burden. http://weatherization.ornl.gov/pdfs/ORNLTM2014_133.pdf.
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5. Requirements Addressing Potential Improper Allocation or Issuance of
Early Action Allowances or ERCs
    The EPA is proposing that state plans implementing the CEIP must
include requirements for actions that will be taken if early action
allowances or ERCs are improperly allocated or issued by the state.\75\
Improper issuance by a state could occur as a result of error or
misrepresentation by a CEIP-eligible resource. Because the EPA would
also be awarding matching allowances or ERCs on the basis of state-
issued early action allowances or ERCs, the EPA is proposing that the
improper issuance provisions in a state plan that implements the CEIP
must apply to both the state-issued early action allowances or ERCs and
the corresponding EPA matching allowances or ERCs that are awarded.
---------------------------------------------------------------------------

    \75\ This section uses the term ``state-issued'' to refer to
both state allocation of early action allowances and state issuance
of early action ERCs.
---------------------------------------------------------------------------

    The EPA is proposing that if a state or the EPA finds that any
early action state allowances or ERCs have been improperly allocated or
issued, then the EPA will bar award of matching allowances or ERCs to
those projects that received improperly allocated or issued early
action allowances or early action ERCs.\76\ As described in section
III.B of this preamble, in such an instance the EPA would place a hold
on a state's matching allowance or ERC account, preventing the transfer
of EPA matching allowances by the state from the EPA account to the
account of the eligible CEIP resource at issue.
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    \76\ The EPA award of matching allowances or ERCs is not
considered EPA endorsement that such allowances or ERCs were
properly allocated or issued in accordance with state plan
requirements. Such allowances or ERCs are still subject to a
potential subsequent finding that they were improperly allocated or
issued, in accordance with the requirements in an approved state
plan.
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    In the case where matching allowances or ERCs are awarded on the
basis of improperly allocated or issued early action allowances or
ERCs, the EPA is proposing that the EPA matching allowances or ERCs
must be subject to requirements in a state plan that address improper
allocation or issuance. The EPA has determined this approach is
necessary because the EPA matching allowances or ERCs are compliance
instruments that are indistinct from state-issued early action
allowances or ERCs, and the award of the EPA matching instruments is
predicated on the proper issuance of the state instruments. Both the
state-issued compliance instrument and the EPA matching compliance
instrument may be used by an affected EGU to comply with either a mass-
based emission standard (allowances) or a rate-based emission standard
(ERCs).
    The EPA is proposing that state plans must include requirements
specifying how improper allocation or issuance of early action
allowances or ERCs will be addressed. The EPA is proposing that these
plan requirements must apply to both state-allocated early action
allowances and state-issued early action ERCs, as well as to the
matching allowances or ERCs awarded by the EPA.
    Where a state plan includes a rate-based emission trading program,
the final Clean Power Plan EGs include requirements that a state plan
must include provisions that address the improper issuance of ERCs.\77\
The proposed rate-based model trading rule includes presumptively
approvable provisions related to the improper issuance of ERCs.\78\
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    \77\ See the EGs at 40 CFR 60.5790(c)(3); id. 60.5805(g) and
(h). The potential for improper issuance of ERCs by a state is
discussed in the preamble to the final EGs rule at section
VIII.K.2.d (80 FR 64907, October 23, 2015).
    \78\ Provisions to address improper issuance of ERCs are
discussed in the preamble to the proposed federal plan and model
trading rules (80 FR 65000, October 23, 2015). See also, proposed
rule text at 40 CFR 62.16450 of the rate-based model trading rule.
---------------------------------------------------------------------------

    We propose that these finalized EGs provisions (which have already
been promulgated and are not being reopened) and the corresponding
proposed model rule provisions, are equally appropriate and would
suffice for purposes of improper state issuance of early action ERCs
under the CEIP.
    Thus, the EPA is proposing that where a state implements the CEIP,
those same provisions addressing state-issued early action ERCs in an
approvable plan must also apply to any related EPA-awarded matching
ERCs. Where any early action ERCs are found to be improperly issued by
a state, the same requirements must apply to the matching EPA ERCs
awarded on the basis of the original state-issued ERCs.
    Where a state plan includes a mass-based emission budget trading
program, the EPA is proposing to amend the final Clean Power Plan EGs
to require that a state plan must include provisions like those in a
rate-based plan under the EGs to address the improper state allocation
of early-action allowances under a state CEIP. While mass-based plans
under the EGs are required to include provisions for adjustment in the
case of incorrect allocations, see 40 CFR 60.5815(d), the rules for
improper issuance of ERCs under rate-based plans under the EGs are
different. See 40 CFR 60.5790(c)(3); id. 60.5805(g), (h). Neither of
these sets

of requirements are being reopened. The EPA is proposing, however, that
the rate-based approach would apply for purposes of the CEIP in both
mass-based and rate-based state plans.
    This is due to the availability of the matching allowances under
the CEIP. State allocation of early action allowances under the CEIP is
the necessary predicate for the award of EPA matching allowances, which
would functionally expand the emission budget for affected EGUs under
the state plan. These EPA matching allowances that are awarded to the
state, if based on improper allocation by the state under its CEIP set
aside, could potentially erode the integrity of a mass-based emission
trading program under the Clean Power Plan.\79\
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    \79\ In the case of improperly allocated allowances, the
allocation by the state would not be appropriately based on actual
MWh of generation or savings from eligible resources under the CEIP,
and related avoided CO2 emissions prior to the beginning
of the plan performance period. At the same time, the EPA matching
allowances would expand the emission budget under the state emission
budget trading program.
---------------------------------------------------------------------------

    Because of the distinctions between the impact of state-allocated
early action allowances and the award of EPA matching allowances
described previously, the EPA is proposing an approach for mass-based
state plans where a state plan must include provisions comparable to
the improper issuance provisions for ERCs in a rate-based program that
apply to the EPA matching allowances. A state plan could include
different requirements that apply for the improperly state-allocated
early action allowances under the CEIP. Under this proposed approach,
application of the improper allocation provisions in an approved state
plan would be triggered based on a finding by the state or the EPA that
early action allowances were improperly allocated by the state under
the CEIP. The remedies under the improper allocation provisions would
address the EPA matching allowances, which resulted in a functional
expansion of the state emission budget.

