domestic companies can remain competitive in the global market. One
commenter indicates U.S. companies could lose global market share if
production allowances were not decoupled. Four commenters point out
that allocating more production allowances than consumption allowances
could allow for the possibility of more export, but will not lead to
increased domestic consumption since consumption allowances limit the
amount of newly-produced HCFC-22 entering the U.S. market. Comments
also indicate allowing production in the U.S. could be environmentally
beneficial if it displaces production at facilities that do not control
byproduct emissions of hydrofluorocarbon (HFC)-23, which has a global
warming potential of 14,800.\10\ The comment cites the growth of HFC-23
emissions globally and indicates that facilities in Article 5 countries
do not control HFC-23 emissions to the same degree as companies
operating in the U.S. Since U.S. producers of HCFC-22 largely control
their HFC-23 byproduct emissions, the comment states that production in
the U.S., as opposed to other countries, could actually result in lower
greenhouse gas emissions.
---------------------------------------------------------------------------

    \10\ Source for the GWP of HFC-23: Intergovernmental Panel on
Climate Change (IPCC) Fourth Assessment Report: Climate Change 2007
(AR4)
---------------------------------------------------------------------------

    Comments opposing options 1 and 2 note that the Protocol and
domestic regulations already allow for additional production in order
to serve basic domestic needs of developing countries in the form of
Article 5 allowances. They argue that allowing more production than
consumption may increase the global surplus of HCFC-22 and decrease
price, thus discouraging appropriate handling of the gas. They argue
this could lead to an increase in global use and emissions of HCFC-22.
One commenter also states that if a reduction in consumption allowances
is justified, so is a decrease in production allowances for the same
reason.
    EPA does not agree that options 1 and 2 increase environmental harm
relative to the 2009 Final Rule. First, EPA would only be providing the
same number of overall production allowances or the same percentage of
baseline for production as in the 2009 Final Rule. In the proposal, EPA
also noted that production of one kilogram of an HCFC requires both a
production allowance and a consumption allowance (82.15(a)(1), (2)).
Thus, leaving production allowances at the same percentage or at the
same overall amount without a corresponding increase in consumption
allowances cannot result in greater U.S. consumption. Also, in order to
produce for export, a company must submit documentation to verify the
export of an HCFC for which consumption allowances were expended in
order to request a reimbursement of spent consumption allowances. The
agency reviews the documentation and issues a notice to either deny or
grant the request. Therefore, a company would not be able to produce
more HCFC-22 unless it had exported an equal amount of material and
been granted a refund of spent consumption allowances. Additionally,
since HCFC consumption is capped globally under the Montreal Protocol,
companies exporting HCFCs are constrained by the consumption caps
established in the country receiving the material.
    With regard to HFC-23, EPA has worked with industry through its
HFC-23 Emission Reduction Partnership to encourage companies to reduce
HFC-23 byproduct emissions from the manufacture of HCFC-22. In the 2010
U.S. Climate Action Report, the agency noted that ``despite a four
percent increase in the production of HCFC-22 compared to 1990, EPA
estimates that total HFC emissions in 2007 were significantly below
1990 levels. Compared to business as usual, EPA estimates the
partnership reduced emissions by 17.8 Tg CO2 Eq. in 2007,'' (see page
55 of the U.S. Climate Action Report 2010, available in the docket).
Currently, some HFC-23 emissions in Article 5 countries are mitigated
through Clean Development Mechanism (CDM) projects using destruction
technologies, namely thermal oxidation or plasma arc. However, not all
HCFC-22 facilities are eligible to earn credits under CDM; therefore, a
number of facilities may not have emission reduction technology
installed. There are about 26 plants producing HCFC-22 in Article 5
countries. Approximately 17 plants have CDM projects that control HFC-
23 byproduct emissions. The remaining nine plants may not have
emissions control technologies installed. HCFC-22 production in the
United States may provide environmental benefits in reduced HFC-23
emissions to the extent U.S. production supplants the Article 5
production in those specific plants that do not have HFC-23 byproduct
destruction technologies installed.
    Some commenters argue that EPA will increase the global supply of
HCFC-22 by allocating more production than consumption allowances. EPA
disagrees. First, by decreasing consumption allowances relative to the
2009 Final Rule, EPA is decreasing potential U.S. consumption of virgin
material by more than 31,100 MT over 2012-2014. Even if every single
additional production allowance was used for export, global consumption
would still be at least 9,800 MT less than the allocations provided in
the 2009 Final Rule if all other factors are constant. Because at least
one company holding production allowances does not produce HCFC-22 in
the United States, it is unlikely that every production allowance will
be used. As a result, the net reduction in global consumption of HCFC-
22 may be even greater. Finally, starting in 2013, Article 5 countries'
consumption of HCFCs is capped, which further limits global HCFC-22
demand (see Montreal Protocol Art. 5, para. 8 ter.). As noted below,
EPA is issuing production allowances using the same percentages as in
the 2009 Final Rule only for the 2013 and 2014 control periods.
    EPA is also concerned that decreasing production allowances for the

