general account, a person or group would be required to submit an
application for a general account, which would be similar in many ways
to a certificate of representation. The application would include, in a
format to be prescribed by the Administrator: The name and identifying
information of the individual who would be the authorized account
representative and of any individual who would be the alternate
authorized account representative; an identifying name for the account;
the names of all persons with an ownership interest with the respect to
allowances held in the account; and certification language and
signatures of the authorized account representative and alternate. The
authorized account representative and alternate would be authorized
upon receipt of the application by the Administrator. The provisions
for changing the authorized account representative and alternate, for
changing the application to take account of changes in the persons
having an ownership interest with respect to ERCs, and for delegating
authority to make electronic submissions would be analogous to those
applicable to comparable matters for designated representatives and
alternates. The EPA requests comment on these compliance mechanisms.
5. Compliance Demonstration
    The EPA proposes that affected EGUs subject to this federal plan
are required to meet compliance obligations by November 1 of the year
following the end of the compliance period. For an affected EGU to meet
its compliance obligations its average stack emission rate over the
compliance period must be at or below its applicable rate standard, or
the affected EGU must use ERCs to adjust its average stack emission
rate to be at or below its applicable rate standard. An EGU's average
emission rate over the compliance period will be calculated based on
submitted data to ATCS. The compliance period average would be
calculated by taking the measured CO2 mass in units of
pounds (lbs) summed over the compliance period for an affected EGU and
dividing it by the total net energy output over the compliance period
for that affected EGU in units of MWh.\71\ This averaged emission rate
will be compared to the emissions standards that the affected EGU is
subject to during the corresponding compliance period. Accordingly, and
if necessary, the appropriate number of ERCs will be retired from the
affected EGU's compliance account to adjust the emission rate of the
affected EGU to be equal to the emission standard. The discussion of
using ERCs for compliance is found in section IV.D.10 of this preamble.
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    \71\ Note that affected EGUs will submit these values to the EPA
and the values will go through a transparent review process.
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6. Recordation of ERC Generation and ERC Issuance
    The EPA proposes to issue ERCs for ERC generating entities once per
year. Thus, in a 3-year compliance period, for instance, there would be
three points at which the agency issues ERCs. After

each calendar year, the EPA would calculate the ERCs generated for
affected EGU and non-EGU ERC generators based on data submitted to the
EPA through the Emissions Collection and Monitoring Plan System
(ECMPS). These calculated ERC quantities would be proposed as part of a
Notice of Data Availability (NODA) with a 30-day comment period.
Subsequently, the EPA would finalize this NODA and issue ERCs in
accordance with the NODA, with tracking and serial numbers. For
affected EGUs with compliance accounts, the ERCs would be issued to
these. For entities without compliance accounts, the EPA would issue
ERCs to an entity's general account. The timing for issuing ERCs would
be consistent with existing programs, and the EPA believes there is
value in consistency. However, we solicit comment on the annual
issuance of ERCs and whether issuance should occur at different
intervals (e.g., quarterly, biannually, or other time frames). The EPA
requests justification along with corresponding comments regarding ERC-
issuance intervals. We request comment on how reporting and
recordkeeping requirements could be minimized, particularly for small
entities, to the extent possible under the statute and existing
regulations.
    a. Issuance of ERCs to Affected EGUs. Following the determination
of the number of ERCs an affected EGU is eligible to receive, based on
an affected EGU's reported CO2 emission rate compared to a
specified reference rate,\72\ the EPA will issue those ERCs into the
affected EGU's compliance account in ATCS. The issuance will occur
annually through the NODA process. ERCs will have a unique serial
number, tracking number, and will distinguish ERC type (i.e., if it is
BB2 or not) when issued to an affected EGU.
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    \72\ As described in section IV.C.1 of this preamble.
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    b. Issuance of ERCs for Measures Used to Adjust an Emission Rate.
In the final EGs, the EPA has specified requirements for an ERC
issuance process for the quantification and verification of measures
used to adjust an emission rate that provide the necessary rigor and
transparency while being efficient and streamlined. This is the intent
of the federal plan as well, where there is a particular concern with
implementing a streamlined and efficient federal process for ERC
issuance across federal plan states. As required in the final EGs, we
are proposing a two-step application process to the federal plan
tracking systems for ERCs that allows for project approval to take
place prior to the performance period, and makes the issuance of ERCs
as quick and efficient as possible after generation has been quantified
and verified, while still assuring a rigorous approval process. For the
first step in the ERC issuance application process, the EPA proposes
that RE and nuclear generation providers submit to the EPA or its
designated agent an eligibility application for EPA approval,
demonstrating that the project is eligible for the issuance of credits,
including an EM&V plan that meets EPA requirements. The EPA requests
comment on all aspects of the proposed ERC issuance process. The EPA
also requests comment on how an ERC issuance process would apply to
emission reduction measures for which we are requesting comment
regarding their eligibility for ERC issuance under the federal plan,
including types of RE not covered by the federal plan, demand-side EE,
CHP, WHP, biomass, and any other measure that could be considered
eligible under the final guidelines.
    The following are proposed required components of the eligibility
application, as specified for these measures in the final EGs:

    (1) The EPA proposes that the federal plan will require that
providers must show that the generation they would be providing to
the federal plan system for ERC issuance is only being credited in
the federal plan, and will not be submitted for ERC issuance in any
other rate-based crediting system in any other state. As discussed
in section IV.C. of this preamble, we are proposing that states with
rate-based emission standards plans that have eligibility and EM&V
requirements compatible with the federal plan would have the
opportunity to participate in the federal plan trading systems, and
create a shared pool of creditable reductions, in which case credits
approved by such states would be eligible for use by affected EGUs
in the federal plan.
    (2) The provider must show that the project is using an eligible
RE or nuclear resource. Specific requirements are proposed in
section IV.C of this preamble.
    (3) The provider must show that the project has an EM&V plan
that meets the federal plan requirements. Proposed requirements
specific to the federal plan are proposed in section IV.D.8 of this
preamble. As specified in section IV.D.8 of this preamble, we
request comment on whether nuclear energy resources should be
subject to the same EM&V requirements as RE resources, and if not,
we request comment on the EM&V requirements to which nuclear energy
resources should be subject.
    (4) There are special conditions if the provider is located in a
state with a mass-based plan. For eligible RE capacity, the provider
can only be credited in a rate-based state or rate-based multi-state
system if the provider can demonstrate that the generation was
produced to meet electricity load in a state with a rate-based plan.
The EPA is proposing that an RE provider can make this demonstration
by providing documentation of a power purchase agreement or delivery
contract from the rate-based state and show that the measure was
treated as a generation resource used to serve regional load that
included the rate-based state. For incremental nuclear capacity, no
provider in a state with a mass-based plan can be eligible for ERC
issuance in a rate-based state. This requirement and the
justification for its inclusion is further discussed in section
III.A of this preamble on Interstate Effects and also discussed in
the Interstate Effects section of the final EGs (see sections
VIII.K.1 and VIII.L). The EPA is proposing that there would be no
other geographic limitation on the location of the providers of RE
and incremental nuclear generation submitted for ERC issuance under
the rate-based federal plan approach.
    (5) This application must include an independent third-party
verifier's review and approval of the eligibility requirements, as
is reflected in EM&V requirements for the final guidelines, and
specified as part of the proposed federal plan EM&V requirements in
section IV.D.8 of this preamble.

    We request comment on each criterion of the eligibility application
described herein and in the proposed model rule, for each eligible
resource. Specifically, we seek comment on the substantive content of
the criteria, and we seek comment on the level of detail provided and
whether more or less detail (and what detail) should be included in the
final model rule.
    The EPA is proposing that ERCs would be tracked in the ATCS.
Additionally, the EPA is proposing that the agency would establish a
complementary tracking system for the ERC issuance process. It would
provide for transparent access to RE project and program eligibility
applications and regulatory approvals as well as information on the
activities of accredited third party verifiers (third party verifiers
are further discussed in section IV.D.7 of this preamble), as well for
the public to be able to generate reports based on this information.
    The agency is proposing that the project eligibility applications
would be accepted after the finalization of the federal plan and prior
to the first compliance period, as soon as the agency is able to
establish an application process, and that applications would be
accepted on an annual basis. The agency requests comment on whether a
quarterly or biannual application process is more appropriate. These
applications would be accepted through the entirety of all compliance
periods. The EPA will review and approve the project applications. It
is proposed that the EPA

may designate an agent to coordinate the project application process
and assist with review of applications.
    For the second step in the credit issuance application process, the
EPA proposes that providers submit an M&V report to the EPA, or its
designated agent, prior to the EPA's issuance of ERCs. This can only
occur after the approval of a project application, the RE has been
generated, and necessary EM&V has been completed.
    The following are proposed required components of the M&V Report:

    (1) Documentation of completed EM&V in accordance with the EM&V
plan submitted by the RE or nuclear provider, including
quantification of the MWh of generation to be credited and
verification of their creation.
    (2) Documentation that the generation has not been submitted for
crediting under any other federal or state plan, including to
another rate-based credit tracking system.
    (3) Documentation that the MWh resulted from RE or incremental
nuclear capacity eligible for crediting under the federal plan
requirements and in accordance with final EGs. This documentation
should note if the MWh are from an RE project located in a state
with a mass-based plan, and show if the generation is approved to be
eligible for ERC issuance under the federal plan. See above
geographic eligibility discussion and section III.A of this preamble
for specifics on the required demonstration for this type of RE
generation. As discussed in that section, this option is proposed to
not be available to incremental nuclear capacity located in a state
with a mass-based plan.
    (4) This application must include a verification report from an
independent third-party verifier, submitted after the verifier's
review and approval of the eligibility application, as is reflected
in EM&V requirements for the final guidelines, and specified as part
of proposed federal plan EM&V requirements described below and
included in detail in the proposed model rule.