C. Requirements for CEIP-Eligible Projects

    In the final EGs, we specified certain criteria for eligible
projects, including the date after which eligible RE projects must
``commence construction'' and the date after which eligible EE projects
must ``commence operation.'' 40 CFR 60.5737. We requested comment in
the proposed model trading rules and federal plan on what, if any,
additional criteria should apply to determine eligibility for CEIP
projects. 80 FR 65026. Accordingly, we are proposing to clarify the
eligibility criteria for CEIP projects, guided by the objectives for
the CEIP identified in the final Clean Power Plan, see 80 FR at 64829-
64832, as well as the importance of ensuring simplicity in plan
development and ease in implementation of this time-limited program.
    We received significant input from a wide range of stakeholders
about requirements for eligible CEIP projects. We considered this
feedback carefully in developing this proposal. In this action, we
propose to clarify the term ``project'' as used in the Clean Power Plan
EGs for purposes of the CEIP. Additionally, in this action we propose
to replace the definition of ``commence construction'' as applied to
eligible RE projects, as well as to clarify the definition of
``commence operations'' as applied to eligible low-income EE projects.
We are also proposing to remove the existing language from Section
60.5815, paragraph (c) of the Clean Power Plan EGs which pertained to
EM&V requirements for the CEIP allowance set-aside, as duplicative, and
we are clarifying and consolidating the EM&V requirements for eligible
CEIP projects in this action.
1. Definition of ``Project'' for Purposes of the CEIP
    The Clean Power Plan EGs specify that solar and wind, as well as
low-income EE, ``projects,'' are eligible for the award of early action
allowances and ERCs under the CEIP.\80\ The EPA is proposing to clarify
that the current term ``project'' also encompasses programs that result
in the deployment of CEIP-eligible solar, wind, geothermal or
hydropower generating capacity and the implementation of CEIP-eligible
EE or solar programs in low-income communities (i.e., programs that
deploy eligible projects). This clarification is simply to better
reflect the EPA's intent and to maintain consistency with the approach
in the Clean Power Plan EGs for issuance of ERCs, which refers to
``eligible resources,'' a general term which encompasses both projects
and programs.\81\ The term ``eligible resource'' provides for the
eligibility of both individual projects and programs for the issuance
of ERCs, provided the project or program involves energy generation or
savings from an eligible resource.\82\ To clarify the term eligible
project, the EPA proposes to add a new defined term, ``eligible CEIP
resource,'' to the final Clean Power Plan EGs (at 40 CFR 60.5880) and
make related conforming amendments to the CEIP provisions in the EGs
(at section 60.5737). In addition, as used throughout this preamble,
the term ``project'' as it refers to projects eligible under the CEIP,
also refers to programs that implement such projects. Consistent with
the final emissions guidelines provisions for ERC issuance, an
eligibility application submitted by a project provider under the CEIP
may represent either an individual EE/RE project or multiple projects
implemented as part of program (i.e., it is not necessary for each
project implemented as part of a larger program to submit its own
eligibility application).
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    \80\ See 40 CFR 60.5737(a) and (b).
    \81\ See definition of ``eligible resource'' at 40 CFR 60.5880.
    \82\ See the preamble to the final Clean Power Plan EGs, at
section VIII.K.2.b (80 FR 64906-64907) and section VIII.K.2.f (80 FR
64907), and the EGs at 40 CFR 60.5800(a).
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2. Definition of ``Commence Construction'' and ``Commence Operations''
for Purposes of the CEIP
    In this action the EPA is proposing to replace the term ``commence
construction'' for CEIP-eligible RE projects with the term ``commence
commercial operation,'' as well as to clarify the term ``commence
operations'' for CEIP-eligible low-income community projects. The
Agency believes that ``commence commercial operation'' is more
consistent with the intent of the Clean Power Plan EGs. In addition,
the Agency wishes to avoid any confusion with the term ``commence
construction'' as used in other contexts under sections 111 and 112 of
the CAA.
    The Agency heard from several commenters during the CEIP outreach
sessions and in comments submitted to the non-regulatory docket that
``commence construction'' could be understood to encompass such
activities as entering into contracts for eligible RE projects. If this
were the Agency's intent, according to these stakeholders, then the
effect would be to render many RE projects ineligible as a result of
early project development activities that may have occurred prior to
the start date of eligibility. This was not the intent of the Agency,
and we believe it is appropriate to correct this terminology to more
accurately reflect the Agency's intent; that is, RE projects (including
those in low-income communities) should be eligible to participate in
the CEIP if they commence commercial operation on or after the
eligibility start date. By replacing the term ``commence construction''
with ``commence commercial operation,'' the EPA would be taking an
approach to eligibility for RE projects that is consistent with the

approaches that have been used in prior programs, such as the Acid Rain
Program (ARP). In the ARP, the term ``commence commercial operation''
means ``to have begun to generate electricity for sale, including the
sale of test generation,'' see, e.g., 40 CFR 72.2.
    With respect to the term ``commence operations'' for CEIP-eligible
demand-side EE projects implemented in low-income communities, the EPA
is proposing to establish a definition that is consistent with the
proposed replacement of ``commence construction'' with ``commence
commercial operation'' discussed previously. That is, the EPA is
proposing that the term ``commence operations'' be defined as the date
that a CEIP-eligible low-income community demand-side EE project is
delivering quantifiable and verifiable electricity savings.\83\ This
means the date when the eligible CEIP low-income community demand-side
EE project's electricity savings begin and are measureable is the date
when the project commenced operation for the purpose of CEIP
eligibility. Additionally, the term ``commercial'' is excluded from the
``commence operations'' term used for eligible EE projects implemented
in low-income communities, as ``commercial'' is used as a qualifier to
describe when electricity is available for sale or to generate
electricity that receives financial credit through net metering or
equivalent policies (as in the case of power generation), not when it
is saved (as in the case of EE projects).
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    \83\ For infrastructure projects such as conservation voltage
reduction (CVR) that deliver end-use energy efficiency in residences
and buildings, it is common practice to test circuit performance by
switching voltage optimization controls ``on'' and ``off'' for a
continuous period of time (typically a year) to collect baseline
data for quantification of savings during the performance period.
Similar to the Agency's intent that wind and solar projects not be
penalized for project development activities that occur prior to
commencing commercial operations, voltage management of a circuit
solely for the purpose of testing prior to ``commencing operations''
does not render a circuit ineligible for participation in the CEIP.
Similarly, a limited duration or one-time control of voltage during
a peak demand incident does not render a circuit ineligible for
participation in the CEIP.
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    In light of the proposed corrected terminology from ``commenced
construction'' to ``commenced commercial operations'', the EPA is
proposing to revise the date for eligible CEIP RE projects (including
those implemented in low-income communities) to commence commercial
operation to January 1, 2020, or commence operations, in the case of
low-income demand-side EE projects, to September 6, 2018. First, the
proposal to no longer use the date of final state plan submittal as a
potential eligibility start-date would remove a source of uncertainty
given the Supreme Court's stay of the Clean Power Plan EGs in West
Virginia, et al. v. EPA, et al., No. 15A773 (February 9, 2016). Because
the effectiveness of deadlines for state plan submittals is currently
stayed, it may not make sense at this point to continue to tie CEIP
project eligibility to plan submissions. However, as discussed
previously, while we are retaining the putative timing aspects of the
CEIP in general in discussing this proposal, the Agency recognizes that
adjustments may be needed upon the resolution of the litigation. See
discussion in section II.B of this preamble.
    Second, in the case of RE projects looking to become eligible CEIP
projects, the date of January 1, 2020 for eligibility for projects that
have commenced commercial operations reflects the initial intent of the
timing finalized in the Clean Power Plan EGs. The previous language
that based eligibility timing on when a project ``commenced
construction'' considered the build-out time that would be required
from the time of a project's initial conception. Since the CEIP is
designed primarily to encourage additional renewable deployment,
establishing a date of January 1, 2020 supports the overarching goal of
the CEIP to encourage such deployment.
    For eligible CEIP low-income community demand-side EE projects,
some commenters have requested that the EPA should allow an expanded
ramp-up period for projects. Commenters stated that while energy
efficiency programs can be deployed quickly, adequate ramp-up time must
be allowed to thoughtfully design and target programs, and to achieve
desired levels of volume. The EPA agrees with this comment, and the
additional time needed for adequate design and targeting of eligible
CEIP low-income community demand-side EE projects is reflected in the
eligibility date of September 6, 2018. Additionally, we agree with
commenters' assertions that eligible CEIP low-income community demand-
side EE projects need ramp-up time to ensure that they realize the full
benefits of the CEIP following project deployment.
    Given that the CEIP project eligibility approach included in the
final Clean Power Plan EGs was tied to commencement of construction
after submission of a state plan, and that there may be additional
relevant factors not considered here, EPA seeks comment on whether the
proposed approach described above, the approach included in the final
Clean Power Plan EGs, or a combination of the two approaches, would
best serve the goals of the CEIP.
    3. Option to use an Agent for reviewing CEIP project applications,
allocating early action allowances, and issuing early action ERCs. As
discussed in section III.B of this preamble, a state plan that
implements the CEIP must specify a process for application, and
allocation/issuance of, early action allowances or ERCs under the CEIP
to eligible project providers. The proposed rate- and mass-based model
trading rules include related provisions that, when finalized, would
constitute a presumptively approvable approach for meeting relevant EGs
requirements (80 FR 64966-65116), and the EPA is proposing optional
example provisions in this action to cross-reference those provisions
under the CEIP.
    This process, defined by the state in its plan requirements, may be
implemented by the state itself, or alternatively the state may
delegate this function to a qualified agent. The ability to rely on
agents is discussed further in the final Clean Power Plan EGs at 80 FR
64906.\84\ The EPA is not proposing any specific requirements with
respect to the use of agents in this action, nor reopening the issue of
a state's ability to rely on agents under the EGs. We simply observe
here that the use of agents would also be appropriate under the CEIP
for similar purposes.
---------------------------------------------------------------------------