remainder of the current regulatory period could deprive certain U.S.
manufacturers of existing global business. Article 5 allowances already
allow the export of HCFC-22; but only to Article 5 countries. Providing
more production than consumption allowances could allow companies to
continue exporting to non-Article 5 countries, which have the same
overall Montreal Protocol phaseout schedule as the United States but
may use a basket approach rather than a chemical-by-chemical approach
to phasing out HCFCs. Also, using the same percentage of baseline as
the 2009 Final Rule should allow companies to continue their exports to
Article 5 countries, which are just beginning to phase out HCFCs. Since
consumption allowances already limit production for U.S. use, EPA is
providing the same percentage of baseline for HCFC-22 production as in
the 2009 Final Rule beginning in 2013 to avoid a scenario in which U.S.
manufacturers might have to decrease their production for global
markets relative to the amount allowed under the 2009 Final Rule. As
noted previously, U.S. production may provide environmental benefits
when compared to production in plants that lack HFC-23 byproduct
destruction technologies.
    Recognizing the timing of this rule's signature, and the fact that
Article 5 countries' HCFC consumption is not capped until 2013, the
agency is adopting a different approach for 2012 than for 2013 and
2014. The agency is issuing 2012 HCFC-22 production allowances at the
lowest proposed amount, because that amount is consistent with the
industry's actual operation in 2012. The appropriateness of this level
is supported by the fact that EPA has not received any reports of HCFC
shortages during the 2012 air-conditioning season. At the same time,
this level is commensurate with the amount of production authorized in
the January 20, 2012, No Action Assurance provided by Cynthia Giles,
Assistant Administrator for Enforcement and Compliance Assurance. EPA
selected this amount as reasonable for purposes of the No Action
Assurance, recognizing that it was within the proposed range. Issuing
allowances at the No Action Assurance level enables companies to
account for production that occurred in 2012 in accordance with the No
Action Assurance. As stated in the No Action Assurance, any HCFCs
produced in 2012 pursuant to the No Action Assurance count towards a
company's allocation and require the expenditure of 2012 allowances.
EPA is finalizing production option 2 for 2013 and 2014.
    In summary, EPA believes providing the same percentage of baseline
as used in the 2009 Final Rule for production allowances in 2013-2014
(1) cannot lead to an increase in U.S. consumption, (2) allows U.S.
producers to produce the same amount as under the 2009 Final Rule, with
potential environmental benefits to the extent that production might
otherwise occur in plants that lack HFC-23 byproduct destruction
technologies, and (3) would not result in a global increase in
production or consumption of HCFC-22 beyond the limits agreed to under
the Montreal Protocol. In addition, the environmental benefits achieved
by the reduction in consumption allowances outweigh any potential
increase in U.S. production. As such, EPA is allocating the following
amounts of HCFC-22 production allowances in 2012-2014:

--2012: 17.7% of baseline, resulting in approximately 22,800 MT of
HCFC-22 production
--2013: 30.1% of baseline, plus 2,306 MT of recoupment, resulting in
approximately 41,200 MT of HCFC-22 production
--2014: 26.1% of baseline, plus 2,306 MT of recoupment, resulting in
approximately 36,000 MT of HCFC-22 production

Combined with allowed production for other HCFCs, these finalized
amounts are at least 36 percent below the Montreal Protocol production
cap of 3,884.25 ODP-weighted MT.
3. How many HCFC-142b consumption and production allowances is EPA
allocating in 2012-2014?
    Establishing HCFC-142b baseline allowances that take into account
the 2008 inter-pollutant transfers results in 2,047 MT of aggregate
baseline consumption allowances and 9,444 MT of aggregate baseline
production allowances. Consistent with the 2009 Final Rule, EPA
proposed to allocate 100 MT of consumption allowances. To get to that
level, EPA would allocate 4.9 percent of the aggregate consumption
baseline, as reflected in the table at section 82.16.
    Using the same percentage (4.9 percent) of the aggregate production
baseline, EPA proposed to allocate 463 MT of HCFC-142b production
allowances for each control period between 2012 and 2014. The aggregate
allocation for production is higher than the amount allocated in the
2009 Final Rule (463 MT in this rule vs. 118 MT in the 2009 Final
Rule). This is because the 2008 transfers out of HCFC-142b involved
significantly more consumption allowances than production allowances.
Taking those transfers into account decreases the HCFC-142b consumption
baseline substantially but has a lesser impact on the HCFC-142b
production baseline.
    The agency received only four comments on HCFC-142b allocations.
Two comments strongly support reducing HCFC-142b consumption and
production allowances; one of these commenters states that HCFC-142b is
only used in blends to service old CFC equipment. Of the other two
comments, one supports the consumption allocation of 100 MT, noting
that HCFC-142b is a critical component of a refrigerant blend, but that
production allowances need not increase. The other commenter asks that
EPA not lower the HCFC-142b production allocation to compensate for any
increase in HCFC-22 production.
    EPA did not propose to decrease HCFC-142b allowances in the
proposed rule. The agency assessed the need for the chemical in the
2009 Final Rule and will revisit the need for HCFC-142b for servicing
during the rulemaking for the next regulatory period. For this reason,
the agency is finalizing its proposed consumption and production
allocations for HCFC-142b. There will be 100 MT of HCFC-142b
consumption allowances and 463 MT of production allowances issued in
the years 2012, 2013, and 2014. These allowance amounts are 4.9 percent
of the HCFC-142b baselines, and keep the HCFC-142b consumption
allocation approximately the same as in the 2009 Final Rule.
    To provide recoupment to companies for lost opportunities in 2010,
EPA is allocating a total of 61 MT of HCFC-142b consumption allowances
and 397 MT of HCFC-142b production allowances in addition to the
percentage of baseline issued. Since the agency is providing recoupment
over two years, there will be an additional 30 MT of consumption
allowances and 198 MT of production allowances in 2013 and 2014. See
section IV.B.6. of this preamble for more discussion on recoupment
allowances.
4. How does the aggregate allocation for HCFC-22 and HCFC-142b
translate entity-by-entity?
    For 2012-2014, EPA is setting production and consumption baselines
for HCFC-22 and HCFC-142b on the same basis as in the 2009 Final Rule,
except that EPA is making adjustments to reflect (1) the 2008 inter-
pollutant transfers of baseline allowances deemed permanent by the
Court, (2) inter-