    If the application meets these requirements, pursuant to review by
the EPA or its designated agent, ERCs will be issued to the provider by
the EPA through the ATCS. The specific steps of the process by which an
eligible resource seeks ERCs, and by which an affected EGU may use ERCs
in its compliance demonstration, are described in the proposed model
rule. One of the steps requires the proponent to register for a general
account in the EPA tracking system where the ERCs would be recorded.
See 40 CFR 62.16515 for the requirements to establish a general
account. While EPA is proposing to allow eligible resources to use a
general account to receive any ERCs issued under this section, the EPA
requests comment on extending the designated representative provisions
in 40 CFR 62.16485 to eligible resources instead of the general account
provisions. Requiring eligible resources to submit information similar
to that collected in the certificate of representation in 40 CFR
62.16500 and to appoint a designated representative to act on behalf of
all owners/operators for all projects requesting ERCs may improve the
EM&V process by making the eligible resources more accountable.
    Because it is critical to the integrity of an ERC that it
represents the actual MWh of energy generated or saved that it purports
to represent, and as required in the EGs for state plans, the federal
plan and model rule include provisions to address error correction
(i.e., mechanisms to adjust the number of ERCs issued based on all form
of errors, e.g., clerical errors, over- and under-statements, material
inconsistency with rule provisions, fraud, etc.). In addition, the
federal plan and model rule include provisions that provide that, at
any time for cause, the EPA may temporarily or permanently revoke the
qualification status of eligible resources from being issued ERCs for
at least the duration it does not meet the requirements for being
issued ERCs and independent verifiers from providing verification
services for at least the duration it does not meet the requirements of
the state plan. For the federal plan, as discussed in section III.I of
this preamble above, we propose to use the administrative appeals
process set forth 40 CFR part 78 to address party-specific disputes
concerning the issuance or validity of ERCs. States may adopt a similar
procedural and substantive process at the state level to enable them to
rescind or withhold approval of specific credits. We request comment on
the content of each of these provisions in the model rule, and
specifically seek comment on whether the model rule should include
different or additional details related to either procedure or
substance for error correction and the revocation of the qualification
status of an eligible resource or independent verifier.
    The agency is proposing that M&V reports will be accepted starting
before the beginning of the first compliance period (January 1, 2022),
through an application process the agency will establish and
administer, and that applications will be accepted on an annual basis.
These applications will be accepted through the entirety of all
compliance periods. The EPA will review and approve M&V reports, and
may designate an agent to coordinate and assist with M&V reports. The
EPA is proposing that it will issue ERCs for a given year no later than
6 months after the end of the relevant year. This amount of time may be
necessary to accommodate the ERC issuance process, including necessary
EM&V. The overall proposed schedule for trading and true-up has been
constructed to allow for this period of time for EM&V after the
compliance period.
    For purposes of the proposed rate-based federal plan, the EPA
proposes to implement the CEIP on behalf of a state by issuing early
action ERCs for eligible actions located in or benefitting that state
that are implemented after September 6, 2018 and that generate zero-
emitting MWh or reduce energy demand in 2020 and/or 2021.\73\ The EPA
intends to implement the program in a way that maintains the stringency
of the rate-based emission standards for affected EGUs in the
compliance periods established in this rule. For the purposes of the
rate-based federal plan, the EPA is proposing to award early action
ERCs to two types of eligible projects, as listed below. The rationale
for including these projects is included in section VIII.B.2 of the
final EGs.
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    \73\ As discussed in section VIII.B.2 of the final EGs, in the
case of a state that submits a final state plan including
requirements for the state's participation in the CEIP, eligible RE
projects may commence construction, and eligible EE projects may
commence implementation, following the date of submission of a final
state plan to the EPA. These projects must be implemented in or
benefit the state that submitted the final state plan to the EPA,
and may receive incentives for the zero-emitting MWh they generate
or the end-use energy savings they achieve during 2020 and/or 2021.
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     RE investments that generate metered MWh from any type of
wind or solar resources; and
     Demand-side EE programs and measures implemented in low-
income communities that result in quantified and verified electricity
savings (MWh).
    The EPA proposes the following framework to implement the CEIP in
the rate-based federal plan. First, the EPA proposes to implement a
mechanism for issuing early action ERCs for eligible RE projects that
commence construction and eligeible EE projects that commence
implementation after September 6, 2018 and that generate zero-emitting
MWh or reduce end-use energy demand during 2020 and/or 2021. These
projects must be located in or benefit the state on whose behalf the
EPA is implementing the federal plan. The EPA proposes to design this
mechanism in a manner that would have no impact on the aggregate
emission performance of sources required to meet rate-based emission
standards during the compliance periods. The EPA requests comment on
the structure of this mechanism, which could include adjusting the
stringency of the emission standards during the compliance periods to
account for the issuance of early action ERCs for MWh

generated or avoided in 2020 and/or 2021. For example, during the
interim performance period, a number of ERCs could be retired in an
amount equivalent to the number of early action ERCs that were awarded
for MWh generated or avoided in 2020 and/or 2021. As another option,
the EPA, or a state under the model trading rule, could adjust their
targets to achieve the same stringency, taking into account the
additional borrowed ERCs. The EPA requests comments on all potential
methods to adjust state targets, including modeling-based approaches,
and on what information the state must present to demonstrate that the
new targets preserve the needed stringency. More generally, the EPA
requests comments on these ideas, as well as on alternatives for
maintaining the stringency of a rate-based plan implementing the CEIP
so as to have no impact on the aggregate emission performance of
sources required to meet rate-based emission standards during the
compliance periods.
    Second, the agency proposes to create an account of ``matching''
ERCs for each state participating in the CEIP--regardless of whether a
state is implementing a state plan or the agency is implementing a
federal plan on its behalf. This distribution would reflect each
state's pro rata share--based on the amount of the reductions from 2012
levels the affected EGUs in the state are required to achieve relative
to those in the other participating states--of a federal pool of
additional ERCs, which would be limited to the equivalent of 300
million short tons of CO2 emissions. Thus, states whose
affected EGUs have greater reduction obligations will be eligible to
secure a larger proportion of the federal pool upon demonstration of
quantified and verified MWh of RE generation or demand side-EE savings
from eligible projects realized in 2020 and/or 2021. The EPA intends
that a portion of these matching ERCs would be reserved for eligible
wind and solar projects, and a portion would be reserved for eligible
EE projects implemented in low-income communities. The agency
recognizes that there have been historical economic, logistical and
information barriers to implementing EE programs in these communities,
and therefore believes it is appropriate to reserve a portion of the
federal pool to incentivize investment in these programs. The EPA
requests comment on the size of reserve of matching ERCs for eligible
low-income EE programs as well as for eligible wind and solar projects.
The EPA is proposing that unused ERCs in either reserve would be
redistributed among participating states. This redistribution could be
executed according to the pro rata method discussed above.
Alternatively, unused matching EE or RE ERCs could be swept back into a
federal pool and distributed to project providers on a first-come,
first served basis. EPA requests comment on these ideas as well as
alternative proposals regarding the method for redistributing matching
ERCs, as well as the appropriate timing for such a redistribution.
    Following the effective date of a rate-based federal plan for a
state, the agency will create an account of matching ERCs for the state
that reflects the pro rata share of the 300 million short ton
CO2 emissions-equivalent matching poolthat the state is
eligible to receive. Any matching ERCs that remain undistributed after
September 6, 2018 will be distributed to those states with approved
state plans that include requirements for CEIP participation, as well
as to those states on whose behalf EPA is implementing a federal plan.
These ERCs will be distributed according to the pro rata method
outlined above. Unused matching ERCs that remain in the accounts of
states participating in the CEIP on January 1, 2023, will be retired by
the EPA.
7. Independent Verifiers
    The EPA has determined in the final EGs that independent
verification requirements are necessary to ensure the integrity of any
rate-based emission trading program, given the types of eligible
measures that may generate ERCs and the broad geographic locations in
which those measures may occur. Inclusion of an independent
verification component provides technical support for the EPA in the
context of the proposed federal plan, and the states in the context of
their plans, to ensure that eligibility applications and monitoring and
verification reports are appropriately reviewed prior to issuance of
ERCs. Inclusion of an independent verification component is also
consistent with similar approaches required by state PUCs for the
review of demand-side EE program results and GHG offset provisions
included in state GHG emission budget trading programs.
    The remainder of this section and the related language in the
proposed model rule provide the proposed basis by which the EPA intends
to evaluate the independence of the verifiers that it uses to provide
verification reports pursuant to the federal plan. The qualifications
described here and in the model rule would be presumptively approveable
in the context of a state plan.
    As a starting point, an independent verifier must have the
necessary technical qualifications to provide verification services for
the subject in question, as well as fulfill certain codes of conduct in
providing verification services. Only verifiers approved or
``accredited'' by the EPA may provide verification services related to
ERC issuance for the federal plan, in the same way that only verifiers
approved by a state may be eligible to perform verification services
pursuant to a state plan.\74\
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    \74\ In this section, the term ``verifier'' is used
interchangeably to refer to both a ``verification body'' (i.e., a
verification company or organization) and a ``verifier,'' which is
an individual that is a principal or employee of a verification
body.
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    In addition, verifiers must have sufficient knowledge of the rate-
based emission trading program rules, technical expertise, and
knowledge of auditing, accounting, and information management
practices, in order to perform verifcation services related to the
Clean Power Plan. Accredited verifiers must be independent. Accredited
verifiers may not provide verification services for any eligible
resource for which they have a financial, management, or other
interest.\75\ Such relationships constitute a conflict of interest
(COI). COI situations may also arise as a result of personal
relationships among individuals representing an ERC provider and an
accredited verifier. A verification report would not be

accepted as part of an eligibility application or M&V report where the
accredited verification body or any individual verifier has a COI.
Accredited verification bodies must have management protocols in place
to identify and remedy any COI prior to provision of verification
services. The proposed federal plan and model rule provide that failure
of an accredited verifier to identify and adequately address any COI
prior to provision of verification services is grounds for revocation
of accreditation. The EPA would perform periodic reviews of accredited
verifiers, to ensure that verifiers are maintaining necessary technical
and professional qualifications and are meeting program requirements
for provision of verification services. The EPA may recognize, in part,
accreditation by an outside organization where such outside
accreditation demonstrates that federal plan requirements are met.\76\
The EPA requests comment on the proposed necessary requirements for an
independent verifier to perform verification services in connection
with the federal plan, including those requirements specifically
detailed in this section of the preamble and the related language in
the proposed model rule, and including whether there are any
requirements that are not included in this proposal that should be
included in the final rule. We further request comment on the level of
detail that we should include in the final model rule regarding all
requirements for indepenent verifiers, and all aspects of verification.
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    \75\ Accredited verification bodies and individual verifiers may
not have any direct or indirect organizational or personal
relationships with an ERC provider that would impact their
impartiality in assessing the validity and accuracy of the
information in an eligibility application or M&V report. In addition
to this general requirement, the following specific requirements
also apply. Accredited verifiers must have no direct or indirect
financial interest in, or other financial relationships with, an ERC
provider or any related program or project that seeks issuance of
ERCs. Accredited verifiers must have no relationship with the
implementer of a program or project that seeks the issuance of ERCs,
or any related ERC provider, that would represent a COI. Accredited
verifiers must have no role in the development and implementation of
a program or project that seeks issuance of ERCs, beyond the
provision of verification services. Accredited verifiers must not be
compensated, directly or indirectly, in relation to the quantified
and verified MWh in an M&V report or on the basis of program or
project approval, ERC issuance, or the number of ERCs issued.
Accredited verifiers may not hold ERCs, or other financial
derivatives related to ERCs, or have a financial relationship with
other parties that hold ERCs or other related financial derivatives.
Verification reports must include an attestation by the accredited
verifier that it assessed potential COI related to an ERC provider
and adequately addressed any identified COI. The EPA requests
comment the potential for payments to be channeled through the EPA
as fees.
    \76\ An example is American National Standards Institute (ANSI)
accreditation under ISO 14065:2013 for GHG validation and
verification bodies. More information is available at https://www.ansica.org/wwwversion2/outside/GHGgeneral.asp.
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8. Evaluation, Measurement, and Verification Plans, Monitoring and
Verification Reports, and Verification Reports
    This section identifies and discusses the EM&V approaches used to
quantify and verify MWh from RE, demand-side EE, and other eligible
measures used to generate ERCs or otherwise adjust an emission
rate.\77\
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    \77\ EM&V is defined here as the set of procedures, methods, and
analytic approaches used to quantify the MWh from RE, demand-side
EE, and other eligible measures to ensure that the resulting savings
and generation are quantifiable and verifiable. In this proposal, we
are proposing EM&V for the eligible RE, and we request comment on
EM&V for demand-side EE and any other measures that could be
eligible.
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    Only a subset of the potentially creditable ERC resources discussed
in this section are actually being proposed as part of the federal
plan. The remainder, and their associated requirements, are provided as
part of the proposed model trading rule. Thus, all provisions of this
subsection relating to such resources are presented only for the
purpose of comment in the context of the federal plan, but are actually
proposed for inclusion in the model trading rule. The ERC resources
proposed in the federal plan must meet the following criteria: (1) They
are in the following categories of measures: On-shore wind, solar,
geothermal power, hydropower, or new nuclear units and capacity uprates
at existing nuclear units; and (2) they can provide quantified
generation data from a revenue quality meter. The language pertaining
to all other measures (e.g., demand-side EE) is proposed only for the
model rule. While they are currently being proposed as part of the
model rule and not the federal plan, the EPA requests comment on the
inclusion of other RE measures, demand-side EE measures, and any other
measures that may be eligible under the final guidelines as eligible
measures under the federal plan. For stakeholders that are submitting
comments on the inclusion of such additional measures, the EPA requests
comment on how the EPA could implement across applicable jurisdictions
a rigorous, straightforward, and widely demonstrated set of EM&V
methods, procedures, and approaches that could be implemented in the
time frame allowed by the federal plan and that also meet the
requirements outlined in the final guidelines. To the extent they are
proposed for inclusion in the model trading rule, we also invite
comment on these requirements in the context of state implementation as
part of a state plan. Thus, commenters on this aspect of the proposal
should consider whether and how these provisions could be implemented
at the state level. Comments that suggest an approach not authorized by
the EGs will likely be considered outside the scope of this proposed
rule.
    Additionally, with respect to EM&V, the EPA describes certain
established industry best-practice methods, procedures, and approaches
that would be presumptively approvable if included in state plans.
States wishing to adopt the model rule must submit these methods,
procedures, and approaches as specified, or may submit alternative EM&V
that is functionally equivalent to the industry best-practices
described as presumptively approvable.\78\
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    \78\ The EPA recognizes that EM&V is routinely evolving to
reflect changes in markets, technologies and data availability, and
expects to update its EM&V guidance over time. Therefore the agency
expects that alternative quantification approaches will emerge that
can be approved for use, provided that such approaches are
functionally equivalent to the provisions for EM&V outlined in this
section.
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    As discussed in section IV.C.3 of this preamble, quantified and
verified MWh of RE generation and other means of generating ERCs may be
used to adjust a CO2 emission rate when demonstrating
compliance with the EGs. Providers other than affected EGUs who seek to
earn ERCs must develop EM&V plans outlining how they will quantify and
verify the resulting MWh from their efforts. These providers must then
submit these EM&V plans as part of their application to the
Administrator for project approval.\79\
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    \79\ A full discussion of applicable requirements for the
establishment and functioning of the rate-based trading system is
provided above, in section IV.D of this preamble.
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    a. Overall Approach and Measure-Specific Requirements. The proposed
Clean Power Plan stated that the EPA would establish EM&V requirements
and procedures to help states, sources, and resource providers quantify
and verify MWh savings and generation resulting from zero-emitting RE
and demand-side EE efforts. This action proposes those requirements
that the EPA committed to establish. The Clean Power Plan proposal and
associated ``State Plans Considerations'' TSD \80\ suggested that such
EM&V requirements would leverage existing industry practices,
protocols, and tracking mechanisms currently utilized by the majority
of states implementing RE and demand-side EE. The EPA further noted
that many state regulatory bodies and other entities already have
significant EM&V infrastructure in place and have been applying,
refining, and enhancing their evaluation and quality assurance
approaches for over 30 years, particularly with regard to the
quantification and verification of energy savings resulting from
utility-administered EE programs. The EPA also observed that the
majority of RE generation is typically quantified and verified using
readily available, reliable, and transparent methods such as direct
metering of MWh. The EPA is proposing EM&V methods, procedures, and
approaches, described herein, that are intended to be consistent with
and leverage prevailing industry best-practices.
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    \80\ See discussion beginning on p. 34 of the State Plan
Considerations TSD for the Clean Power Plan Proposed Rule: http://www2.epa.gov/carbon-pollution-standards/clean-power-plan-proposed-rule-state-plan-considerations.
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    In addition, the EPA's proposed EM&V methods, procedures, and