    \84\ As described in the Clean Power Plan EGs, an agent is a
party acting on behalf of the state, based on authority vested in it
by the state, pursuant to the legal authority of the state. A state
could designate an agent to provide certain limited administrative
services, or could choose to vest an agent with greater authority.
Where an agent issues an ERC on behalf of the state, such issuance
would have the same legal effect as issuance of an ERC by the state.
In the context of the CEIP, such an agent may also be vested with
the authority to issue allowances. Where an agent issues an
allowance on behalf of the state, such issuance would have the same
legal effect as issuance of an allowance by the state.
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    In the event of a federal plan, the EPA anticipates that it would
serve the same role as the state, and thus the EPA, or an agent(s) it
may designate, would review project applications and reports of
quantified and verified MWh in advance of allocating early action and
matching allowances, and issuing early action and matching ERCs to
eligible project providers.
    4. Eligible CEIP RE projects. In 40 CFR 60.5737 of the final EGs,
the EPA established that eligible CEIP RE project types are those that
``generate metered MWh from any type of wind or solar resources.'' In
order to streamline the requirements for eligible CEIP wind and solar
resources, as well as to clarify the requirements for geothermal and

hydropower resources we are proposing to add to the list of CEIP-
eligible resources, the EPA is proposing in this rule to change the
project eligibility requirements so that eligible CEIP RE projects must
generate wind, solar, geothermal or hydropower renewable electricity
measured in MWh consistent with the requirements of 60.5830(c)(1) of
the final CPP EGs: The generation data must be physically measured on a
continuous basis. These RE resources may include utility-scale or
distributed projects, and must be grid-connected. In the case of solar
power generation, solar resources could be solar photovoltaic or
concentrating solar power technologies.
    The limitation of eligible CEIP RE technologies to wind and solar
in the Clean Power Plan EGs was based partially on the concern from
commenters on the Clean Power Plan proposal that there could be an
unintended shift in investment away from RE to natural gas, and
partially on the fact that these technologies--in addition to being
essential for longer-term climate strategies--generally can be deployed
with shorter lead times than other technologies (See 80 FR 64831).
Therefore, wind and solar would be readily available for participation
during the two-year CEIP period. However, the extension of the PTC and
ITC tax credits following the promulgation of the Clean Power Plan EGs
has led some stakeholders to suggest that wind and solar projects that
receive PTC or ITC benefits should be excluded from CEIP eligibility.
This is because one of the objectives of the CEIP is to incentivize
reductions in emissions that might not otherwise have occurred, and
projects receiving tax credits may already be induced by those
incentives rather than the CEIP. These tax credits are discussed more
fully in section III.A of this preamble, where we also request comment
on whether and how to implement limitations on CEIP participation for
wind and solar resources that receive ITC or PTC benefits.
    In addition, stakeholders have noted that other types of clean
generating technologies, in addition to wind and solar, could be
deployed during the CEIP timeframe,\85\ and therefore, should also be
included as eligible for the CEIP. Specifically, some commenters
requested that the EPA consider other renewables such as geothermal and
hydropower. Other stakeholders have called for all of the technologies
the EPA recognized as potentially creditable in state plans under the
final EGs, including qualified biomass, CHP, WHP, and nuclear projects,
to be CEIP creditable. The Agency also received several petitions for
reconsideration on the final Clean Power Plan requesting that the scope
of CEIP technology eligibility be expanded.\86\
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    \85\ See document titled ``Summary of feedback received during
the CEIP listening sessions, Fall 2015'' in the docket associated
with this action, as well as the CEIP non-regulatory docket at EPA-
HQ-OAR-2015-0734.
    \86\ While there is some overlap in this action on this and
several other issues relating to the CEIP raised by the petitions
for reconsideration, the Agency continues to review, and is not
acting on, these or any other aspects of the petitions for
reconsideration of the Clean Power Plan at this time.
---------------------------------------------------------------------------

    The EPA believes that our initial determination of criteria for
eligible technologies remains appropriate, and, therefore, are
retaining those criteria. The criteria we identified in the final Clean
Power Plan that drove our determination of eligible technology types
for the CEIP were that they are zero-emitting and essential to longer
term climate strategies, and require lead times of relatively shorter
duration given the time-limited nature of the CEIP and to counteract
the potential shift in investment from RE to natural gas in the lead up
to the start of the interim performance period. See 80 FR 64831.
    As noted in section II.D. of this preamble, some commenters
requested that other RE technologies, including geothermal, biomass,
hydropower, as well as other generating technologies such as combined
heat and power (CHP) and waste heat to power (WHP) be considered as
eligible technologies for the CEIP. While we do not believe that it is
appropriate to expand the list of eligible CEIP technologies to include
all those suggested by commenters, we believe that two other RE
technologies, specifically geothermal and hydropower, meet the criteria
for CEIP eligibility that were identified in the final CPP. Thus, in
this action we are proposing to expand the list of CEIP-eligible RE
technologies beyond wind and solar resources alone only to two other
zero-emitting technologies: Geothermal and hydropower.\87\ The EPA
believes stakeholders are correct that these two technologies, like
wind and solar, are capable of contributing to long-term climate change
strategies, and can be implemented on the time-scales relevant to the
CEIP. See 80 FR 64831. Expected growth in these technologies may be
lower than wind and solar, 80 FR at 64808, but this would not be a
reason for excluding them. Any scale or type of wind and solar project,
as finalized in the EGs, would remain eligible for the CEIP, assuming
other eligibility requirements are met.\88\ The EPA is only proposing
the expansion of eligible CEIP RE projects to include geothermal and
hydropower. We solicit comment on whether any additional technologies
meet the criteria identified for eligible RE technologies:
Specifically, whether there are additional renewable technologies that
are zero-emitting and essential to longer term climate strategies,
require investment and deployment lead times of relatively shorter
duration given the time-limited nature of the CEIP, and counteract the
potential shift in investment from RE to natural gas in the lead up to
the start of the interim performance period.
---------------------------------------------------------------------------