company, single-pollutant transfers of baseline allowances that
occurred in 2010, and (3) changes in company names that occurred after
the 2009 Final Rule was signed. All of these changes were made in the
2011 Interim Final Rule (76 FR 47451), and EPA proposed to do the same
for 2012-2014. Applying the approach described above, EPA is
apportioning production and consumption baselines for HCFC-22 and HCFC-
142b to the following entities in the following amounts:

 Table 2--Baseline Production Allowances of HCFC-22 and HCFC-142b in 40
                                CFR 82.17
------------------------------------------------------------------------
                                                              Allowances
               Person                  Controlled substance      (kg)
------------------------------------------------------------------------
Arkema..............................  HCFC-22..............   46,692,336
                                      HCFC-142b............      484,369
DuPont..............................  HCFC-22..............   42,638,049
Honeywell...........................  HCFC-22..............   37,378,252
                                      HCFC-142b............    2,417,534
MDA Manufacturing...................  HCFC-22..............    2,383,835
Solvay Solexis......................  HCFC-142b............    6,541,764
------------------------------------------------------------------------

 Table 3--Baseline Consumption Allowances of HCFC-22 and HCFC-142b in 40
                                CFR 82.19
------------------------------------------------------------------------
                                                              Allowances
               Person                  Controlled substance      (kg)
------------------------------------------------------------------------
ABCO Refrigeration Supply...........  HCFC-22..............      279,366
Altair Partners.....................  HCFC-22..............      302,011
Arkema..............................  HCFC-22..............   48,637,642
                                      HCFC-142b............      483,827
Carrier Corporation.................  HCFC-22..............       54,088
Coolgas Investment Property.........  HCFC-22..............    1,040,458
DuPont..............................  HCFC-22..............   38,814,862
                                      HCFC-142b............       52,797
H.G. Refrigeration Supply...........  HCFC-22..............       40,068
Honeywell...........................  HCFC-22..............   35,392,492
                                      HCFC-142b............    1,315,819
Mexichem Fluor Inc..................  HCFC-22..............    2,546,305
Kivlan & Company....................  HCFC-22..............    2,081,018
MDA Manufacturing...................  HCFC-22..............    2,541,545
Mondy Global........................  HCFC-22..............      281,824
National Refrigerants...............  HCFC-22..............    5,528,316
Refricenter of Miami................  HCFC-22..............      381,293
Refricentro.........................  HCFC-22..............       45,979
R-Lines.............................  HCFC-22..............       63,172
Saez Distributors...................  HCFC-22..............       37,936
Solvay Fluorides....................  HCFC-22..............    3,781,691
Solvay Solexis......................  HCFC-142b............      194,536
USA Refrigerants....................  HCFC-22..............       14,865
------------------------------------------------------------------------

    The finalized baselines listed above are identical to the tables
presented in the 2011 Interim Final Rule (76 FR 47451).

V. How is EPA changing the regulations governing transfers of Class II
allowances?

    The agency is concerned about the possibility of companies
undermining the HCFC chemical-by-chemical phaseout by performing inter-
pollutant transfers in advance of future phaseout steps. EPA interprets
the 2003 Final Rule, which established the transfer provisions at 40
CFR 82.23, as allowing only single-pollutant, inter-company transfers
to be made on a permanent basis. Nevertheless, EPA recognizes that in
Arkema, the Court found that ``EPA's practice under the 2003 Rule was
to allow petitioners' baseline transfers of inter-pollutant
allowances'' (618 F.3d at 8). Therefore, EPA clarified its current
policy on inter-pollutant transfers in the 2011 Interim Final Rule (76
FR 47459). In January 2012, EPA proposed to modify the regulatory text
to dispel any possibility of confusion in the future.
    Through this final action, the agency is modifying 40 CFR 82.23 to
address the duration of inter-pollutant transfers, and to reflect prior
agency statements pertaining to inter-pollutant transfers of Article 5
allowances.