approaches reflect several overarching objectives and principles
offered by states, private organizations, and the public during the
comment period of the Clean Power Plan EGs. One of these is the
importance of balancing the accuracy and reliability of results with
the associated costs of EM&V. Another objective for the EPA's proposed
EM&V is to avoid excessive interference with existing practices that
are already robust, transparent and effective.
    Submittals. Applicable submittals under a rate-based emission
trading program include eligibility applications (including EM&V
plans), monitoring and verification reports, and verification reports.
These submittals are described in section VIII.K.3.b of the final EGs
preamble and in this model rule and federal plan. At the initiation of
a program or project, ERC providers develop and submit to the state or
the EPA, respectively, an EM&V plan that documents how requirements for
quantification and verification will be addressed as EM&V is performed
over the program or project period. After implementation has occurred,
the ERC provider must submit periodic M&V reports to document and
describe how each of the requirements were applied. These reports must
also specify the resulting MWh savings or generation values, as
determined on a retrospective (ex-post) or real-time basis. MWh values
may not be determined using projections or other ex-ante quantification
approaches.
    Each EM&V plan submitted in support of an eligibility application
must identify the eligible resource covered by the plan, and provide
specific EM&V criteria that specify the manner in which the energy
generated or saved by the eligible resource will be quantified,
monitored and verified. The manner of quantification, monitoring and
verification must meet the criteria outlined below and included in the
proposed model rule, as applicable to the specific eligible resource.
We request broad comment on each criteria specified below and in the
proposed model rule, for each eligible resource. Specifically, we seek
comment on the substantive content of the criteria, and we seek comment
on the level of detail provided and whether more or less detail (and
what detail) should be included in the final model rule, and whether
the criteria should differ for each eligible resource.
    Each M&V report submitted in support of the issuance of ERCs to a
specific eligible resource must include specific criteria described
here and in the proposed model rule. For the first M&V report
submitted, a key component is documentation that the electricity-
generating resources or electricity-saving measures were installed or
implemented consistent with the description in the approved eligibility
application. Each following M&V report must then identify the time
period covered by the M&V report, describe how the methods specified in
the EM&V plan were applied during the reporting period, and document
the quantity (in MWh) of energy generation and/or electricity savings
quantified and verified for the period covered by the M&V report. Any
change in the energy generation or savings capability of the eligible
resource during the period covered by the M&V report must also be
included in the M&V report, along with the date on which the change
occurred, and information sufficient to demonstrate whether the
eligible resource continued to meet all eligibility requirements during
the period covered by the M&V report. Any change should also be
specified in the report. The EPA requests broad comment on each of
these criteria, as described here and in the proposed model rule.
Specifically, we seek comment on the substantive content of the
criteria, and we seek comment on the level of detail provided and
whether more or less detail (and what detail) should be included in the
final model rule, and whether the criteria should differ for each
eligible resource.
    Each verification report submitted by an independent verifier in
support of the issuance of ERCs to a specific eligible resource must
address the criteria described here and in the proposed rule text. Each
verification report must set forth the findings of the verifier, based
on an assessment of all relevant requirements, information and data,
including an assessment of any material misstatements or data
discrepancies. Any verification report included as part of an
eligibility application must further describe the review conducted by
the verifier and verify the following: The eligibility of the resource
to be issued ERCs; that the eligible resource exists and has been, or
will be, generating energy or saving electricity in the manner
required; that the EM&V plan meets its requirements; and any other
information required or that the verifier finds, in its professional
opinion, is necessary to assess the accuracy of the subject of the
verification report. Each verification report included as part of a M&V
report must also describe the review conducted by the verifier and
verify the following: The adequacy and validity of the information and
data submitted to quantify eligible MWh of electric generation or
electricity savings during the period covered by the report, as well as
all supporting information and data identified in the EM&V plan and M&V
report; evaluate whether all generation or savings data are within a
technically feasible range for that specific eligible resource
(determined through a quality assurance and quality control check of
the data); that the M&V report meets its requirements; and any other
information required or that the verifier finds, in its professional
opinion, is necessary to assess the accuracy of the subject of the
verification report. The EPA requests broad comment on each of these
criteria, as described here and in the proposed model rule.
Specifically, we seek comment on the substantive content of the
criteria, and we seek comment on the level of detail provided and
whether more or less detail (and what detail) should be included in the
final model rule, and whether the criteria should differ for each
eligible resource.
    For demand-side EE, all EM&V plans that are developed for purposes
of adjusting an emission rate under this proposed rule are intended to
leverage and closely resemble the plans already in routine use for a
wide range of publicly or rate-payer funded EE programs and energy
service company (ESCO) projects. For RE, EM&V plans similarly leverage
resources and approaches to MWh tracking for RE that are broadly
applied in the state and regions. The existing reports and
documentation from existing tracking systems may serve as the
substantive basis for a monitoring and verification report for RE.
    b. Renewable Energy EM&V Requirements. This section describes the
EM&V requirements associated with quantifying electricity generation
from eligible RE and nuclear energy, and for documenting these
requirements in EM&V plans and reports. Consistent with prevailing
views expressed in public comments, the EPA's requirements presume that
the quantification of RE generation can leverage the infrastructure and
documentation associated with the establishment of renewable energy
certificates (RECs) and registration of such certificates in REC
registries. These registries typically include well-established
safeguards, documentation requirements, and procedures for registry
operations intended to support the demonstration of compliance with
state RPS policies. A key element of RPS compliance is that each RE
generating unit must be uniquely identified and recorded in a registry
to avoid the double counting of RECs.

    The primary metric for all RE is electricity generation, in units
of MWh. Measured output must be derived either from: (1) A revenue
quality meter that meets the applicable ANSI C-12 standard or
equivalent, which is the typical requirement for settlements with RTO
and other control-area operators; or (2) For customer-sited generators
that are interconnected behind the customer meter, measurement at the
AC output of an inverter, adjusted to reflect the energy delivered into
either the transmission or distribution grid at the generator bus bar.
Further, a RE generating facility of 10 Kilowatt capacity or less may
estimate the facility's output if the state where it is located
explicitly allows estimates to be used and provides rules for when it
will be allowed. In the latter case, calculations of system output must
be based on the RE unit's capacity, estimated capacity factors, and an
assessment of the local conditions that affect generation levels. All
such input parameters and assumptions must be clearly described and
documented. For RE units that are managed by regional transmission
operators or other control area operators, metered generation data
should be electronically collected by the control area's energy
management system, verified through an energy accounting or settlements
process, and reported by the control area operator to the REC registry
at least monthly. The EPA requests comment on this proposed requirement
for quantifying RE generation for the purpose of ERC issuance.
    For RE units that do not go through a control area settlements
process, metered data may be read and transmitted to the ERC registry
by an independent third party, or may be self-reported. Third-party and
self-reported generation data must be reported on an annual basis. All
such data must be verified for reasonableness by the agency, the state,
or the REC registry.
    For reporting purposes, RE generation may be aggregated from
multiple generators into a single MWh value for the group, provided the
following requirements are met: Each RE unit is uniquely identified in
the federal tracking system, the nameplate capacity of each RE unit is
less than 150 Kilowatt, the aggregated RE units collectively have
nameplate generating capacities less than 1.0 MW, the units aggregated
are located in the same state, the RE units being aggregated utilize
the same technology/fuel type, and the RE unit's generation data are
based on the same metering or the same generation estimating software
or algorithms. The EPA requests comment on how existing reporting
systems can play a role in meeting EM&V requirements under the federal
plan and model rule, particularly, in assuring that each MWh of RE
generation is uniquely identified and recorded to avoid double
counting.
    An additional consideration regarding distributed RE units that
directly serve on-site end-use electricity loads is that avoided
transmission and distribution (T&D) system losses can be quantified, as
is commonly practiced with demand-side EE. If such T&D losses are
quantified, the requirements for demand-side EE would be applicable.
    The EPA requests comment on all metering, measurement,
verification, and other requirements proposed in this subsection,
including the appropriateness of their use for each type of RE resource
(including the relevant size and distribution of such resource) that
qualifies for issuance of ERCs for use for compliance.
    For RE resources with a nameplate capacity of 10 Kilowatt or more
and for RE resources with a nameplate capacity of less than 10 Kilowatt
for which metered data are available, we request comment on the
appropriateness of the requirement to use a revenue quality meter for
monitoring generation, and we request comment on the definition of
revenue quality meter. We request comment on the appropriateness of
other types of meters for monitoring generation. We request comment on
whether 10 Kilowatt is the appropriate threshold, under which an
eligible resource can be issued ERCs for generation based on data other
than metered generation, and if not, what would be the appropriate
threshold.
    For RE resources of all sizes and means of monitoring, we request
comment on the appropriate requirements for allowing generation data to
be aggregated, including comment on the provisions in the proposed
model rule and any alternatives to them. We request comment on whether
all of the generating units have the same essential generation
characteristics, in order for their data to be aggregated, and if so,
what is the appropriate definition of ``essential generation
characteristics'' (e.g., are essential generating characteristics
determined on a resource by resource basis, or can generation from a
group of wind turbines be aggregated with generation from a group of
solar panels?) We seek comment on the appropriate thresholds for the
aggregated of individual units (e.g., nameplate capacity of less than
150 Kilowatt per unit and the units collectively do not exceed a total
nameplate capacity of 1 MW when aggregated, as in the proposed model
rule).
    For non-metered units of less than 10 Kilowatt, we request comment
on whether the final model rule should specify the specific estimating
software or algorithms by which generation data should be measured, and
if so, we request broad comment on the appropriate estimating software
or algorithms and the appropriate characteristics for such estimating
software or algorithms.
    We request comment on any other requirements that should be
included in the final model rule regarding EM&V of RE resources.
    For all energy generating resources (such as RE, but also including
applicable resources requiring EM&V described below), we request
comment on the appropriate place of measurement of the generation,
including comment on whether measurement should be at the bus bar or at
a different location (or in the case of meters on units of less than 10
Kilowatt, at the AC output of the inverter or elsewhere), whether
measurement should be before or after parasitic load (and how to
separate out parasitic load). In addition, for all energy generating
resources, we request comment on whether generation data should go
through a control area settlement process prior to issuance of ERCs,
and if so, what level of specificity with respect to that process we
should include in the final model rule. If not, or if the unit does not
go through a control area settlement process, we request comment on how
the data collection should be specified in the final model rule.
Finally, we request comment on the frequency with which data should be
collected, for all energy generating resources, of all sizes.
    c. Nuclear EM&V Requirements. The EM&V requirements associated with
quantifying electricity generation from eligible nuclear energy
resources, and for documenting these requirements in EM&V plans and
reports are the same as the requirements for RE discussed in the
preceding subsection.
    The EPA requests comment on all metering, measurement,
verification, and other requirements in this subsection, including the
appropriateness of their use for each type of nuclear energy resource
(including the relevant size and distribution of such resource) that
qualifies for issuance of ERCs for use in Clean Power Plan compliance.
We request comment on whether nuclear energy resources should be
subject to the same EM&V requirements as RE resources, and if not, we
request