    \87\ See 80 FR 64807 and also the TSD to the final Clean Power
Plan titled ``GHG Mitigation Measures.''
    \88\ ``Any type'' of wind or solar resource is already eligible
under the CEIP as finalized in the EGs, 80 FR at 64943, and the EPA
is not reopening this determination.
---------------------------------------------------------------------------

    5. Eligible CEIP low-income community projects. The Clean Power
Plan EGs established that demand-side energy efficiency projects
implemented in low-income communities would be eligible for the two-to-
one CEIP incentive. This section discusses eligible low-income EE
projects, and also presents a proposal that solar projects implemented
to serve low-income communities that provide direct electricity bill
benefits to low-income ratepayers also be eligible for the two-to-one
incentive.
    Demand-side energy efficiency refers to an extensive array of
technologies, practices and measures that are applied throughout all
sectors of the economy to reduce electricity demand while providing the
same, and sometimes better, level and quality of service.\89\ The EPA
is proposing that states have flexibility to determine the types of
demand-side EE projects they may deem eligible for CEIP awards, so long
as they are implemented in communities that meet the state's approved
definition(s) for ``low-income community.'' Such projects may be
implemented as part of an EE program (i.e., implemented by regulated
electric distribution utilities or other private providers), which
could play a key role in generating early action ERCs or allowances.
Specifically, states

may deem residential and commercial projects to be eligible for CEIP
awards, as well as transmission and distribution improvements that
reduce electricity consumption on the customer side of the meter (such
as conservation voltage reduction). The EPA notes that in some
instances multi-family housing, group homes, shelters or other
temporary housing may be considered commercial entities for utility
billing purposes. Excluding these commercial entities from CEIP could
keep these residential ratepayers from being eligible under CEIP.
Additionally, our experience has been that small businesses,
organizations and institutions that work with low-income residents
often face similar energy risks (e.g., large bills, disproportionate
energy spending, shutoff threats) and experience the same barriers
(e.g., lack of capital, lack of expertise, split incentives for
renters) as the residential sector. High energy expenses hamper their
ability to provide clients with energy, health, educational, housing,
legal and other services. Thus, the EPA believes all of these types of
EE projects can be designed to benefit low-income communities and
ratepayers, and all have the potential to encourage investment in
demand-side energy efficiency projects (in part by offsetting the
higher barriers to deployment for such projects in those communities),
for the purpose of achieving emissions reductions at affected EGUs, in
accordance with the purposes of the CEIP, 80 FR 64832. For residential
projects, the EPA recommends that the state consider projects that
adhere to the health and safety standards established by the Department
of Energy's Weatherization Assistance Program or comparable standards.
For commercial EE projects, the EPA recommends that a state consider
projects that reduce electricity demand in buildings and institutions
that provide critical services (e.g., community centers, street
lighting, health clinics, etc.) within or to low-income communities
and/or households. For transmission and distribution improvement
projects that reduce energy consumption on the customer side of the
meter, the EPA recommends that a state consider improvements that
significantly reduce consumer electricity demand within the boundaries
of a low-income community or within low-income households. EPA requests
comment on the inclusion of commercial and transmission and
distribution projects, and on whether there should be any restrictions
on the types of commercial and/or transmission and distribution
projects that may qualify.
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    \89\ A number of demand-side EE measures are discussed in the
TSD to the Clean Power Plan Final Rule titled ``Demand-Side Energy
Efficiency,'' August 2015, available at https://www.epa.gov/cleanpowerplan/clean-power-plan-final-rule-technical-documents.
Typical examples of energy efficiency measures in homes include: Air
and duct sealing, increased insulation in walls and attics, highly
efficient equipment for heating and air conditioning (e.g., air- and
ground-source heat pumps, high efficiency furnaces, etc.), and
highly efficient appliances (e.g., refrigerators, television sets,
etc.).
---------------------------------------------------------------------------

    The Department of Energy, in cooperation with industry, has
developed a suite of quality assurance resources that address work
quality, training and workforce certification. The EPA has also
developed resources to assist program managers with implementing
residential and commercial energy efficiency programs under the
auspices of the ENERGY STAR program as well as resources that address
indoor air quality and energy efficiency. These resources are
applicable to all energy efficiency retrofit programs, including low-
income, regardless of design, administration or scope. States are
encouraged to consider use of DOE's Guidelines for Home Energy
Professionals \90\ and DOE's Better Buildings Workforce Guidelines \91\
as well as EPA's Guidance and Tools for Protecting IAQ During Building
Upgrades,\92\ and ENERGY STAR's resources for residential and
commercial energy efficiency.\93\
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    \90\ http://energy.gov/eere/wipo/guidelines-home-energy-professionals.
    \91\ https://www4.eere.energy.gov/workforce/projects/workforceguidelines.
    \92\ https://www.epa.gov/indoor-air-quality-iaq/health-energy-efficiency-and-climate-change.
    \93\ https://www.energystar.gov/.
---------------------------------------------------------------------------

    A number of states have already implemented successful low-income
EE projects and programs that can serve as examples to other states as
they consider the project types that may be possible through the CEIP.
We present examples of two of these projects in section III.C of this
preamble.
    The EPA is proposing to include solar projects implemented to serve
low-income communities that provide direct electricity bill benefits to
low-income community ratepayers as eligible for the two-to-one matching
award from the reserve established for low-income EE projects. This
would be a change from the CEIP provisions included in the Clean Power
Plan EGs, which limited projects eligible for the two-to-one match to
low-income EE projects alone. However, during the outreach sessions in
the fall of 2015, stakeholders suggested solar projects in low-income
communities face many of the same barriers to deployment as do EE
projects, and provide the same environmental benefit in terms of
displacing carbon-emitting generation. Based on such input from
stakeholders and other information, the EPA believes that solar
technology--particularly distributed, rooftop, or community solar--is
particularly well suited among zero-emitting RE resources to
implementation in low-income communities, as it is relatively
affordable compared to other distributed RE technologies, it is already
widely available for installation, and the primary barriers to
deployment are economic rather than technical. Enabling such projects
to receive the two-to-one match would serve the same basic purpose of
improving cost impacts and expanding compliance opportunities for
affected EGUs under the Clean Power Plan. In addition, as discussed in
section III.A of this preamble, the EPA's preliminary analysis shows
that the MWh savings potential for eligible low-income EE projects is
relatively low even with the CEIP as a driver, and as a result it may
be appropriate to enable equally beneficial solar projects implemented
in low-income communities to be eligible for awards from the matching
allowance/ERC reserve for low-income community projects.
    By including such provisions in the CEIP, any type of solar project
implemented to serve a low-income community that provides direct
electricity bill benefits to low-income community ratepayers would be
eligible for a two-to-one award from the low-income community reserve
of the matching pool.
    Some of the types of solar projects that the EPA envisions could
qualify for awards from the low-income community reserve include roof-
top solar and community-owned solar projects.\94\ A number of states
have already implemented successful solar projects that can serve as
examples to other states as they consider the project types that may be
possible through the CEIP. We present an example of one of these
projects in section III.C of this preamble.
---------------------------------------------------------------------------

    \94\ The following links provide examples of several existing
programs: http://solar.gwu.edu/research/bridging-solar-income-gap;
http://www.cesa.org/assets/2014-Files/Clean-Energy-for-Resilient-Communities-Report-Feb2014.pdf. https://www.solarelectricpower.org/media/422095/community-solar-design-plan_web.pdf.
---------------------------------------------------------------------------