A. How is EPA changing the regulations governing permanent transfers of
Class II allowances?

    Sections 607(b) and (c) of the CAA address inter-pollutant and
inter-company transfers of allowances, respectively. Inter-pollutant
transfers are the transfer (or conversion) of an allowance of one
substance to an allowance of another substance on an ODP-weighted
basis. Inter-company transfers are transfers of allowances for the same
ODS from one company to another company. Section 607(c) also authorizes
inter-company transfers combined with inter-pollutant transfers, so
long as the requirements of both are met. The corresponding regulatory
provisions for HCFCs appear at 40 CFR 82.23.
    EPA proposed to modify section 82.23 to clarify that the agency
will not approve future inter-pollutant transfers of baseline
production allowances or baseline consumption allowances. EPA received
two comments directly referring to this proposal. One comment supports
EPA's proposed changes because it will prevent future manipulation of
the allowance program. The commenter also believes the CAA prohibits
permanent inter-pollutant transfers. Another commenter encourages EPA
to reconsider its proposed changes and to allow for inter-pollutant
baseline transfers if an allowance holder has historically made the
transfers. EPA also received two comments on the 2012-2014 baselines
that are relevant. Both commenters state that section 607 of the CAA
prohibits baseline inter-pollutant transfers.
    As discussed in the proposed rule, EPA remains concerned about the
potential for future manipulation of the allocation system if inter-
pollutant baseline transfers are allowed to affect a company's baseline
in future regulatory periods. For example, a HCFC-22 producer or
importer could dominate the HCFC-123 market in 2015 by converting its
HCFC-22 baseline to HCFC-123 baseline in 2014. Given the different ODPs
of HCFC-22 and HCFC-123 (0.055 and 0.02, respectively), converting one
baseline allowance of HCFC-22 would result in 2.75 baseline allowances
of HCFC-123. Also, since companies hold many more HCFC-22 baseline
allowances than HCFC-123 baseline allowances, converting those HCFC-22
baseline allowances would have an overwhelming effect on the current
HCFC-123 baseline allowance holders and on the overall market.
    As another example, in 2020 EPA will no longer be issuing HCFC-22
production or consumption allowances (see section 82.16(e)). EPA
expects that companies with only HCFC-22 or HCFC-142b allowances would
no longer be producing or importing HCFCs at that date. If EPA were to
allow inter-pollutant baseline transfers that carried forward into the
new regulatory period, companies with HCFC-22 baselines could convert
them all to baselines for HCFC-123 in 2019. Perpetuating the HCFC-22
baselines in a new form would be counter to the design of the chemical-
by-chemical phaseout, under which the baseline allowances for a
particular chemical are intended to drop out of the system upon the
phase-out of that chemical. Thus, there are important policy reasons
for not taking inter-pollutant transfers from prior regulatory periods
into account in

establishing baselines for new regulatory periods.
    EPA has been clear in its past statements about its policy on what
happens to allowances when a chemical is phased out. In the 1999
Advanced Notice of Proposed Rulemaking (``1999 ANPRM'', 64 FR 16373),
EPA discussed options for establishing the HCFC allocation system.
Referring to HCFC-141b, which was phased out in 2003. EPA stated at 64
FR 16378:

    It is important to note that, under any scenario, when the
phaseout date for HCFC-141b is reached in 2003, all HCFC-141b
consumption (production + imports-exports) will cease. Those who did
not participate in the HCFC-141b market will not be affected in
2003. However, those who did participate in the HCFC-141b market--
through, for example, producing or importing HCFC-141b--would no
longer receive any allowances associated with their historic HCFC-
141b activity, and thus any authorization to produce or import HCFC-
141b. Likewise, any company that, through a baseline trade, received
allowances associated with historic HCFC-141b would no longer
receive any allowances associated with the baseline trade in 2003
(emphasis added).

    In the 2001 Notice of Proposed Rulemaking for the HCFC allocation
system (``2001 NPRM,'' 66 FR 38064), EPA elaborated further on what
happens when a chemical is phased out under a chemical-by-chemical
phaseout at 66 FR 38068-69:

    On the first HCFC phaseout date of 2003, those companies that
received baseline consumption allocations (or received a permanent
baseline transfer) * * * of HCFC-141b would subtract that portion
from their total consumption allocation. If permanent inter-
pollutant trades had been made, an amount equal to the ODP-weighted
kilograms of baseline HCFC-141b allowances that had been received in
the transfer would be deducted from the baseline allocation * * *
The same would occur in [later years] for the relevant chemicals
being phased out (emphasis added).