comment on to which EM&V requirements nuclear energy resources should
be subject.
    d. Non-Affected Combined Heat and Power EM&V Requirements. In
additon to the CHP specific EM&V requirements discussed below and in
the associated provisions in the model rule, all CHP must follow the
requirements for RE discussed in the preceding subsection, including
metering requirements, special treatment for units of less than 10
Kilowatt, and how to account for T&D losses.
    In order to determine the incremental CO2 emission rate,
a CHP unit would monitor CO2 emissions and energy
output.\81\ The monitoring requirements are standard methods currently
in use and the requirements would depend on the size of the CHP units
and the fuel used in the unit.
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    \81\ When a CHP unit uses biomass fuel, it must report both
total CO2 emissions and biogenic CO2
emissions. Proposed requirements for reporting biogenic
CO2 emissions are discussed below in the subsection
titled Biomass EM&V requirements.
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    Non-affected CHP facilities \82\ with electric generating capacity
greater than 25 MW would follow the same monitoring and reporting
protocols for CO2 emissions and energy output as are
required for affected EGU CHP units. These requirements are discussed
in section IV.D.13 of this preamble. For non-affected CHP facilities
with electric generating capacity less than or equal to 25 MW, which
use only natural gas and/or distillate fuel oil, the low mass emission
unit CO2 emission monitoring and reporting methodology
outlined in 40 CFR part 75 is acceptable.
---------------------------------------------------------------------------

    \82\ A CHP facility may consist of one or more electric
generators.
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    The EPA requests comment on all metering, measurement,
verification, and other requirements included in this subsection with
respect to CHP, including the appropriateness of their use for CHP
(including with respect to the size of the CHP resource). We request
comment on whether a CHP unit should be subject to the same EM&V
requirements as RE resources, and we request comment on any additional
EM&V requirements to which CHP units should be subject. Specifically,
we request comment on specifying in the final model rule that if a CHP
unit has an electric generating capacity greater than 25 MW, its EM&V
plan must specify that it will meet the requirements that apply to an
affected EGU under 40 CFR 62.16540. We also request comment on
specifying in the final model rule that if a CHP unit has an electric
generating capacity less than or equal to 25 MW, the EM&V plan must
specify that it will meet the low mass emission unit CO2
emission monitoring and reporting methodology in 40 CFR part 75. We
request comment on any alternatives to these measurement methodologies
that should be specified in the final model rule. We request comment on
any other requirements that should be included in the final model rule
regarding EM&V of CHP.
    e. Biomass EM&V Requirements. A state plan that is adopting the
rate-based model rule must propose EM&V requirements for monitoring and
reporting biogenic CO2 emissions from the use of qualified
biomass at RE facilities that are eligible for adjusting a
CO2 emission rate. If a state proposes to use the monitoring
and reporting requirements for biogenic CO2 emissions in 40
CFR part 98 (40 CFR 98.3(c), 98.36(b)-(d), 98.43(b), and 98.46) in its
plan submission, those requirements are presumptively approvable. An
EM&V plan that addresses biomass RE must follow the requirements for
monitoring and reporting biogenic CO2 emissions from the
facility that were approved by the EPA in connection with the specific
state plan.
    The EPA requests comment on all metering, measurement,
verification, and other requirements included in this subsection with
respect to biomass, including the appropriateness of their use for
qualified biomass. We request broad comment on the types of qualified
biomass feedstocks that should be specified in the final model rule, if
any. We request comment on the methods that we should specify in the
final model rule for the measurement of the associated biogenic
CO2 for such feedstocks, as well as what other requirements
we should specify in the final model rule related to qualfied biomass.
We request comment on any other requirements that should be included in
the final model rule regarding EM&V for qualified biomass. Detailed
discussion on the role of qualified biomass feedstocks can be found in
section IV.C.3 of this preamble.
    f. Waste-to-Energy EM&V Requirements. A state plan that is adopting
the rate-based model rule must propose EM&V requirements for monitoring
and reporting biogenic CO2 emissions from waste-to-energy
facilities that are eligible for adjusting a CO2 emission
rate. If a state proposes to include the monitoring and reporting
requirements for biogenic CO2 emissions in 40 CFR part 98
(40 CFR 98.3(c), 98.36(b)-(d), 98.43(b), and 98.46) in its plan
submission, those requirements are presumptively approvable. The EPA
may approve other requirements of similar rigor, at its discretion. An
EM&V plan that addresses the biogenic CO2 emissions from a
waste-to-energy facility must follow the requirements for monitoring
and reporting biogenic CO2 emissions from the facility that
were approved by the EPA in connection with the specific state plan.
    As discussed in the final EGs (see section VIII.K.1 of the final
EGs), only the portion of electric generation at a waste-to-energy
facility that is due to the biogenic content of the MSW may be used to
generate ERCs or counted by a state towards its achievement of its
obligations pursuant to this regulation.
    The EPA requests comment on all metering, measurement,
verification, and other requirements included in this subsection with
respect to waste-to-energy, including the appropriateness of their use
for waste-to-energy. We request comment on whether a waste-to-energy
resource should be subject to the same EM&V as RE resources, and we
request comment on any additional EM&V requirements to which waste-to-
energy resources should be subject, including comment on any specific
methods for determining the specific portion of the total net energy
output from the resource that is related to the biogenic portion of the
waste that the EPA should include in the final model rule.
    g. Demand-Side Energy Efficiency EM&V Provisions. This subsection
proposes EM&V provisions that will be presumptively approvable if
included in state regulations governing how EE is to be quantified by
EE providers and verified by independent entities acting on behalf of
the state. As noted above these proposed provisions apply to all
demand-side EE used to adjust an emission rate if a state adopts the
model rule. The EPA is soliciting comment on the incorporation of EE
for the federal plan and by extension the EM&V associated with it.
    For all demand-side EE used to generate ERCs, the EPA is proposing
that the metric is MWh of electricity savings, which must be quantified
on an ex-post or real-time basis and defined as a reduction in
facility- or premises-level electricity consumption due to an EE
program, project, or measure.
(1) Common Practice Baseline
    Based on public input and assessments of industry best-practice
protocols and procedures, the EPA is proposing that it is presumptively
approvable to quantify EE savings as the difference between actual
metered electricity usage after an EE program, project, or measure is
implemented, and a ``common practice baseline'' (CPB). A

CPB is the equipment that would most frequently be installed at the
time an existing piece of equipment fails or is replaced at the end of
its effective useful life--or that a typical consumer or building owner
would have continued using for the remainder of the equipment's
effective useful life--in a given circumstance (i.e., a given building
type, EE program type or delivery mechanism, and geographic region) at
the time of EE implementation. It defines what would commonly have
happened in the absence of the EE program, project, or measure.
    The applicable CPB depends on a number of factors, such as
characteristics of the EE program, project, or measure, the mechanism
by which electricity customers are engaged, local consumer and market
characteristics, and the applicable building energy codes and product
standards (C&S), including the C&S compliance rate. Examples of
appropriate CPBs to apply in specific circumstances, which may be
presumptively approvable, can be found in the EPA's EM&V guidance. EE
providers must document the selected CPB in their EM&V plans, along
with clear documentation and discussion of the rationale,
applicability, and relevant data sources, protocols, and other
supporting information. Monitoring and verification reports must refer
to the EM&V plan and confirm that the CPB was appropriately applied.
(2) Methods Used To Quantify Savings From Energy Efficiency Programs
and Projects
    This section proposes criteria that are presumptively approvable
for the general types of EM&V methods that EE providers may use to
quantify the MWh savings from demand-side EE programs, projects, and
measures. During the Clean Power Plan EG's public comment period, the
EPA received input indicating that state PUCs typically allow utilities
and other EE providers to use a range of EM&V methods that reflect
applicable circumstances and on-the-ground conditions (versus mandating
which methods must be used in a particular situation). Consistent with
this approach, the EPA is proposing to offer flexibility for EE
providers to select from three broad categories of EM&V methods to
determine savings.
    These categories include project-based M&V, deemed savings, and
comparison group approaches such as randomized control trials (RCT).
Regardless of the approach selected, the EPA is proposing that annual
savings values must be quantified using these EM&V methods at specified
time intervals (in years) on a recurring basis over the effective
useful life of the EE project or measure in order to ensure accurate
and reliable savings values. To be presumptivey approable, the EPA is
proposing that EE providers must apply the above methods at a minimum
of 4-year intervals for building energy codes and product standards;
every 1, 2, or 3 years for publicly- or utility-administered EE
programs, depending on the program type, magnitude of savings, and
experience with the program; and annually for large individual
commercial and industrial projects, unless the EE provider can credibly
demonstrate why this is not possible and how the accuracy and
reliability of savings values will be maintained. The EPA is further
proposing that, to be presumptively approvable, the selected method,
associated assumptions, and data sources must be identified and
described in EM&V plans.
    For comparison group approaches, the EPA is propsing that states
and EE providers can refer to the EPA's draft EM&V guidance for a
discussion of industry best-practice protocols and guidelines. Where
feasible, the EPA is proposing to encourage the use of RCT methods,
which determine savings on the basis of energy consumption differences
between a treatment group and a comparison group, and therefore
increase the reliability of results.
    As noted above, an alternative to comparison group methods is the
use of deemed savings values, which establish pre-determined annual
electricity savings values for specific EE measures. The EPA is
proposing that the use of deemed savings values would be presumptively
approvable if those values (a) are documented in a publicly available
database (also known as a Technical Reference Manual (TRM)) that is
accessible on a public Web site, or is otherwise readily accessible;
(b) specify the conditions for which each deemed value can be applied,
including but not limited to climate zone, building type, and EE
implementation mechanism; and (c) are updated at a minimum of every 3
years to reflect the per-measure MWh savings documented in ex-post EM&V
studies that apply M&V or comparison group methods.
    For M&V methods to be presumptively approvable, the EPA is
proposing is that industry best-practice protocols and/or guidelines
must be followed. Examples of acceptable best-practice protocols and
guidelines are provided in the EPA's EM&V guidance. EE providers can
consult the EM&V guidance to assess the applicability of these
technical resources to the EE programs and projects generating savings,
and must document how one or more best-practice protocols or guidelines
will be appropriately applied in EM&V plans (along with clear
documentation and discussion of the rationale, applicability, and
relevant data sources, and other supporting information). The EPA is
also proposing that monitoring and verification reports must refer to
the EM&V plan and confirm that the relevant M&V protocol or guideline
was properly applied.
(3) Quantifying Savings
    Regardless of the approach used to quantify and verify MWh savings,
the EPA is proposing that EM&V plans must describe how they will
address the following provisions:
     How major changes in independent variable conditions
(weather, occupancy, production rates, etc.) that affect energy
consumption and savings estimates will be accounted for. The EPA is
proposing that the effects of these changes must be calculated using
industry best-practices such as real-time conditions or normalized
conditions that are reasonably expected to occur throughout the
lifetime of the EE project or measure.
     How the initial installation of EE will be verified for EE
program categories that involve the installation of identifiable
measures (e.g., most utility consumer-funded EE programs and project-
based EE are evaluated site-by-site). The EPA is proposing that
verification is required within the first year of program
implementation and that all verification activities must be performed
using industry best-practice techniques (e.g., phone or mail surveys,
document review, site inspections, spot or short-term metering). For
projects implemented as part of a larger program, the EPA is proposing
that verification can be performed using a sample of projects to
represent the full program population.
     How avoided T&D system losses \83\ will be quantified and
applied to EE savings determined at the customer facility or premises.
The EPA is proposing that demand-side EE programs (other than T&D
efficiency measures such as conservation voltage regulation or
reduction (CVR) and volt/VAR optimization \84\) may adjust