    The EPA solicits comment on the types of solar technologies and
programs that could be eligible for the low-income community reserve of
the matching pool, and how states may be able to determine benefits
delivered to low-income community ratepayers. We also solicit comment
on whether wind generation, geothermal, or hydropower may provide
similar ratepayer benefits to low-income communities. The intent of the
low-income community reserve in the matching pool is to make awards
available to projects that provide direct electricity bill benefits to
low-income ratepayers, and the EPA's objective is to

ensure that any program that has access to this pool fulfills this
criterion.
    a. Examples of EE and RE projects implemented in low-income
communities. This section presents three examples of low-income EE and
RE programs currently underway in states around the country: Energy
Outreach Colorado (EOC), the PECO Conservation Voltage Reduction
Program, and the Multifamily Affordable Solar Housing (MASH) Program in
California. These examples may be of assistance to states exploring the
development of EE and RE programs in low-income communities.\95\
---------------------------------------------------------------------------

    \95\ These examples are illustrative only. More information on
these examples is available on the EPA Web page titled ``Climate and
Energy Resources for State, Local and Tribal Governments'' at
https://www.epa.gov/statelocalclimate/bringing-benefits-energy-efficiency-and-renewable-energy-low-income-communities. Although we
believe these programs are successful and worthy of replication, the
EPA has not determined if they would qualify for awards under the
CEIP.
---------------------------------------------------------------------------

    The first example is EOC, an independent non-profit organization
that works to ensure all Coloradans can meet their home energy needs
through emergency bill payment and furnace repair assistance, energy
efficiency improvements, consumer behavior change and advocacy for the
energy needs of low-income households.\96\ EOC's Affordable Housing
Weatherization Program serves affordable multi-family housing
properties across the state that have five or more units, are centrally
heated, and where 67 percent of the residents are at or below 200
percent of the federal poverty level. EOC also developed the Nonprofit
Energy Efficiency Program, which offers facility energy efficiency
grants to non-profit organizations serving low-income individuals and
families. The program helps nonprofit organizations reduce energy
expenses in their own commercial buildings so that they can allocate
more of their operating budgets to community services. Since its
creation in 1989, EOC has saved low-income utility customers 19,200 MWh
of electricity, thereby reducing or avoiding almost 16,000 metric tons
of CO2 emissions.\97\
---------------------------------------------------------------------------

    \96\ See http://www.energyoutreach.org/.
    \97\ MWh savings data are from personal communications with
Jennifer Gremmert, Energy Outreach Colorado, January 2016.
CO2 savings were calculated using the 2012 eGRID non-
baseload CO2 emissions rate for the WECC Rockies
subregion (1822.65 lbs CO2/MWh). See EPA's Emissions &
Generation Resource Integrated Database (eGRID) at https://www.epa.gov/sites/production/files/2015-10/documents/egrid2012_summarytables_0.pdf, Table 3.
---------------------------------------------------------------------------

    The second example is the PECO Conservation Voltage Reduction (CVR)
program, a program implemented in the state of Pennsylvania to achieve
load reductions through changes in voltage regulation parameters at the
substation/transformer level.\98\ National standards for voltage
generally require electricity to be delivered to consumers between 114
and 126 Volts. Due to transmission line losses, power is transmitted at
the higher end of that range to ensure all customers receive the
minimum voltage. However, many homes receive more voltage than they
need, resulting in higher energy use and higher bills. By adjusting
voltage to the lower end of its acceptable range, customers save energy
because some equipment operates more efficiently at lower voltage.
Since the efficiency opportunity is implemented by the utility, all
customers on the affected feeders benefit with no need for household
level action. During a 4-month period from February through May 2010,
PECO manually lowered voltage by one percent across its system
(involving approximately 84 substations, 220 distribution transformers,
and 6400 circuits). Reported gross energy savings were 25,630 MWh/yr
for low-income customers and 38,445 MWh/year for government and non-
profit customers, resulting in reductions of approximately 45,000
metric tons of CO2.\99\
---------------------------------------------------------------------------

    \98\ Source: Final Annual Report to the Pennsylvania Public
Utility Commission for the Period June 2011 through May 2012,
Program Year 3, For Pennsylvania Act 129 of 2008 Energy Efficiency
and Conservation Plan, Prepared by Navigant Consulting, Inc. for
PECO, November 15, 2012.
    \99\ MWh savings data are from the Final Annual Report to the
Pennsylvania Public Utility Commission for the Period June 2011
through May 2012, Program Year 3, For Pennsylvania Act 129 of 2008
Energy Efficiency and Conservation Plan, Prepared by Navigant
Consulting, Inc. for PECO, November 15, 2012. https://www.peco.com/CustomerService/RatesandPricing/RateInformation/Documents/PDF/New%20Filings/ACT%20129%20EECP.pdf. CO2 savings were
calculated using the 2010 eGRID non-baseload CO2
emissions rate for the RFC East subregion (1562.72 lbs CO/MWh). See
EPA's Emissions & Generation Resource Integrated Database (eGRID) at
https://www.epa.gov/sites/production/files/2015-01/documents/egrid_9th_edition_v1-0_year_2010_summary_tables.pdf, Table 3.
---------------------------------------------------------------------------

    The last example is the Multifamily Affordable Solar Housing (MASH)
Program, overseen by the California Public Utilities Commission. This
program has brought solar energy to thousands of multifamily building
owners and tenants across the state. MASH offers an up-front rebate to
offset the costs of new solar energy systems for qualified, existing
multifamily low-income housing. The program uses ``virtual net
metering'' to allow the tenants to benefit from lower electricity bills
due to the energy generated by the solar energy system. From 2008 to
2015, MASH has led to the installation of more than 23 MW of solar
capacity across nearly 360 projects \100\ serving more than 6,500 low-
income households.\101\ In buildings that have implemented virtual net
metering, tenants' electricity bills have fallen by an average of about
$480 over the first year. According to a third-party evaluation of the
program, the MASH solar energy systems avoided more than 27,450 tons of
CO2 emissions from 2011 to 2013.\102\
---------------------------------------------------------------------------

    \100\ California Solar Statistics. Application status page, MASH
program. https://www.californiasolarstatistics.ca.gov/reports/application_status/?source=mash.
    \101\ California Public Utilities Commission, 2015. Multifamily
Affordable Solar Housing Semiannual Progress Report, July 31, 2015.
http://www.cpuc.ca.gov/General.aspx?id=3752.
    \102\ Navigant, 2015. California Solar Initiative--Biennial
Evaluation Studies for the Single[hyphen]Family Affordable Solar
Homes (SASH) and Multifamily Affordable Solar Housing (MASH)
Low[hyphen]Income Programs Impact and Cost[hyphen]Benefit Analysis
Program Years 2011-2013. Prepared for California Public Utilities
Commission.
---------------------------------------------------------------------------