    Finally, in the 2003 Final Rule establishing the HCFC phaseout, EPA
stated its position at 68 FR 2835: ``EPA will allow permanent transfers
of baseline allowances with those allowances disappearing at the
phaseout date for the specific HCFC, regardless of what inter-pollutant
transfers had taken place.'' Because EPA has been clear on this point
that baseline allowances associated with a specific HCFC--regardless of
their current owner or current status--disappear when that HCFC is
phased out, the agency continues to believe allowing inter-pollutant
baseline transfers only on an annual basis is appropriate.
    The commenter objecting to the proposed changes to the transfer
regulations cited several issues that EPA should consider. The
commenter cites its past practice of annually transferring its HCFC-
142b allowances to HCFC-22 and the need to consider the precedent this
proposed change might have. The agency notes that prohibiting inter-
pollutant baseline transfers in no way precludes the commenter, or any
allowance holder, from continuing to make annual inter-pollutant
transfers. However, when EPA established the ``worst-first'' HCFC
phaseout, the goal was to encourage companies to move out of HCFCs, not
to continually produce or import HCFCs by switching from one chemical
to another.
    Additionally, the commenter envisions a scenario where an allowance
holder could change the focus of its business to produce and sell a
substance that does less harm to the environment. While an allowance
holder could move to an HCFC that is less harmful to the ozone layer,
the switch results in no environmental benefit (excepting the 0.1
percent transfer offset) if all of the transferred allowances are used.
Since transfers are weighted based on their ODP, moving from a higher
ODP chemical to a lower ODP chemical would result in more allowances
for the lower ODP chemical and an equal environmental footprint.
    Further, if EPA were to allocate allowances for the next regulatory
period taking inter-pollutant transfers into account, those transfers
would only affect aggregate company baselines in specific chemicals,
not the total amount allocated. In the case of the 2011 Interim Final
Rule, when EPA updated baselines to include past inter-pollutant
transfers, there was no environmental benefit to doing so. The way EPA
allocates allowances relies on the estimate of market servicing need
for a chemical and then divides that amount up proportionally based on
a company's baseline allowances for that particular chemical (see
section IV of this preamble for the detailed description). While taking
baseline inter-pollutant transfers into account may have tremendous
benefits for the company making the transfers, it does nothing for the
environment. As described above, EPA sees this use of inter-pollutant
transfers as manipulating the system, and is clarifying that baseline
inter-pollutant transfers will not be allowed in the future.
    Two commenters state that modifying the baselines by taking into
account inter-pollutant transfers is contrary to the CAA. They argue
that section 607 of the CAA allows EPA to approve inter-pollutant
transfers of allowances only on a year-to-year basis, and point to
language in section 607(b) stating that EPA regulations are to permit
``a production allowance for a substance for any year to be transferred
for a production allowance for another substance for the same year on
an ozone depletion weighted basis.'' Similar arguments were made in
comments submitted on the 2008 Proposed Rule and on the 2011 Interim
Final Rule.
    EPA does not agree with the comment that the language of section
607(b) is clear on its face. The statutory language is ambiguous, and
EPA has discretion to choose a reasonable interpretation of that
language. EPA determined in the 2009 Final Rule that section 607(b) is
best read as permitting only year-by-year inter-pollutant transfers.
EPA continues to believe that this is the best interpretation of the
statutory language. Section 607(b) states that EPA's rules are to
permit ``a production allowance for a substance for any year to be
transferred for a production allowance for another substance for the
same year.'' This language emphasizes the year-by-year nature of such
transactions. No parallel language appears in section 607(c). That
section does, however, provide that any inter-pollutant transfers
between two or more persons must meet the requirements of section
607(b).
    As the Court noted, ``the agency is certainly entitled to * * *
institute a program that forbids baseline inter-pollutant transfers in
the future,'' (Arkema v. EPA, 618 F.3d at 9). Hence, EPA concludes that
requiring all inter-pollutant transfers to be conducted on a yearly--
and thus temporary--basis going forward is the approach most consistent
with the wording of section 607(b). Further discussion of the reasons
for limiting inter-pollutant transfers to those conducted on a
calendar-year basis is available in the Response to Comments for the
2009 Final Rule (included in the docket for this rulemaking).
    Consistent with the Court's decision regarding past inter-pollutant
transfers (those conducted during the prior regulatory period), the
baselines established in this action for 2012-2014 take into account
the 2008 inter-pollutant baseline transfers. EPA is clarifying,
however, that it has not approved any inter-pollutant transfers of
baseline allowances in the current regulatory period, and for the
reasons given in the 2009 Final Rule, the 2011 Interim Final Rule, and
in this action, in the future, EPA will approve inter-pollutant
transfers only on a year-by-year basis. Thus, in the context of the
allowance system for protection of stratospheric ozone, companies
should

not expect that any future inter-pollutant transfers they conduct will
affect their baselines either in the current regulatory period or any
future regulatory period.
    EPA is revising the regulations to avoid any further dispute about
the agency's position on this issue. The new language clarifies that
permanent inter-pollutant transfers of baseline allowances will not be
approved. In addition, EPA is clarifying that the procedures in section
82.23(a) apply to permanent, single-pollutant transfers.