reported savings by using a T&D adder. If such an adder is applied, the
presumptively approvable approach is to use the smaller of 6 percent or
the calculated statewide annual average T&D loss rate (expressed as a
percentage) calculated using the most recent data published by the U.S.
EIA State Electricity Profile.\85\
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    \83\ T&D losses are defined as the difference between the
quantified EGU generation required to serve a customer's load
(measured at the EGU bus bar) and the customer's actual electricity
consumption (measured at the customer meter).
    \84\ More information about these technologies is in section
VIII.F.1 of the final EGs.
    \85\ Estimated losses in MWh, total electric supply, and direct
electricity use values are available in the U.S. EIA's State
Electricity Profiles. See Table 10 on Supply and Disposition of
Electricity. Direct electricity use refers to the electricity
generated at facilities that is not put onto the electricity grid,
and therefore does not contribute to T&D losses.
---------------------------------------------------------------------------

     How the duration of EE program or project electricity
savings will be determined. This must be determined using industry
best-practice protocols and procedures involving annual verification
assessments, industry-standard persistence studies, deemed estimates of
effective useful life (EUL), or a combination of all three.
     How the accuracy and reliability of quantifying MWh
savings values will be assessed, and the rigor \86\ of the methods used
to control the types of bias or error inherent to the applied EM&V
methods. Sampling of populations is appropriate, provided that the
quantified MWh derived from sampling have at least 90 percent
confidence intervals whose end points are no more than +/-10 percent of
the estimate.
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    \86\ Rigor refers to the level of effort expended to minimize
uncertainty from factors such as sampling error and bias. The higher
the level of rigor, the more confident one is that the results of
the EM&V activities are both accurate and precise.
---------------------------------------------------------------------------

     How double counting will be avoided through the use of
tracking and accounting procedures to ensure that the same MWh of
electricity savings is not claimed more than one time (for example, two
EGUs claiming savings from the same lighting retrofit). The types of
double counting that may arise are discussed in the EPA's draft EM&V
guidance.
(4) Use of Energy Efficiency EM&V Protocols
    In the Clean Power Plan EG's public comments, the EPA heard that
EM&V protocols for demand-side EE are currently in wide use, and that
they should be continued and encouraged. The agency agrees with this
observation and is therefore proposing the application of industry
best-practice protocols and procedures for demand-side EE. In
particular, the EPA is proposing that, to be presumptively approvable,
EM&V plans must specify the use of best-practice protocols and
procedures, and must also include a clear description and documentation
of how the relevant protocols and procedures will be applied. EM&V
reports must include documentation of how such protocols and procedures
were actually applied. EE providers can refer to the EPA's EM&V
guidance document for information about protocols that are considered
``industry best-practice protocols and procedures.''
(5) Eligible Demand-Side Energy Efficiency (DS-EE) Programs and
Projects
    There has been stakeholder interest expressed through the Clean
Power Plan EGs rulemaking process in allowing states to issue ERCs for
quantified and verified MWh savings from DS-EE under state plans.
Consistent with these perspectives, the EPA is proposing that any
demand-side EE program, project, or measure that results in MWh savings
may be potentially eligible to generate ERCs, including under this
proposed model trading rule, provided that they meet the presumptively
approvable provisions for eligibility described in section IV.C.3 of
this preamble, and that supporting EM&V is rigorous, transparent,
credible, complete and fulfills the requirements provided in the EGs
and the state plan. Examples of potentially eligible demand-side EE
program and project types include:
     Publicly or utility-administered EE programs, including
those implemented in low-income residences and facilities.
     Project-based EE evaluated site-by-site, for example those
implemented by ESCOs at commercial buildings and industrial facilities.
     State and local government building energy code and
compliance programs.
     State and local government incremental product energy
standards.
    The EPA's EM&V guidance contains supplemental information about
applicable best-practice protocols, methods, and other key
considerations for quantifying and verifying savings from the above-
listed EE activities in an accurate and reliable manner. The agency
also recognizes that the programs and policies listed above will evolve
and change over the rule period, as new technologies emerge and
efficiency improves. The agency also expects that new EE program types
will emerge and expand throughout the rule period, and that MWh savings
resulting from any such programs can similarly be considered if they
meet the requirements of the EGs.
(6) Requests for Comment on Energy Efficiency EM&V
    We request broad comment on each EE EM&V criterion described herein
and in the proposed rule text, for each type of EE activity, project,
program, or measure. Specifically, we seek comment on the substantive
content of the criteria, and we seek comment on the level of detail
provided regarding these criteria and whether more or less detail (and
what detail) should be included in the final model rule. In addition,
we seek comment on whether some of the EE EM&V criteria (and if so,
which criteria) included in the draft guidance document released
simultaneously with this proposed rulemaking should instead be included
in the final model rule, instead of in guidance. Similarly, we seek
comment on whether some of the EE EM&V criteria (and if so, which
criteria) included in the proposed model rule should instead be
addressed in the final EM&V guidance. More generally, we seek comment
on what EE criteria the EPA should described in guidance versus what
criteria the EPA should specify in the final model rule, whether or not
those criteria are already included in the draft guidance or proposed
model rule.
    We request broad comment on the appropriate EE EM&V criteria for
quantifying the electricity savings from every type of EE program,
project, or measure. We request broad comment on what constitute EE
best-practice protocols and procedures for every type of EE program,
project, or measure.
    We request broad comment on whether, when, and how common practice
baselines should and should not be used in calculating electricity
savings from EE activities, projects, programs, and measures, including
comment on which common practice baselines should be used in which
circumstances. We also request comment on whether some alternative
metric should be used in lieu of the common practice baseline and, if
so, what that metric should be.
    We request broad comment on the appropriateness of quantifying
electricity savings by applying one or more of the following methods
and comment on all aspects of each method: Project-based measurement
and verification (PB-MV), comparison group approaches, or deemed
savings. We take further comment on circumstances in which it is
appropriate (or inappropriate) to use each of these methods, including
when it is appropriate to use RCT and quasi-experimental methods, and
the circumstances in which they can be encouraged and applied in
practice (e.g., when a suitable control or comparison group can be
identified and applied in a cost-effective manner). In addition, we
request comment on whether the general suitability and applicaton of
quantification methods, such as RCT,

quasi-experimental techniques or other comparison group approaches when
they are available at reasonable cost for purposes of quantifying MWh
savings for particular EE programs, projects, or measures.
    If deemed savings are to be used in quantifying electricity savings
from an EE program, project, or measure, we request comment on the
appropriate characteristics and presumptively approvable provisions for
their use in generating qualifying ERCs, including the basis and
frequency for their determination, and the appropriateness of their
application to particular EE programs, projects or measures in
particular states or regions. We further request comment on the
presumptively approvable provision for public access and input to the
development of the technical reference manuals (TRMs) used to house the
applicable deemed savings values.
    We request comment on the minimum and maximum intervals (in years)
over which electricity savings must be quantified, including those time
intervals specified in the proposed model rule, and we request comment
on any factors that must be taken into consideration when determining
the appropriate time interval for specific EE programs, projects, or
measures.
    Because many states have different EE programs in place today, and
we would expect them to leverage these programs if they incorporated EE
into a rate-based trading scheme with ERCs, it is theoretically
possible that an ERC could be issued in one state that would not have
been issued in another, even if both states have rate-based programs in
place that meet all of the EGs. The EPA requests comment on what
criteria it should include in the final model rule, and what level of
details with respect to those criteria that it should include, in order
to ensure that an ERC issued for an EE program, project, or measure in
one state reflects the same MWh of energy or electricity saved in
another state. We further request comment on whether there are
provisions that the EPA should include in the final model rule that
would prevent an entity seeking to be issued an ERC (whether from EE or
energy generation) from forum shopping, in an effort to find a state
with standards for ERC issuance that it deems more lenient or less
burdensome than those in another state.
    We request comment on how to appropriately consider factors that
affect energy savings in the quantification and verification process,
including those identified in the proposed model rule, and we request
comment on whether these factors should be addressed in every plan or
just certain types of plans. Such factors may include the effect of
changes in independent factors, effective useful life (and its basis),
and interactive effects of EE programs, projects, and measures.
    We request comment on the circumstances and frequency in which
savings verification must occur to ensure that EE measures have been
installed, are functioning, and have the potential to save energy.
    We request comment on the appropriate steps for avoiding double
counting, and how such steps should be documented in an EM&V plan. In
particular, we request comment on the circumstances and conditions in
which double counting is most likely to occur (including those
identified in this section), and the presumptively approvable
provisions that must be adopted in state plans for avoiding and
mitigating double counting.
    We request comment on the appropriate means by which an EM&V plan
can ensure the accuracy and reliability of electricity savings
estimates, including the necessary rigor of the methods selected to
evaluate the electricity savings, the methods used to control all
relevant types of bias and to minimize the potential for systematic and
random error, and the potential effects of such bias and error. We
further request comment on the presumptively approvable provision that
samples taken to quantify EE program savings must achieve 90/10
confidence and precision.
    We request comment on the presumptively approvable approach to
quantifying the electricity savings that result from avoiding a
transmission and distribution system loss, including the provisions in
the proposed model rule, which specify that each EM&V plan must
quantify the transmission and distribution loss based on the lesser of
6 percent of the site-level electricity consumption measured at the end
use meter or the statewide annual average transmission and distribution
loss rate (expressed as a percentage) from the most recent year that is
published in the U.S. EIA State Electricity Profile. We request comment
on the appropriateness of including a restriction in the final model
rule that no other transmission and distribution loss factors may be
used in calculating the electricity savings.
    We request comment on any additional criteria that we should
include in the final model rule regarding EE EM&V.
    h. Skill Certification Standards. Using a skilled workforce to
implement demand-side EE and RE projects and other measures intended to
reduce CO2 emissions, and to evaluate, measure and verify
the savings associated with EE projects or the additional generation
from performance improvements at existing EGU's are both important.
Several commenters on the EGs pointed out that skill certification
standards can help to assure quality and credibility of demand-side EE,
RE, and other carbon emission reduction projects. The EPA also
recognizes that a skilled workforce performing the EM&V is important to
substantiate the authenticity of emission reductions.
    The EPA agrees that in conjunction with other EM&V measures
discussed in this section, and in the context of the model trading
rules although this is not an aspect needed for presumptive
approvability, states are encouraged to include in their plan a
description of how states will ensure that workers installing demand
side EE and RE projects, or other measures intended to reduce
CO2 emissions, as well as workers who perform the EM&V of
demand side EE and existing EGU performance will be certified by a
third party entity that:
     Develops a training or competency based program aligned
with a job task analysis and/or certification scheme;
     Engages with subject matter experts in the development of
the job task analysis and/or certification schemes that represent
appropriate qualifications, categories of the jobs, and levels of
experience;
     Has clearly documented the process used to develop the job
task analysis and/or certification schemes, covering such elements as
the job description, knowledge, skills, and abilities;
     Has pursued third-party accreditation aligned with
consensus-based standards, for example ISO/IEC 17024 or IREC 14732.
    Examples of such entities include: Parties aligned with the DOE's
Better Building Workforce Guidelines and validated by a third party
accrediting body recognized by DOE; or parties aligned with an
apprenticeship program that is registered with the federal DOL, Office
of Apprenticeship; or parties aligned with a state apprenticeship
program approved by the DOL, or by another skill certification
validated by a third party accrediting body. Entities such as these can
help to substantiate the authenticity of emission reductions due to
demand-side EE and RE and other carbon emission reduction measures.
9. ERC Transfers and Trading
    All affected EGUs that may be subject to this proposed federal plan
would be required to be a part of the ATCS that