D. CEIP Participation for States, Tribes, and Territories for Which the
EPA Has Not Established Goals

1. Participation for Tribes Without Affected EGUs
    Many tribes have expressed interest in participating in the CEIP
even though they do not have EGUs subject to the Clean Power Plan EGs.
These tribes have the potential to develop RE and low-income community
projects that could qualify as eligible CEIP projects. As finalized in
the EGs, such projects would in general be able to apply and receive
early action allowances or early action ERCs through state plans that
include the CEIP. However, several tribes have expressed concern that
requiring tribes to participate in the CEIP by applying for early
action ERCs or allowances from CEIP-participating states would infringe
upon their sovereign rights. In addition, some stakeholders have
expressed concern that without explicit direction to deploy projects on
tribal lands, project providers will opt to invest in CEIP-eligible
projects only on the lands of CEIP-participating states, and not on
tribal lands. Lastly, tribes have also expressed concern that in order
to remain competitive in wind and solar deployment, they must consider
CEIP participation as part of their strategy.
    The EPA does not agree that the CEIP would result in an
infringement on tribal sovereignty, because neither the Clean Power
Plan nor the CEIP impose legal obligations on tribes without affected
EGUs or authorize states to impose such obligations. Rather, the Clean
Power Plan and the CEIP provide

opportunities for projects located on tribal lands to voluntarily seek
credit through a state plan that regulates affected EGUs. Further, the
EPA wishes to clarify that an eligible project that is located in
Indian country within the borders of a state, solely for the purposes
of the CEIP, is considered to be ``located'' in the state, in order to
facilitate such projects' eligibility to voluntarily seek early action
allowances or early action ERCs under the CEIP. In other words, the EPA
does not require that a project fulfill a ``benefit'' demonstration in
addition to meeting the grid-connection requirement, solely because it
is located in Indian country.\103\ The fact that projects located in
Indian country may voluntarily seek crediting under a state plan does
not constitute an approval of a state plan as applied in Indian
country. The plan of a surrounding state merely provides an opportunity
for projects located in Indian country to voluntarily participate in
the CEIP by applying to such state for credits. This clarification may
address some concerns about the ability of projects located in Indian
country to be eligible for the CEIP.
---------------------------------------------------------------------------

    \103\ Where a project provider in Indian country seeks to apply
for early action allowances or early action ERCs under the CEIP in a
state other than the one in which that Indian country is located,
then that project would need to meet the ``benefit'' test, in the
same way that a project located in a different state from the one it
is applying to would need to meet that test.
---------------------------------------------------------------------------

    Nonetheless, the EPA invites comment on an approach that may
further enhance the ability of project providers located in Indian
country without affected EGUs to participate in the CEIP. The approach
for which we seek comment would be to include as a condition of
participation in the CEIP a requirement that state plans may not
disqualify an otherwise eligible CEIP project on the basis that it is
located in Indian country or in any way apply different requirements to
applications for CEIP projects located in Indian country. This approach
would provide tribes and project developers in Indian country with
assurance that their projects will be given the same consideration as
all other projects that are located in or benefit a CEIP-participating
state. In such a scenario, a project in Indian country would be
eligible for an early action award from the state, and the
complementary matching award from the EPA.
    The EPA also invites comment on other possible approaches that may
enable CEIP-eligible projects located in Indian country to participate
in the CEIP.
2. Participation for Non-Contiguous States and Territories
    As stated in the final Clean Power Plan, the EPA did not finalize
emission guidelines for the fossil-fuel fired EGUs in Alaska, Hawaii,
Guam or Puerto Rico because of the lack of suitable data and analytic
tools needed to develop area-appropriate building block targets (See 80
FR 64825; October 23, 2015). The EPA is still in the process of
assessing the achievability of emissions reductions for the affected
EGUs in these remaining jurisdictions and thus has not taken further
action to finalize emission guidelines for them.
    The EPA acknowledges that project providers that may be located in
non-contiguous states and territories are interested in the opportunity
to participate in the CEIP. The Agency recognizes that these projects
should have opportunities and access to the same early action
incentives as the contiguous states. However, the Agency believes such
opportunities can only be available at the point that emissions
guidelines are put in place for these jurisdictions. Projects in these
non-contiguous jurisdictions are not connected to the contiguous U.S.
electrical grid and cannot be said to be located in or benefit a CEIP
state, and are thus ineligible to generate either ERCs or early action
ERCs or early action allowances under the final Rule and this proposal.
40 CFR 60.5800(a)(2). See also id. 60.5737 (both as finalized and as
proposed to be amended by this action, requiring CEIP projects to be
located in or benefit the state operating the CEIP program).
    Nonetheless, the EPA anticipates making available CEIP
participation for these remaining states and territories when the
Agency finalizes emission guidelines for fossil-fuel fired EGUs in
these states and territories. The EPA anticipates that matching
allowances or ERCs for noncontiguous states and territories would be
apportioned from the existing matching pool of 300 million short tons
of CO2 emissions. Therefore, as noted in section III.A of
this preamble, the total amount of CEIP matching allowances or ERCs
apportioned among the rest of the states would be reduced accordingly,
albeit only by a small percentage, likely no more than 5 percent.
    The EPA is taking comment on how to determine the appropriate
portion of the matching pool that should be apportioned to the non-
contiguous states and territories, if they choose to participate in the
CEIP. The EPA could attempt to estimate the pro rata share of the
matching pool for each of the non-contiguous states and territories
with affected EGUs before the emission performance goals have been
finalized for these jurisdictions. The Agency requests comment on
approaches that could be used to estimate the appropriate share for
these locations while their goals are still undetermined.
Alternatively, the EPA could defer apportioning the matching allowances
or ERCs to these states and territories until such time when their
emission performance goals are established. At that future time, the
matching shares would be calculated by applying the methodology
described in this action and the matching shares apportioned to the
contiguous states would be adjusted. The EPA is soliciting comments on
both of these approaches.
3. Participation for States Without Affected EGUs
    For the contiguous U.S. states, the EPA is providing the
opportunity for participation in the CEIP only for those states with
approved state plans and those states that may become subject to a
federal plan. Since states without affected EGUs do not have an
obligation to submit a state plan for EPA approval under CAA section
111(d), there is no clear path for inclusion of these states in the
CEIP.
    However, eligible projects developed in those states without
affected EGUs may apply for and receive early action allowances or ERCs
from another state that has chosen to participate in the CEIP. The
developers of such eligible RE and low-income community projects may
receive early action allowances or ERCs from another state, so long as
the project benefits the state providing the award and that state has
an approved final plan establishing its participation in the CEIP. The
final EGs recognized the potential CEIP eligibility of projects that
``benefit'' a state even if they are not located in that state. 80 FR
64830. In the Clean Power Plan, however, we did not explain what
``benefit'' means in the context of the CEIP. For purposes of the CEIP,
we propose that ``benefit'' a state means that the electricity is
generated or saved with the intention to meet or reduce electricity
demand in the CEIP participating State.
    This approach is intended to parallel the approach to providing
ERCs to RE projects that are located in a mass-based plan state for use
in compliance under a rate-based plan. 40 CFR 60.5800(a)(3)(ii). A
project could meet this test by submitting documentation such as a
power purchase agreement, see 80 FR 64913.