B. How is EPA changing the regulations governing transfers of Article 5
Class II allowances?

    Article 5 allowances for Class II substances are the privileges
granted under 40 CFR 82.18(a) to produce the specified HCFC for export
only to countries listed in 40 CFR Subpart A, Appendix C, Annex 4. The
countries listed in that annex are developing countries whose control
obligations under the Montreal Protocol are addressed in Article 5 of
the treaty and hence are referred to as ``Article 5 Parties.'' EPA
proposed to revise the regulations at 40 CFR 82.23(b) to reflect its
previously stated intent to allow inter-pollutant transfers of Article
5 allowances.
    EPA promulgated section 82.23 as part of the 2003 Final Rule (68 FR
2820). EPA specifically discussed the inter-pollutant transfer of
Article 5 allowances at 68 FR 2834 stating, ``For example, after the
2003 phaseout of HCFC-141b and before 2010, a company receiving * * *
Article 5 allowances for HCFC-141b could engage in inter-company
transfers of those allowances, but not in inter-pollutant transfers
[because no other HCFC Article 5 allowances would be available during
that period]. In 2010, when * * * Article 5 allowances for HCFC-22 and
HCFC-142b become available, these allowances will be transferable with
the ones for HCFC-141b.'' These statements indicate that the agency
intended for companies to be able to perform inter-pollutant transfers
of Article 5 allowances. The omission of Article 5 allowances from
section 82.23(b) appears to have been an oversight. Therefore, EPA
proposed to revise the regulations to specifically provide for the
inter-pollutant transfers of Article 5 allowances through this
rulemaking. As with other types of inter-pollutant transfers, these
transfers would be limited in duration to a single year. The agency
received two comments on its proposal to revise the text at section
82.23(b), which EPA responds to in the Response to Comments.
    EPA also proposed to change the text at 82.23(a)(ii) for
consistency with its previously stated policy on offsets for transfers
of Article 5 allowances. Section 607(a) requires that transfers of
production allowances ``will result in greater total reductions in the
production in each year of * * * class II substances than would occur
in that year in the absence of such transactions.'' In a November 10,
1994, Federal Register notice, EPA stated its interpretation that the
section 607 offset requirement applies to Article 5 allowance transfers
(59 FR 56287): ``Inter-pollutant transfers of Article 5 allowances will
continue to require a one percent offset, as required by section 607 of
the CAA * * * '' In the May 10, 1995, final rule at 60 FR 24980, EPA
stated that ``[w]ith today's action, EPA permits inter-pollutant and
inter-company transfers of Article 5 allowances as proposed* * * ''
meaning, EPA intended to require an offset for transfers of Article 5
allowances in the class I allowance system.
    This intent to require an offset is also reflected in certain
provisions of the class II allowance system in 40 CFR part 82. Section
82.23(a)(i)(G) specifically requires an offset for Article 5 allowance
inter-company transfers, stating that the transfer claim must set
forth: ``For trades of consumption allowances, production allowances,
export production allowances, or Article 5 allowances, the quantity of
the 0.1 percent offset applied to the unweighted quantity traded that
will be deducted from the transferor's allowance balance.'' The offset
is also mentioned at section 82.23(a)(iii): ``In the case of transfers
of * * * Article 5 allowances, EPA will reduce the transferor's balance
of unexpended allowances by the quantity (in kilograms) to be converted
plus 0.1 percent of that quantity.'' This contrasts with section
82.23(a)(ii)(A), which states that in the case of Article 5 allowances,
``EPA will reduce the transferor's balance of unexpended allowances * *
* by the quantity to be transferred,'' with no mention of an offset. In
addition, in the introductory text for 82.23(a)(ii), Article 5
allowances are not mentioned: ``The transfer claim is the quantity (in
kilograms) to be transferred plus, in the case of transfers of
production or consumption allowances, 0.1 percent of that quantity;''
EPA proposed to amend 82.23(a)(ii) and 82.23(a)(ii)(A) to require an
offset for transfers of Article 5 allowances. EPA did not receive
comments on this proposed clarification to the regulatory text, and is
finalizing the clarification as proposed. Section 82.23(a) is now
consistent throughout. Section 82.23(b) requires an offset of 0.1
percent for all inter-pollutant transfers and since EPA is adding
Article 5 allowances to section 82.23(b), an offset will automatically
apply.
    To reflect EPA's intent to allow inter-pollutant transfers of
Article 5 allowances, and the requirement that an offset be deducted
when an entity is transferring Article 5 allowances, the agency is
finalizing the proposed modifications to the regulatory text at 40 CFR
82.23(a)(ii), 82.23(a)(ii)(A), and 82.23(b).

VI. Statutory and Executive Order Reviews

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

    Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993),
this action is a ``significant regulatory action'' since it raises
``novel legal or policy issues.'' Accordingly, EPA submitted this
action to the Office of Management and Budget (OMB) for review under
Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011) and any
changes made in response to OMB recommendations have been documented in
the docket for this action.
    EPA did not conduct a specific analysis of the benefits and costs
associated with this action. Many previous analyses provide a wealth of
information on the costs and benefits of the U.S. HCFC phaseout
including:
     The 1993 Addendum to the 1992 Phaseout Regulatory Impact
Analysis: Accelerating the Phaseout of CFCs, Halons, Methyl Chloroform,
Carbon Tetrachloride, and HCFCs.
     The 1999 Report Costs and Benefits of the HCFC Allowance
Allocation System.
     The 2000 Memorandum Cost/Benefit Comparison of the HCFC
Allowance Allocation System.
     The 2005 Memorandum Recommended Scenarios for HCFC
Phaseout Costs Estimation.
     The 2006 ICR Reporting and Recordkeeping Requirements of
the HCFC Allowance System.
     The 2007 Memorandum Preliminary Estimates of the
Incremental Cost of the HCFC Phaseout in Article 5 Countries.
     The 2007 Memorandum Revised Ozone and Climate Benefits
Associated with the 2010 HCFC Production and Consumption Stepwise
Reductions and a Ban on HCFC Pre-charged Imports.

     The 2009 ICR Reporting and Recordkeeping Requirements of
the HCFC Allowance System.
    A memorandum summarizing these analyses is available in the docket.

B. Paperwork Reduction Act

    This action does not impose any new information collection burden.
EPA already requires recordkeeping and reporting for HCFCs, and this
action does not amend those provisions. The Office of Management and
Budget (OMB) has previously approved the information collection
requirements contained in the existing regulations at 40 CFR part 82,
subpart A under the provisions of the Paperwork Reduction Act, 44
U.S.C. 3501 et seq. and has assigned OMB control number 2060-0498. The
OMB control numbers for EPA's regulations in 40 CFR are listed in 40
CFR part 9.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice-and-comment rulemaking requirements under the Administrative
Procedure Act or any other statute, unless the agency certifies that
the rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions. We have
considered the economic impacts of this final rule on small entities.
For purposes of assessing the impacts of this rule on small entities, a
small entity is defined as: (1) A small business as defined by the
Small Business Administration's (SBA) regulations at 13 CFR 121.201;
(2) a small governmental jurisdiction that is a government of a city,
county, town, school district or special district with a population of
less than 50,000; and (3) a small organization that is any not-for-
profit enterprise which is independently owned and operated and is not
dominant in its field.
    This action may affect the following categories:

--Industrial Gas Manufacturing entities (NAICS code 325120), including
fluorinated hydrocarbon gases manufacturers and reclaimers;
--Other Chemical and Allied Products Merchant Wholesalers (NAICS code
422690), including chemical gases and compressed gases merchant
wholesalers;
--Air-Conditioning and Warm Air Heating Equipment and Commercial and
Industrial Refrigeration Equipment Manufacturing entities (NAICS code
333415), including air-conditioning equipment and commercial and
industrial refrigeration equipment manufacturers;
--Air-Conditioning Equipment and Supplies Merchant Wholesalers (NAICS
code 423730), including air-conditioning (condensing unit, compressors)
merchant wholesalers;
--Electrical and Electronic Appliance, Television, and Radio Set
Merchant Wholesalers (NAICS code 423620), including air-conditioning
(room units) merchant wholesalers; and
--Plumbing, Heating, and Air-Conditioning Contractors (NAICS code
238220), including central air-conditioning system and commercial
refrigeration installation; HVAC contractors.