the EPA runs, although the affected EGUs that are regulated under the
rate-based federal plan would use ERCs as a compliance instrument, not
allowances. To register to participate in the ATCS an affected EGU must
submit designated representative information. More information on the
designated representatives is described above in section IV.D.1 of this
preamble. Non-EGUs who wish to participate (e.g., RE sources) may
submit registration criteria to participate in the ATCS. The ATCS will
allow the trading and holding of ERCs that qualify for Clean Power Plan
compliance in a system that also will be used to determine compliance.
Quarterly, an affected EGU under the federal plan must submit
information and data consistent with part 75.\87\ These quarterly
submission dates are the 30th of April, July, October and January
corresponding with the quarterly data ending the month previous the
submission deadline (e.g., an April 30, 2024 submission would include
data from January through March of 2024). The data that are posted
online would be publicly available.
---------------------------------------------------------------------------

    \87\ See section IV.D.11 of this preamble for more information.
---------------------------------------------------------------------------

    Non-EGU ERC generating sources are required to submit generation
data annually (see section IV.C.3 of this preamble for a comprehensive
discussion of non-EGU ERC generating sources). The data must follow the
EM&V procedures delineated in section IV.D.8 of this preamble. Because
of the required rigor of the EM&V process, the EPA provides a time
frame of January 1 to June 1 of the year that follows the data's
inception to complete all EM&V processes (e.g, 2024 RE data must go
through the EM&V process and be submitted to the EPA no later than June
1, 2025). After receiving all emission and generation data from ERC
generating sources and affected EGUs, the EPA will issue ERCs through a
NODA as described in section IV.D.6 of this preamble. The EPA is
proposing to issue ERCs annually. ERCs are acquired and traded
throughout the compliance period. An affected EGU is responsible to
hold sufficient ERCs that qualify for Clean Power Plan compliance in
its ATCS compliance account by November 1 at midnight of the year
following the conclusion of the compliance period.\88\
---------------------------------------------------------------------------

    \88\ This true-up process is further described in section
IV.D.10 of this preamble.
---------------------------------------------------------------------------

    The process for transferring ERCs from one account to another is
quite simple. A transfer would be submitted providing, in a format
prescribed by the agency, the account numbers of the accounts involved,
the serial numbers of the ERCs involved, and the name and signature of
the transferring authorized account representative or alternate. If the
transfer form containing all the required information were submitted to
the EPA and, when the Administrator attempted to record the transfer,
the transferor account included the ERCs identified in the form, the
Administrator would record the transfer by moving the ERCs from the
transferor account to the transferee account within 5 business days of
the receipt of the transfer form.
10. Compliance With Emissions Standards
    Once the compliance period has ended, affected EGUs would have a
window of opportunity to evaluate their reported emissions and obtain
any ERCs that they might need to cover their emissions during the
compliance period. The agency proposes to require sources to
demonstrate compliance, i.e., ERC true-up, on November 1 of the year
after the last year in the compliance period. For example, if the first
compliance period comprises the three years 2022, 2023, and 2024, then
the ERC transfer deadline \89\ for that first compliance period (after
which point the EPA would evaluate compliance) would be on November 1,
2025. The agency also requests comment on an earlier ERC transfer
deadline, such as June 1 or March 1, of the year after the last year in
the compliance period. Each ERC issued in the proposed rate-based
trading program would, if applied, be averaged into the compliance rate
as one MWh of energy with zero CO2 emissions deemed
associated with it for the compliance period that includes the year for
which the ERC was issued or be averaged into a later compliance period.
Consequently, each affected EGU would need, as of the ERC transfer
deadline, to have in its compliance account enough ERCs usable for its
compliance obligations for the compliance period. The authorized
account representative could identify specific ERCs to be applied, but,
in the absence of such identification or in the case of a partial
identification, the Administrator would deduct on a first-in, first-out
basis. The ERCs that are used to meet compliance obligations are moved
from the compliance account to the EPA's retirement account. ERCs that
are deducted for compliance will remain in the system in an EPA
account, which ensures they will not be used again.
---------------------------------------------------------------------------

    \89\ The ``ERC transfer deadline'' is the deadline for
transferring allowances that can be used for compliance in the
previous compliance period to a source's compliance account.
---------------------------------------------------------------------------

    The EPA will use the submitted generation, CO2 emissions
and ERCs in the affected EGU's compliance account to calculate an
average emission rate for the EGU. It is the responsibility of an
affected EGU to calculate the number of ERCs that will need to be held
in a compliance account to meet the EGU's compliance obligations. The
method for determining the quantity of ERCs needed to meet compliance
obligations has been discussed previously in an example. To reiterate
the process, the affected EGU would need to solve for the number of
zero-emitting MWh (i.e., ERCs) that would need to be added to the total
MWh of the EGU to make the adjusted emission rate equal to the emission
standard.
[GRAPHIC] [TIFF OMITTED] TP23OC15.013

    If an affected EGU fails to hold sufficient ERCs to comply with its
emission standard then, upon notification of the deficiency, the owners
and operators of the affected EGU must provide, for deduction by the
Administrator, two ERCs as soon as available for every ERC that the
owners and operators failed to hold as required to cover emissions, in
addition to the ERCs owed for compliance in that next period. The owed
ERCs will be deducted from the EGU's compliance account as soon as they
are available in this account; the Administrator will not wait until
the next true-up date to make this deduction. The two ERCs owed for
each ERC needed for compliance but not supplied is in addition to any
other recourse provided in sections 113(a)-(h) or section 304 of the
CAA. This requirement to surrender two times the ERCs needed to make up
the shortfall for the prior period is an ongoing obligation until
compliance is achieved, and there is an ongoing obligation to comply in
the current period. Failure to surrender these replacement ERCs is an
additional violation that may be subject to federal enforcement. The
EPA solicits comment on sources owing two ERCs to make up for each
insufficient ERC in previous compliance periods and whether two for one
is the proper make-up rate or whether there should be a stricter or a
more lenient ratio.
    The EPA believes that it is important to include a requirement for
an automatic deduction of ERCs. The deduction of one ERC per ERC that
the owners and operators failed to hold would offset this failure. The
deduction of another ERC per ERC that the owners and operators failed
to hold provides a strong incentive for compliance with the ERC-holding
requirement by ensuring that non-compliance would be a significantly
more expensive option than compliance. This is consistent with other
existing trading programs.
11. Other ERC Tracking and Compliance Operations Provisions
    These sections also would provide that the Administrator could, at
his or her discretion and on his or her own motion and consistent with
existing federal trading programs, correct any type of error that he or
she finds in an account in the ATCS. In addition, the Administrator
could review any submission under the rate-based trading program, make
adjustments to the information in the submission, and deduct or
transfer ERCs based on such adjusted information. These provisions are
a standard part of other trading programs administered by the EPA
including the ARP and the CSAPR (see, e.g., 40 CFR 72.96, 73.37,
97.427, and 97.428). The EPA solicits comment on potential alternatives
for error correction that may be simpler or more efficient.
12. Banking of ERCs
    The EPA is proposing to allow unlimited banking of ERCs within and
between the interim and final compliance periods. This means that if an
affected EGU has more ERCs than are necessary during true-up, it may
save (i.e., bank) those ERCs for application during a future compliance
period. The EPA requests comment on whether there should be a
quantitative limit or cap on the number of ERCs that can be banked. The
EPA also requests comment on whether an ERC should be eligible to be
banked between the interim and final compliance periods. The EPA is
also proposing that ERCs will not expire after any duration of time.
Other trading rules that the EPA has instituted (e.g., CSAPR) do not
have expiration on the tradable properties. The EPA requests comment on
the shelf-life of an ERC.
    ERC ``borrowing'' is a flexibility that the EPA is not proposing,
but is soliciting comment on. ERC borrowing is the concept that an
affected EGU may use an ERC that the EGU will acquire in a future
compliance period to meet its current compliance obligations. The EPA
requests comment on a methodology that would allow ERC borrowing while
maintaining the integrity of the compliance obligations. The EPA also
has reservations concerning this concept due to the fact that future
ERC generation is not guaranteed.
13. Emissions Monitoring and Reporting
    The EPA would require that emission and generation data be reported
to the EPA quarterly starting on April 30, 2022, and continuing every 3
months thereafter (i.e., the 30th of April, July, October, and
January). The EPA proposes that affected EGUs subject to the rate-based
federal plan trading program would monitor and report CO2
emissions in accordance with 40 CFR part 75. The EPA is proposing to
require affected EGUs in all states covered by the rate-based federal
plan trading program to monitor and report CO2 emissions by
and output data by January 1, 2022. Quarterly reporting would be
required, with each quarterly report due to the Administrator 30 days
after the last day in the quarter. The reporting would be in accordance
with 40 CFR 75.60. The use of 40 CFR part 75 certified monitoring
methodologies would be required. Many affected EGUs that might be
covered by the proposed federal plans will generally have no changes to
their monitoring and reporting requirements and will continue to
monitor and submit reports under 40 CFR part 75 as they have under
existing programs. The EPA anticipates fewer than 50 (approximately 10
of these affected EGUs are coal fired with the remainder being gas and
oil fired that will qualify for an excepted monitoring methodology)
affected EGUs, that would not otherwise be subject to the ARP, will
have to purchase and install additional continuous emissions monitoring
system (CEMS) and data handling systems or upgrade existing equipment
in order to meet the monitoring and reporting requirements of this
program. Several of the affected EGUs not otherwise subject to the ARP
are subject to the MATS program and therefore will have already
installed stack flow rate and/or CO2 monitors in order to
comply with the MATS rule which are also necessary to comply with this
rule. The CEMS used to comply and report data for MATS will be used for
this rule to generate and report CO2 emissions data without
having to install duplicative monitors. The same CO2 and
stack gas flow rate monitored data used in conjunction with mercury and
other CEMS to calculate a toxic pollutant emission rate may be used to
calculate a CO2 mass or CO2 emission rate for
this program. The Regional Greenhouse Gas Initiative (RGGI), ARP, MATS
and this rule all refer to CEMS installed and certified in accordance
with 40 CFR part 75. RGGI and ARP currently require the reporting of
CO2 mass emissions on an hourly basis and cumulative totals
at the end of each calendar quarter. The same monitors and data
collected may be used for multiple purposes for RGGI, ARP, MATS and
this rule. Relying on the same monitors that are certified and quality
assured in accordance with 40 CFR part 75 ensures cost efficient,
consistent, and accurate data that may be used for different purposes
for multiple regulatory programs. The majority of the affected EGUs
covered by this rule are already affected by the Acid Rain and/or RGGI
programs and will have minimal additional monitoring and reporting
requirements.
    The EPA also requests comment on requiring monitoring and reporting
of CO2 mass and net generation for the year before the
initial compliance period begins, i.e., to commence January 1, 2021.
Only monitoring and reporting would be required in 2021--compliance
with an enforceable emission standard would commence on the compliance

period schedule that is detailed in section III.D of this preamble.