IV. Community and Environmental Justice Considerations

    As discussed in the Clean Power Plan EGs, the additional incentive
offered for low-income community projects by the CEIP, in addition to
supporting affected EGU compliance and reducing costs by rewarding
emission reduction measures that occur earlier than the performance
period under the EGs, will help overcome historic barriers to the
deployment of energy efficiency and solar projects in low-income
communities. Bringing these energy efficiency and solar projects to
low-income communities can also provide low-income ratepayer benefits
(80 FR 64831).
    In response to stakeholder concerns during the outreach session
that the program does not explicitly direct its benefits towards EJ
communities, the EPA examined the characteristics of different
communities that may benefit from the CEIP, and our analysis
demonstrates that by making EE projects in low-income communities
eligible for the CEIP, the projects can also provide benefits to other
underserved populations, including minority communities. A complete
discussion of the methodology and results reported in this section is
available in the TSD to this action titled ``Community and
Environmental Justice Considerations''.
    We performed two analyses to look at how minority populations could
be assisted by energy efficiency projects or programs that may be
located in low-income populations.\104\ Both analyses use data
collected by the U.S. Census Bureau.
---------------------------------------------------------------------------

    \104\ As discussed in section III.B of this preamble, a state
that chooses to participate in the CEIP must include in its state
plan one or more definitions of low-income community. In the
analysis described in this section, the income level that defines a
low-income household or community is illustrative, in order to
demonstrate the correlation between low-income households and EJ
communities. The use of this income level for this analysis is not
intended to limit a state's definition of a low-income household or
community for the purposes of implementing the CEIP. In addition to
being the income level used in EJSCREEN to identify a low-income
household, it is also the definition of poverty used in the U.S.
Census Bureau's Income and Poverty in the United States report that
includes the largest share of the U.S. population.
---------------------------------------------------------------------------

    For the first analysis we examined, on a national level, the
relationship between low-income and minority populations. Income and
race data are drawn from the U.S. Census Bureau's Report, Income and
Poverty in the United States: 2014.\105\ For the purpose of this
analysis, we define low-income individuals as having family income less
than twice the federal poverty level, and we define minority as all
racial categories identified in the report except ``White, not
Hispanic.'' Using these definitions, in 2014, 33 percent of the U.S.
population was low-income while 38 percent was minority. However, in
the U.S., approximately half (47 percent), of those individuals who
identify as minority are also low-income.
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    \105\ DeNavas-Walt, Carmen and Bernadette D. Proctor, U.S.
Census Bureau, Current Population Reports, P60-252, Income and
Poverty in the United States: 2014, U.S. Government Printing Office,
Washington, DC, 2015.
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    While the first analysis focused on the overlap between income and
race at the national-level, we also investigated the geographic overlap
between low-income and minority populations, because, as noted in
section III.B of this preamble, the EPA expects that both household-
based definitions and geographically-based definitions may be used to
identify eligible projects in ``low-income communities''. The second
analysis compares demographic data by Census block group using the
2008-2012 American Community Survey (ACS) five-year summary file,
available through EPA's EJSCREEN tool.\106\ The block group is a
geographic unit used by the U.S. Census Bureau and is generally defined
to contain between 600 and 3,000 people. For this analysis, a low-
income household is one with an income less than two times the federal
poverty level, while the term ``minority'' includes individuals who
identify themselves as one of any racial categories except ``White, not
Hispanic.'' For this second analysis, we used two approaches for
defining a low-income and minority block group. The first approach
defines low-income and minority block groups based on how they compare
to national shares of the population in these categories, while the
second approach defines these relative to state shares of the
population in these categories. Nationally, in 2014, 33 percent of the
population are low-income while 38 percent are minority; if the
percentage of the population in a block group exceeded the national
percentage of the population that is low-income or minority, it was
considered low-income or minority respectively. If a block group
exceeded both these percentages, then we classified that block group as
both low-income and minority. We found that, using these national
percentages, 70 percent of minority block groups are also low-income.
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    \106\ EJSCREEN, http://www.epa.gov/ejscreen.
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    In the second approach, for each state, we used the pre-calculated
means for low-income and minority populations in that state, available
in the EJSCREEN data files. We compared the share of the population
that is low-income or minority in each block group to that state's
mean. If a block group exceeded the state mean for low-income or
minority, then it was considered low-income or minority, respectively.
We found that 70 percent of minority block groups are also low-income,
which is the same as was found using the national percentages.
    These analyses support a conclusion that providing fully one half
of the CEIP incentives to the low-income community reserve will provide
additional benefits to EJ communities, and will be an important tool to
bring the public health and economic advantages of clean energy to
traditionally overburdened communities. We welcome comments on this
analysis and the elements of the CEIP from this perspective.

V. Statutory and Executive Order Reviews

    Additional information about these statutes and Executive Orders
can be found at http://www2.epa.gov/laws-regulations/laws-and-executive-orders.

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

    This action is a significant regulatory action that was submitted
to the Office of Management and Budget (OMB) for review. This action
raises novel legal or policy issues. As noted earlier, the EPA took
final action in the Clean Power Plan to establish the framework for the
CEIP, while identifying other design details that it would address in a
future action. For example, in the final Clean Power Plan, the Agency
established the CEIP framework, including the overall size of the
matching pool available to CEIP-participating states and the matching
award the EPA will make to qualifying RE and low-income community
projects per MWh of electricity generation or savings.
    This action proposes design details of the CEIP that are consistent
with the framework established in the final Clean Power Plan. Given
that the framework of the CEIP has already been established in the
Clean Power Plan EGs, the design details proposed in this action are
not expected to result in significant costs, benefits, or economic
impacts, beyond those associated with the Clean Power Plan EGs.

B. Paperwork Reduction Act (PRA)

    This action does not impose any new information collection burden
under the PRA. OMB has previously approved the information collection
activities

contained in the existing part 75 and 98 regulations (40 CFR part 75
and 40 CFR part 98) under the provisions of the Paperwork Reduction
Act, 44 U.S.C. 3501 et seq. and has assigned OMB control numbers 2060-
0626 and 2060-0629, respectively. There are no additional recordkeeping
and reporting activities for this action that occur during the current
reporting period covered by the existing ICR.

C. Regulatory Flexibility Act (RFA)

    I certify that this action will not have a significant economic
impact on a substantial number of small entities under the RFA. As
previously discussed, the CEIP is an optional program that offers
incentives for voluntary early actions involving RE and low-income
energy efficiency. This action will not impose any requirements on
small entities. Instead, this action proposes requirements that would
need to be met by states in the event that states voluntarily opt into
the CEIP under the Clean Power Plan. In the event of a federal plan,
EPA continues to intend that it would implement the CEIP directly. Even
where a state chooses to participate in the CEIP, small entities would
not be subject to requirements except to the extent that they wish to
voluntarily apply to receive early action ERCs or allowances, in which
case certain conditions would apply.

D. Unfunded Mandates Reform Act (UMRA)

    This action does not contain any unfunded mandate as described in
UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect
small governments. The costs involved in this action are imposed only
by voluntary participation in an optional program. UMRA generally
excludes from the definition of ``federal intergovernmental mandate''
duties that arise from participation in a voluntary federal program.

E. Executive Order 13132: Federalism

    This proposed rule does not have federalism implications. The EPA
believes, however, that this proposed rule may be of significant
interest to state and local governments. Consistent with the EPA's
policy to promote communications between the EPA and state and local
governments, the EPA consulted with state and local officials early in
the process of developing the Clean Power Plan EGs to permit them to
have meaningful and timely input into its development.

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

    This action does not have tribal implications as specified in
Executive Order 13175. There are no substantial costs imposed on
tribes, and no actions taken that preempt tribal law. Thus,
consultation under Executive Order 13175 is not required for this
action.
    Consistent with the EPA Policy on Consultation and Coordination
with Indian Tribes, the EPA consulted with tribal officials during the
development of this action. The EPA invited all tribes to government-
to-government consultations and held consultations with the Forest
County Potawatomi Indian Community, Navajo Nation, Ute Tribe of Uintah
and Ouray Reservation, Blue Lake Rancheria and Gila River Indian
Community. We also held technical and informational meetings with the
Navajo Nation and the Ute Tribe of Uintah and Ouray Reservation.
Additionally, the EPA held outreach and information workshops geared
towards tribal audiences in Las Vegas, NV, Farmington, NM, and Tuba
City, AZ.