    After considering the economic impacts of this final rule on small
entities, I certify that this action will not have a significant
economic impact on a substantial number of small entities. In
determining whether a rule has a significant economic impact on a
substantial number of small entities, the impact of concern is any
significant adverse economic impact on small entities, since the
primary purpose of the regulatory flexibility analyses is to identify
and address regulatory alternatives ``which minimize any significant
economic impact of the rule on small entities.'' 5 U.S.C. 603 and 604.
Thus, an agency may certify that a rule will not have a significant
economic impact on a substantial number of small entities if the rule
relieves regulatory burden, or otherwise has a positive economic effect
on all of the small entities subject to the rule.
    This rule relieves a regulatory ban on production and consumption
that would otherwise apply in the wake of the Court's vacatur.
Additionally, EPA is continuing to allocate production and consumption
allowances using the same approach described in the 2009 Final Rule
with adjustments to reflect (1) 2008 inter-pollutant transfers of
baseline allowances deemed permanent by the Court, (2) inter-company,
single-pollutant transfers of baseline allowances that occurred in
2010, (3) changes in company names that occurred after the 2009 Final
Rule was signed and (4) an updated picture on the need for virgin HCFC-
22 as assessed in the Adjustment Memo and sections IV.B.1-3 of this
preamble. EPA is not modifying the recordkeeping or reporting
provisions and thus is not increasing the burden to small businesses.
EPA's HCFC Phaseout Benefits and Costs Memo, included in this docket,
provides a summary of previous small business analyses, as well as the
cost and benefit data used for the 2009 Final Rule.
    We have therefore concluded that today's final rule will relieve
regulatory burden for all affected small entities.

D. Unfunded Mandates Reform Act

    This action contains no Federal mandates under the provisions of
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C.
1531-1538 for State, local, or tribal governments or the private
sector. UMRA does not apply to rules that are necessary for the
ratification or implementation of international treaty obligations.
This rule implements the 2010 milestone for the phase-out of HCFCs
under the Montreal Protocol. Therefore, this action is not subject to
the requirements of sections 202 or 205 of UMRA.
    This action is also not subject to the requirements of section 203
of UMRA because it contains no regulatory requirements that might
significantly or uniquely affect small governments. This action
apportions production and consumption allowances and establishes
baselines for private entities, not small governments.

E. Executive Order 13132: Federalism

    This action does not have federalism implications. It will not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. This action is expected to
primarily affect producers, importers, and exporters of HCFCs. Thus,
Executive Order 13132 does not apply to this action.

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

    This action does not have tribal implications, as specified in
Executive Order 13175 (65 FR 67249, November 9, 2000). This action does
not significantly or uniquely affect the communities of Indian tribal
governments. It does not impose any enforceable duties on communities
of Indian tribal governments. Thus, Executive Order 13175 does not
apply to this action.

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

    This action is not subject to EO 13045 (62 F.R. 19885, April 23,
1997) because it is not economically significant as defined in EO
12866. The agency

nonetheless has reason to believe that the environmental health or
safety risk addressed by this action may have a disproportionate effect
on children. Depletion of stratospheric ozone results in greater
transmission of the sun's ultraviolet (UV) radiation to the earth's
surface. The following studies describe the effects of excessive
exposure to UV radiation on children: (1) Westerdahl J, Olsson H,
Ingvar C. ``At what age do sunburn episodes play a crucial role for the
development of malignant melanoma,'' Eur J Cancer 1994: 30A: 1647-54;
(2) Elwood JM Japson J. ``Melanoma and sun exposure: an overview of
published studies,'' Int J Cancer 1997; 73:198-203; (3) Armstrong BK,
``Melanoma: childhood or lifelong sun exposure,'' In: Grobb JJ, Stern
RS Mackie RM, Weinstock WA, eds. ``Epidemiology, causes and prevention
of skin diseases,'' 1st ed. London, England: Blackwell Science, 1997:
63-6; (4) Whiteman D., Green A. ``Melanoma and Sunburn,'' Cancer Causes
Control, 1994: 5:564-72; (5) Heenan, PJ. ``Does intermittent sun
exposure cause basal cell carcinoma? A case control study in Western
Australia,'' Int J Cancer 1995; 60: 489-94; (6) Gallagher, RP, Hill,
GB, Bajdik, CD, et al. ``Sunlight exposure, pigmentary factors, and
risk of nonmelanocytic skin cancer I, Basal cell carcinoma,'' Arch
Dermatol 1995; 131: 157-63; (7) Armstrong, DK. ``How sun exposure
causes skin cancer: an epidemiological perspective,'' Prevention of
Skin Cancer. 2004. 89-116.
    This action implements the U.S. commitment to reduce the total
basket of HCFCs produced and imported to 25 percent of the respective
baselines. While on an ODP-weighted basis, this is not as large a step
as previous actions, such as the 1996 Class I phaseout, it is one of
the most significant remaining actions the U.S. can take to complete
the overall phaseout of ODS and further decrease impacts on children's
health from stratospheric ozone depletion.