E. Federal Plan and State Plan Interactions

1. Interstate Trading
    The EPA proposes that all affected EGUs within states that are
covered by the federal plan, if a rate-based federal plan is finalized
for two or more states, would be allowed to trade with one another
since there will be an assured commonality in the ERC currency and
criteria surrounding the trading program. In addition, the EPA
proposes, consistent with the provision for ``ready-for-interstate-
trading'' plans in the EGs, that affected EGUs located in states with
approved ready-for-interstate-trading state plans using the
subcategorized uniform rate standards, and a common credit currency
(i.e., ERCs representing one zero-emitting MWh) may trade with affected
EGUs operating under the federal trading program established in this
federal plan.
    Rate-based EGUs subject to the federal plan and rate-based EGUs in
ready-for-interstate-trading state plans will be able to trade ERCs
seamlessly across jurisdictional borders because of the assurances of
being presumptively approvable. Ready-for-interstate-trading states
must submit information that lists all affected EGUs and the EGU type
to the Administrator to be able to trade within the federal trading
program. To be able to trade in the federal trading program an affected
EGU that is subject to a ready-for-interstate-trading state plan must:
(1) Certify and authorize a designated representative per section
IV.D.1 of this preamble; and (2) register a general account in the
federal trading program, ATCS, in order to have a means of transferring
ERCs with entities operating in the federal trading program. An
affected EGU under a state plan will not register a compliance account
in the federal system because it will not be demonstrating compliance
under the federal plan. Compliance will be achieved in the affected
EGU's corresponding state plan. Affected EGUs under a state plan have
the ability to acquire ERCs through the federal trading program. These
ERCs will be stored in the EGU's general account in the federal trading
program. To use these ERCs for compliance purposes, the ERCs must be
transferred to the EGU's compliance account in the state's program. The
EPA proposes to provide software to states to maintain a state's
compliance and tracking program. A state's program will have the
capability to interact with the federal trading program and software,
ATCS, for transferring ERCs if the state is ready-for-interstate-
trading. A state's program can be tailored to meet its needs while
still providing a platform for a state to be transferring ERCs between
the state's system and the federal trading program. ERCs can flow
between a state system and the federal trading program bilaterally. The
EPA acknowledges that states may have additional criteria for
generating ERCs that are not outlined as part of the federal plan, but
because the EPA will have vetted these criteria through a state plan
approval these ERCs will be able to be traded within the federal
trading program.
2. Treatment of States Entering or Exiting the Trading Program
    The EPA proposes that a rate-based trading federal plan may be
replaced by a state plan for a future compliance period. The EPA is
proposing that a state must transition to a state plan at the
conclusion of a federal plan compliance period. The EPA requests
comment on whether there are reasons that a state should be allowed to
transition from a federal plan to a state plan in the middle of a
compliance period and if so what requirements should be put in place to
do so while ensuring the integrity of both the federal plan and the
state plan and while enabling the affected EGUs covered by the plans to
understand and meet their compliance requirements. If a state subject
to the federal plan transitions to a state plan, any affected EGU
impacted by the change remains responsible for meeting any outstanding
obligations under the federal plan. To make the transition to a state
plan, a state must have an approved state plan as laid out in sections
VIII.D and VIII.E of the final EGs.

V. Mass-Based Implementation Approach

A. Trading Program Overview

    In addition to the rate-based implementation approach discussed
above, the EPA is proposing a mass-based implementation approach for
the federal plan. As with the rate-based approach, this proposed
federal plan is also a proposed model trading rule that states can
adopt. The mass-based approach that the agency proposes to implement is
a mass-based trading program (i.e., an emissions budget trading
program, also referred to as an ``allowance system''). This section
provides a brief overview of the proposed mass-based trading program.
The next sections describe the various elements of the proposed trading
program in further detail.
    A mass-based trading program establishes an ``aggregate emissions
limit'' that specifies the maximum amount of emissions authorized from
affected EGUs included in the program, and creates allowances that
authorize a specific quantity of emissions. The total number of
allowances created are equal to, and constitute, the emissions budget
or the aggregated emissions limit expressed in terms of short tons of
emissions. The EPA is proposing that allowances be issued in short tons
for the federal plan.
    Each facility with affected EGUs in the program must surrender
allowances equal in number to the quantity of the emissions of its
affected EGUs during the compliance period. A facility with affected
EGUs may buy allowances from, or transfer or sell allowances to, other
affected EGUs or other entities that participate in the market. A mass-
based trading program provides sources with great flexibility in
choosing compliance strategies.
    In the proposed mass-based trading program for the federal plan,
the aggregate emissions limit for a state is its statewide mass-based
emission goal (or ``mass goal'') as finalized in the Clean Power Plan
EGs. The proposed approach to linking states for interstate allowance
trading is detailed in section III.A.1 of this preamble; in an
interstate trading program the aggregate emissions limit is the sum of
the mass goals for the covered states.
    The EPA believes that a broad trading region provides greater
opportunities for cost-effective implementation of controls compared to
a smaller region. Therefore, the agency proposes that an affected EGU
in any state covered by the proposed mass-based trading federal plan
may use for compliance an allowance distributed in any other state
covered by the mass-based trading federal plan. The EPA also proposes
to provide for allowance trading between affected EGUs and other
entities in states with approved mass-based-trading state plans that
meet the conditions specified in section III.A.1 of this preamble,
above, and affected EGUs and other entities in any state covered by the
federal plan mass-based trading program.
    A mass-based trading program can provide environmental certainty at
lower cost than other policy mechanisms, because it assures the
specified emissions outcome while maximizing compliance flexibility
available to individual affected EGUs. Further, allowance banking in
such a program creates an incentive to make reductions earlier than
required. Mass-based trading programs are relatively

simple to operate, which reduces administrative time and cost.
Additionally, to inform the mass-based trading approach proposed here,
the EPA draws upon more than two decades of experience implementing
federally-administered mass-based emissions budget trading programs
including the ARP SO2 trading program, the NOX
Budget Trading Program, CAIR, and CSAPR.
    In the proposed mass-based trading program federal plans, the
emissions limits in each state would be the mass goals that the EPA
promulgated in the Clean Power Plan EGs (if there is interstate trading
then the sum of the mass goals for the states in the trading program
would constitute the aggregate emissions limit). The total amount of
allowances distributed in each state for each year would sum to the
state's mass goal for that year. As detailed in section V.E of this
preamble, the EPA is proposing that a state covered by the federal plan
can determine its own approach to distribute allowances, and believes
that state allocation has important merits. The EPA would distribute
allowances in a state if the state does not choose to do so, as
detailed below.
    Each allowance would authorize the emission of one short ton of
CO2 during the compliance period applicable to the
allowance's vintage year or a later compliance period. The proposed
approach to distribute allowances, including three types of allowance
set-asides, is discussed in section V.D of this preamble, below.
    After each compliance period, an affected EGU would surrender for
compliance an amount of allowances equal to its emissions during the
course of the compliance period. See section V.C of this preamble for
the proposed length of the multi-year compliance periods. Allowances
could be transferred, bought, sold, or banked (carried over for future
use) and any party could participate in the allowance market. The EPA
is not proposing allowance ``borrowing'' (i.e., the bringing forward of
future-period allowances for use in an earlier period); the multi-year
compliance periods inherently provide the flexibility to schedule
relatively greater emission reductions for later years within each
period, as discussed further in section V.C of this preamble. In the
proposed mass-based trading program, the emission standard applied to
individual affected EGUs is the requirement to surrender emission
allowances equal to reported emissions for each compliance period.
    The EPA also proposes that a state may choose to replace the
federal plan allowance-distribution provisions with its own allowance-
distribution provisions (i.e., to determine the distribution of
allowances for its EGUs or other entities) using a state allowance-
distribution methodology. State allowance distribution can have
important advantages, because it allows a state to design and shape
allowance allocation to its specific goals and characteristics, and
because states may have additional flexibility on allocation
approaches, including auctions. See section V.E of this preamble for
further discussion of the proposed approach for state-determined
allowance-distribution methodologies.
    This proposed requirement to hold and surrender allowances equal to
emissions for each compliance period would apply to all reported
emissions from a facility's affected EGUs including any emissions from
co-fired biomass if biomass is included as an eligible measure. Section
IV.C.3 of this preamble discusses an approach on which the EPA requests
comment on the inclusion of biomass as an eligible measure and on a
proposed option where the agency would identify qualified biomass
feedstocks (i.e., biomass feedstocks that are demonstrated to be a
method to control increases of CO2 levels in the atmosphere)
and potential methods for demonstrating compliance, and thus reduce the
mass emissions attributed to a biomass co-fired affected EGU. If the
EPA took such an approach, then for purposes of compliance with the
proposed mass-based federal plan trading program, the affected EGU
would need to hold allowances equal to its emissions less the emissions
attributed to the co-fired qualified biomass; such an approach would
reduce the number of allowances the affected EGU would need to hold to
demonstrate compliance. The EPA requests comment on this approach.

B. Statewide Mass-Based Emissions Goals

    In the Clean Power Plan EGs the EPA established statewide mass-
based emission goals (``mass goals'') for all states that are
equivalent to the rate-based goals. As discussed in section V.C of this
preamble, below, the EPA proposes to implement the mass-based trading
program with multi-year compliance periods that are consistent with the
compliance timing provisions in the Clean Power Plan EGs, i.e., two 3-
year compliance periods followed by a 2-year compliance period in the
Interim Period, and successive 2-year periods in the Final Period. In
the Clean Power Plan EGs, the EPA established mass goals for all states
for this pattern of compliance periods. The EPA proposes to use those
mass goals promulgated in the Clean Power Plan EGs as the mass limits
(i.e., emissions budgets) for any state covered by the mass-based
trading program (or, if implementing interstate trading, then the EPA
would use the sum of a covered group of states' mass goals as the
aggregate mass limit). The EPA is not opening for comment the
determinations, made in the Clean Power Plan EGs, of each state's mass
goals. The mass goals are provided for convenience in Table 8 of this
preamble.