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

    The EPA interprets Executive Order 13045 as applying only to those
regulatory actions that concern environmental health or safety risks
that the EPA has reason to believe may disproportionately affect
children, per the definition of ``covered regulatory action'' in
section 2-202 of the Executive Order. This action is not subject to
Executive Order 13045 because it does not meet the definition in
section 2-202.

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

    This action is not a ``significant energy action'' because it is
not likely to have a significant adverse effect on the supply,
distribution or use of energy. The CEIP was finalized in the final
Clean Power Plan, and this action provides design details for the
program. The design details do not incorporate any provisions that are
expected to have any adverse energy impacts.

I. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

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

    The EPA believes that this action will not have disproportionately
high and adverse human health or environmental effects on minority
populations, low-income populations, and/or indigenous peoples as
specified in Executive Order 12898 (59 FR 7629; February 16, 1994)
establishes federal executive policy on EJ. Its main provision directs
federal agencies, to the greatest extent practicable and permitted by
law, to make EJ part of their mission by identifying and addressing, as
appropriate, disproportionately high and adverse human health or
environmental effects of their programs, policies, and activities on
minority populations and low-income populations in the United States.
The EPA defines EJ as the fair treatment and meaningful involvement of
all people regardless of race, color, national origin, or income with
respect to the development, implementation, and enforcement of
environmental laws, regulations, and policies.
    The EPA has conducted extensive outreach and engagement with EJ and
tribal communities as we have developed this proposed rule. Section V
of this preamble, titled Community and Environmental Justice
Considerations, provides details on the outreach and engagement efforts
conducted. The goal of these efforts was two-fold: First, the Agency
sought to provide EJ and tribal communities with background information
on the CEIP; and second, the Agency sought input from both groups on
key provisions of the program.
    Whereas one priority of the CEIP is to overcome barriers to
deployment of energy efficiency projects in low-income communities,
thus, achieving emission reductions and providing compliance benefits
to affected EGUs by providing these incentives in low-income
communities, we believe that there will be considerable benefits
provided to EJ and tribal communities. Our analysis indicates that by
making the CEIP available to low-income populations, there is a
significant segment of the population identified as minority,
linguistically isolated, less than high school diploma, or under age 5
or over age 64 (factors typically considered when assessing EJ
concerns), that are also potentially eligible to benefit from the CEIP.
The full EJ analysis conducted for this proposal is summarized in
section V of this preamble and details can be found in the document,

Environmental Justice Consideration for the Clean Energy Incentive
Program (CEIP) Design Details, located in the docket for this proposed
rulemaking.

List of Subjects

40 CFR Part 60

    Environmental protection, Administrative practices and procedure,
Air pollution control, Intergovernmental relations, Reporting and
recordkeeping requirements.

40 CFR Part 62

    Environmental protection, Administrative practices and procedure,
Air pollution control, Intergovernmental relations, Reporting and
recordkeeping requirements.

    Dated: June 16, 2016.
Gina McCarthy,
Administrator.

    For the reasons stated in the preamble, title 40, chapter I, part
60 of the Code of Federal Regulations is proposed to be amended and
title 40, chapter I, part 62 of the Code of the Federal Regulations, as
proposed to be amended at 80 FR 64966, October 23, 2015, is proposed to
be further amended as follows:

PART 60--STANDARDS OF PERFORMANCE FOR NEW STATIONARY SOURCES

0
1. The authority citation for part 60 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
2. Section 60.5737 is revised to read as follows:

Sec.  60.5373  What is the Clean Energy Incentive Program and how do I
participate?

    (a) This section establishes the Clean Energy Incentive Program
(CEIP). Participation in this program is optional. Under the CEIP,
States may allocate early action allowances or issue early action
emission rate credits (ERCs) to projects in paragraphs (a)(1) and (2)
of this section.
    (1) Early action allowances or ERCs may be issued to Eligible CEIP
renewable energy (RE) projects that generate electricity during
calendar years 2020 or 2021.
    (2) Early action allowances or ERCs may be issued to eligible CEIP
low-income community projects that reduce electricity end-use or
generate electricity and serve a low-income community during calendar
years 2020 or 2021.
    (b) For the CEIP the matching pool of allowances and ERCs for each
State is specified in Tables 5 and 6 of this subpart.
    (1) A State that participates in the CEIP, in accordance with the
requirements of this section, will award on behalf of the EPA, matching
allowances or ERCs, as applicable under its plan, from the State's
apportioned matching allowances or ERCs specified in Tables 5 or 6 of
subpart UUUU, as applicable.
    (2) Each State's apportionment in tables 5 and 6 of this subpart is
divided into a reserve of matching allowances or ERCs that may be
awarded to eligible CEIP RE projects, and a reserve that may be awarded
to eligible CEIP low-income community projects. Matching allowances or
ERCs in each reserve may be awarded by a State on behalf of the EPA
only for the eligible CEIP project type specified for the reserve.
    (3) Any matching allowances or ERCs that are not awarded by January
1, 2023 will be retired by the EPA.
    (c) If you participate in the CEIP, your plan must include the
requirements in paragraphs (c)(1) through (10) of this section.
    (1) Requirements that define the CEIP projects that will be
eligible under your State's CEIP and that meet the requirements
included in paragraphs (d) and (e) of this section.
    (2) Requirements that restrict early action allowances to be
allocated, or early action ERCs to be issued, only for electricity
generation or savings achieved by eligible CEIP projects on or after
January 1, 2020, and no later than December 31, 2021.
    (3) Requirements for the process for the allocation of early action
allowances, or the issuance of early action ERCs, to eligible CEIP
projects that meet the requirements of Sec.  60.5805 for ERC eligible
resources.
    (4) Requirements for a tracking system that meets the requirements
of Sec.  60.5810 in the case of a rate-based plan or Sec.  60.5820 in
the case of a mass-based plan.
    (5) Requirements for EM&V plans that meet the requirements of Sec.
60.5830.
    (6) Requirements for monitoring and verification (M&V) reports that
meet the requirements of Sec.  60.5835.
    (7) A mechanism that ensures that the issuance of early action
allowances or ERCs would have no impact on the emission performance by
affected EGUs required to meet rate-based or mass-based emission
standards during the interim and final performance periods. Where a
state issues early action ERCs, the mechanism must account for the
issued early action ERCs on a one-for-one basis during the first step
of the interim period.
    (8) The definition(s) of ``low-income community'' you will apply to
determine eligibility of CEIP low-income community projects. You must
select a definition(s) that exists under a federal law, or under a
state or local law in your state, or under a utility-administered
program in your state, as of October 23, 2015. Routine updates of
underlying federal, state or local data do not constitute a new
definition for the purposes of this section.
    (i) You may select different definitions for low-income community
eligibility that consider geographic scale and/or different types of
projects, but you must apply the selected definitions consistently
across the State.
    (ii) [Reserved]
    (9) Requirements for recordkeeping and reporting that are
consistent with the applicable requirements in Sec.  60.5860(c) and
(d). Where requirements at Sec.  60.5860(c) refer to ERCs, such
requirements must also apply, as applicable under your plan, to early
action ERCs, matching ERCs, early action allowances, and matching
allowances under the CEIP. Where requirements in Sec.  60.5860(d) refer
to ERCs or allowances, such requirements must also apply, as applicable
under your plan, to early action ERCs, matching ERCs, early action
allowances, and matching allowances under the CEIP.
    (10) Your plan must not prohibit an eligible CEIP project from
receiving early action ERCs or allowances on the basis that the project
is located in Indian country.