                          Table 8--Statewide Mass-Based Emission Goals (``Mass Goals'')
                                                  [Short tons]
----------------------------------------------------------------------------------------------------------------
                                                                  Interim period                   Final period
                                                 ---------------------------------------------------------------
                      State                        Step 1 2022-    Step 2 2025-    Step 3 2028-    2030-2031 and
                                                       2024            2027            2029         thereafter
----------------------------------------------------------------------------------------------------------------
Alabama.........................................      66,164,470      60,918,973      58,215,989      56,880,474
Arizona *.......................................      35,189,232      32,371,942      30,906,226      30,170,750
Arkansas........................................      36,032,671      32,953,521      31,253,744      30,322,632
California......................................      53,500,107      50,080,840      48,736,877      48,410,120
Colorado........................................      35,785,322      32,654,483      30,891,824      29,900,397
Connecticut.....................................       7,555,787       7,108,466       6,955,080       6,941,523
Delaware........................................       5,348,363       4,963,102       4,784,280       4,711,825
Florida.........................................     119,380,477     110,754,683     106,736,177     105,094,704
Georgia.........................................      54,257,931      49,855,082      47,534,817      46,346,846

Idaho...........................................       1,615,518       1,522,826       1,493,052       1,492,856
Illinois........................................      80,396,108      73,124,936      68,921,937      66,477,157
Indiana.........................................      92,010,787      83,700,336      78,901,574      76,113,835
Iowa............................................      30,408,352      27,615,429      25,981,975      25,018,136
Kansas..........................................      26,763,719      24,295,773      22,848,095      21,990,826
Kentucky........................................      76,757,356      69,698,851      65,566,898      63,126,121
Lands of the Fort Mojave Tribe..................         636,876         600,334         588,596         588,519
Lands of the Navajo Nation......................      26,449,393      23,999,556      22,557,749      21,700,587
Lands of the Uintah and Ouray Reservation.......       2,758,744       2,503,220       2,352,835       2,263,431
Louisiana.......................................      42,035,202      38,461,163      36,496,707      35,427,023
Maine...........................................       2,251,173       2,119,865       2,076,179       2,073,942
Maryland........................................      17,447,354      15,842,485      14,902,826      14,347,628
Massachusetts...................................      13,360,735      12,511,985      12,181,628      12,104,747
Michigan........................................      56,854,256      51,893,556      49,106,884      47,544,064
Minnesota.......................................      27,303,150      24,868,570      23,476,788      22,678,368
Mississippi.....................................      28,940,675      26,790,683      25,756,215      25,304,337
Missouri........................................      67,312,915      61,158,279      57,570,942      55,462,884
Montana.........................................      13,776,601      12,500,563      11,749,574      11,303,107
Nebraska........................................      22,246,365      20,192,820      18,987,285      18,272,739
Nevada..........................................      15,076,534      14,072,636      13,652,612      13,523,584
New Hampshire...................................       4,461,569       4,162,981       4,037,142       3,997,579
New Jersey......................................      18,241,502      17,107,548      16,681,949      16,599,745
New Mexico *....................................      14,789,981      13,514,670      12,805,266      12,412,602
New York........................................      35,493,488      32,932,763      31,741,940      31,257,429
North Carolina..................................      60,975,831      55,749,239      52,856,495      51,266,234
North Dakota....................................      25,453,173      23,095,610      21,708,108      20,883,232
Ohio............................................      88,512,313      80,704,944      76,280,168      73,769,806
Oklahoma........................................      47,577,611      43,665,021      41,577,379      40,488,199
Oregon..........................................       9,097,720       8,477,658       8,209,589       8,118,654
Pennsylvania....................................     106,082,757      97,204,723      92,392,088      89,822,308
Rhode Island....................................       3,811,632       3,592,937       3,522,686       3,522,225
South Carolina..................................      31,025,518      28,336,836      26,834,962      25,998,968
South Dakota....................................       4,231,184       3,862,401       3,655,422       3,539,481
Tennessee.......................................      34,118,301      31,079,178      29,343,221      28,348,396
Texas...........................................     221,613,296     203,728,060     194,351,330     189,588,842
Utah *..........................................      28,479,805      25,981,970      24,572,858      23,778,193
Virginia........................................      31,290,209      28,990,999      27,898,475      27,433,111
Washington......................................      12,395,697      11,441,137      10,963,576      10,739,172
West Virginia...................................      62,557,024      56,762,771      53,352,666      51,325,342
Wisconsin.......................................      33,505,657      30,571,326      28,917,949      27,986,988
Wyoming.........................................      38,528,498      34,967,826      32,875,725      31,634,412
----------------------------------------------------------------------------------------------------------------
* Excludes EGUs located in Indian country within the state.

C. Compliance Timing and Allowance Banking

    The EPA proposes to evaluate compliance (i.e., compare emissions
from affected EGUs to allowances held by facilities) in multi-year
periods. A multi-year compliance period provides greater flexibility to
affected EGUs and reduces administrative burden, compared to a single-
year compliance period. The EPA seeks to strike a reasonable balance
between providing flexibility and reducing burden while assuring that
any noncompliance can be addressed in a timely fashion.
    The compliance periods in the proposed mass-based trading program
would be the same as promulgated in the Clean Power Plan EGs, i.e., the
Interim Period would be divided into three compliance periods: A 3-year
compliance period (2022 through 2024), a second 3-year compliance
period (2025 through 2027), and then a 2-year compliance period (2028
and 2029), for the Interim Period. As in the EGs, the Final Period
would be divided into successive 2-year compliance periods commencing
in 2030. The EPA would evaluate compliance only after the end of a
compliance period in the mass-based trading federal plan, e.g., if a
compliance period is 3 years long, the agency would evaluate compliance
only after the end of the third year in the period. The EPA is not
reopening for comment the compliance periods promulgated in the Clean
Power Plan EGs.
    Some existing GHG mass-based trading programs (i.e., emissions
budget trading programs) use multi-year compliance periods. The RGGI
uses 3-year compliance periods, along with intervening compliance
requirements. The RGGI intervening compliance requirement is that
sources must hold allowances to cover 50 percent of emissions for the
first two calendar years of each 3-year compliance period; at the end
of each 3-year compliance period sources must hold allowances to cover
100 percent of emissions for the period and allowances already deducted
for the intervening requirement are

subtracted from the 3-year obligation.\90\ The California Air Resources
Board (CARB) Cap-and-Trade Program also uses 3-year compliance periods,
along with intervening compliance requirements. The CARB intervening
requirement is to evaluate compliance on 30 percent of each source's
previous year's emissions every year, and evaluate compliance for the
remainder of emissions every 3 years.\91\ The EPA proposes to evaluate
compliance after each multi-year compliance period and is not proposing
to implement intervening compliance requirements such as those in the
RGGI or CARB programs, however, the agency requests comment on the
inclusion of such requirements.
---------------------------------------------------------------------------

    \90\ RGGI, Summary of RGGI Model Rule changes: February 2013.
http://www.rggi.org/docs/ProgramReview/_FinalProgramReviewMaterials/Model_Rule_Summary.pdf Accessed June 9, 2015.
    \91\ Overview of ARB Emissions Trading Program. http://www.arb.ca.gov/cc/capandtrade/guidance/cap_trade_overview.pdf.
Accessed June 9, 2015.
---------------------------------------------------------------------------

    The EPA recognizes that the compliance periods provided for in this
rulemaking are longer than those historically and typically specified
in CAA rulemakings. As reflected in long-standing CAA precedent,
``[t]he time over which [the compliance standards] extend should be as
short term as possible and should generally not exceed one month.'' See
e.g., June 13, 1989 Guidance on Limiting Potential to Emit in New
Source Permitting and January 25, 1995 Guidance on Enforceability
Requirements for Limiting Potential to Emit through SIP and Sec.  112
Rules and General Permits. The EPA determined that the longer
compliance periods provided for in this rulemaking are acceptable in
the context of this specific rulemaking because of the unique
characteristics of this rulemaking, including that CO2 is
long-lived in the atmosphere, and this rulemaking is focused on
performance standards related to those long-term impacts.
    The EPA proposes that allowances may be banked for use in any
future compliance period, with no restriction on the use of banked
allowances, including from the Interim Period (2022 through 2029) into
the Final Period (2030 and thereafter). The agency requests comment on
the proposal to provide for unlimited allowance banking including the
banking of Interim-Period allowances for use during the Final Period.
    Allowance ``borrowing'' is a type of timing flexibility wherein
allowances from a future compliance period may be ``brought forward''
and used for compliance in an earlier compliance period (thus reducing
the amount of allowances available for the future period). The EPA
notes that the proposed multi-year compliance periods inherently
provide the flexibility to emit at relatively higher amounts in earlier
years of a given compliance period by using allowances from future
years within each compliance period (e.g., if the first compliance
period covers years 2022 through 2024, a vintage 2024 allowance could
be used to cover a ton emitted in 2022). The EPA is not proposing to
allow allowance borrowing across compliance periods in the mass-based
trading federal plans; however the agency requests comment on the use
of borrowing across compliance periods.
    Allowance borrowing across compliance periods would increase the
complexity of the proposed mass-based trading program and reduce the
flexibility for states to replace the federal plan with an approved
state plan. First, in order for borrowing to occur, the EPA would have
to make allowances from future compliance periods available early so
that sources could use these future allowances in earlier compliance
periods. The EPA proposes to record allowances in source accounts for
one compliance period at a time in order to maximize the opportunities
for a state to replace the federal plan (or replace the allowance-
distribution provisions of the federal plan) with an approved state
plan (or approved state allowance-distribution methodology). The EPA
proposes to allow a state to replace the mass-based trading federal
plan (or the federal plan allowance-distribution provisions) with a
state plan (or state allowance-distribution methodology) for a
compliance period for which the agency has not yet recorded allowances
in source accounts. Recording allowances for multiple compliance
periods at once--in order to make future-period allowances available
for borrowing--would therefore limit these opportunities for states to
take over implementation (or implementation of the allowance-
distribution).
    If allowance borrowing from a future compliance period were
allowed, and the EPA provided the opportunity for a state to replace
the federal plan for a year for which allowances had already been
borrowed and retired for compliance in an earlier period, those
borrowed allowances would constitute additional emissions beyond the
levels specified in the Clean Power Plan EGs. In that event, the EPA
would then need to address whether and how to remove allowances from
circulation to prevent inflation of the allowable emissions at affected
EGUs in the remaining states subject to the federal plans (to ``repay''
the borrowed allowances). To avoid disruption to sources already
subject to the mass-based trading federal plan, the EPA is not
proposing to allow allowance borrowing across compliance periods.
    Although not proposing to provide for allowance borrowing across
compliance periods, the agency requests comment on the potential
inclusion of allowance borrowing in the proposed mass-based trading
federal plans, including from how far into the future to allow
allowances to be borrowed, how inclusion of borrowing would affect
opportunities for states to take over implementation of the EGs (or
implementation of the allowance-distribution provisions in the mass-
based trading federal plan), how to address removing the extra
allowances from circulation that would result if borrowed allowances
originate in a state that subsequently withdraws from the mass-based
trading program, and on other complexities that borrowing across
compliance periods would introduce.
    The agency proposes to require sources to demonstrate compliance,
i.e., allowance true-up, on May 1 of the year after the last year in
the compliance period. For example, if the first compliance period
comprises the three years 2022, 2023, and 2024, then the allowance
transfer deadline \92\ for that first compliance period (after which
point the EPA would evaluate compliance) would be on May 1, 2025. The
agency also requests comment on an earlier or later allowance transfer
deadline.
---------------------------------------------------------------------------

    \92\ The ``allowance transfer deadline'' is the deadline for
transferring allowances that can be used for compliance in the
previous compliance period to a source's compliance account. For
further information see section V.G of this preamble.
---------------------------------------------------------------------------

    The EPA proposes to evaluate compliance (i.e., allowance true-up)
at the facility level, not at the individual affected-EGU level, in the
mass-based trading program. Facility-level compliance may ease
implementation compared to unit-level compliance; each facility has a
single compliance account in which to hold allowances to cover
emissions from all its affected EGUs rather than having individual
unit-level compliance accounts. Fewer accounts may make it easier for
the designated representatives to manage their allowances. The EPA has
adopted facility-level compliance in previous emissions budget-trading
programs including the ARP, see 70 FR 25162, at 25296-98 (May 12,
2005); the CAIR FIP, see 71 FR 25328, at 25365 (April 28, 2006); and
the CSAPR, see 75 FR 45210, at 45323 (August 2, 2010). The EPA

would continue to track unit-level emissions--while evaluating
compliance at the facility level--allowing us to track increases and
decreases of pollutants at individual EGUs.

D. Initial Distribution of Allowances

    Establishing a mass-based trading program requires that
policymakers establish an approach for the initial distribution of
allowances, historically referred to as ``allowance allocation.'' The
EPA believes that states may be well positioned to design their own
allowance distribution approach because they can take into account a
wide range of considerations and tailor decisions to the particular
characteristics and preferences of their state. The EPA proposes that
states have the flexibility to determine their own approach for
distributing allowances in the federal plan, through a process that is
detailed in section V.E of this preamble. The EPA believes that states
should have the opportunity to make decisions about allowance
distribution and that they may have additional flexibility on
approaches, including allowance auctions. The EPA is also proposing an
allocation approach that we intend to use in the event we implement the