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

    This action is not a ``significant energy action'' as defined in
Executive Order 13211 (66 FR 28355 (May 22, 2001)), because it is not
likely to have a significant adverse effect on the supply,
distribution, or use of energy. The rule issues allowances for the
production and consumption of HCFCs.

I. National Technology Transfer and Advancement Act

    Section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (``NTTAA''), Public Law 104-113, 12(d) (15 U.S.C. 272 note)
directs EPA to use voluntary consensus standards in its regulatory
activities unless to do so would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., materials specifications, test methods, sampling
procedures, and business practices) that are developed or adopted by
voluntary consensus standards bodies. NTTAA directs EPA to provide
Congress, through OMB, explanations when the agency decides not to use
available and applicable voluntary consensus standards. This action
does not involve technical standards. Therefore, EPA did not consider
the use of any voluntary consensus standards.

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

    Executive Order (EO) 12898 (59 FR 7629 (Feb. 16, 1994)) establishes
federal executive policy on environmental justice. Its main provision
directs federal agencies, to the greatest extent practicable and
permitted by law, to make environmental justice part of their mission
by identifying and addressing, as appropriate, disproportionately high
and adverse human health or environmental effects of their programs,
policies, and activities on minority populations and low-income
populations in the United States.
    EPA has determined that this action will not have
disproportionately high and adverse human health or environmental
effects on minority or low-income populations because it increases the
level of environmental protection for all affected populations without
having any disproportionately high and adverse human health or
environmental effects on any population, including any minority or low-
income population. This action continues the implementation of the U.S.
commitment to reduce the total basket of HCFCs produced and imported to
a level that is more than 75 percent below the respective baselines.
While on an ODP-weighted basis, this is not as large a step as previous
actions, such as the 1996 Class I phaseout, it is one of the most
significant remaining actions the U.S. can take to complete the overall
phaseout of ODS and further lessen the adverse human health effects for
the entire population.

K. The Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
U.S. EPA will submit a report containing this rule and other required
information to the U.S. Senate, the U.S. House of Representatives, and
the Comptroller General of the U.S. prior to publication of the rule in
the Federal Register. A major rule cannot take effect until 60 days
after it is published in the Federal Register. This action is not a
``major rule'' as defined by 5 U.S.C. 804(2). This rule will be
effective April 3, 2013.

List of Subjects in 40 CFR Part 82

    Environmental protection, Administrative practice and procedure,
Air pollution control, Chemicals, Exports, Hydrochlorofluorocarbons,
Imports.

    Dated: March 27, 2013.
Bob Perciasepe,
Acting Administrator.

    40 CFR part 82 is amended as follows:

PART 82--PROTECTION OF STRATOSPHERIC OZONE

0
1. The authority citation for part 82 continues to read as follows:

    Authority: 42 U.S.C. 7414, 7601, 7671- 7671q.

0
2. Amend Sec.  82.16 by revising paragraph (a) to read as follows:

Sec.  82.16  Phaseout schedule of class II controlled substances.

    (a) Calendar-year allowances. (1) In each control period as
indicated in the following tables, each person is granted the specified
percentage of baseline production allowances and baseline consumption
allowances for the specified class II controlled substances apportioned
under Sec. Sec.  82.17 and 82.19:

                                                        Calendar-Year HCFC Production Allowances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Percent of   Percent of   Percent of   Percent of   Percent of   Percent of   Percent of
                        Control period                          HCFC-141b     HCFC-22     HCFC-142b     HCFC-123     HCFC-124    HCFC-225ca   HCFC-225cb
--------------------------------------------------------------------------------------------------------------------------------------------------------
2003.........................................................            0          100          100  ...........  ...........  ...........  ...........
2004.........................................................            0          100          100  ...........  ...........  ...........  ...........
2005.........................................................            0          100          100  ...........  ...........  ...........  ...........
2006.........................................................            0          100          100  ...........  ...........  ...........  ...........
2007.........................................................            0          100          100  ...........  ...........  ...........  ...........
2008.........................................................            0          100          100  ...........  ...........  ...........  ...........
2009.........................................................            0          100          100  ...........  ...........  ...........  ...........
2010.........................................................            0         41.9         0.47          125          125          125          125
2011.........................................................            0         32.0          4.9          125          125          125          125
2012.........................................................            0         17.7          4.9          125          125          125          125
2013.........................................................            0         30.1          4.9          125          125          125          125
2014.........................................................            0         26.1          4.9          125          125          125          125
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                        Calendar-Year HCFC Consumption Allowances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Percent of   Percent of   Percent of   Percent of   Percent of   Percent of   Percent of
                        Control period                          HCFC-141b     HCFC-22     HCFC-142b     HCFC-123     HCFC-124    HCFC-225ca   HCFC-225cb
--------------------------------------------------------------------------------------------------------------------------------------------------------
2003.........................................................            0          100          100  ...........  ...........  ...........  ...........
2004.........................................................            0          100          100  ...........  ...........  ...........  ...........
2005.........................................................            0          100          100  ...........  ...........  ...........  ...........
2006.........................................................            0          100          100  ...........  ...........  ...........  ...........
2007.........................................................            0          100          100  ...........  ...........  ...........  ...........
2008.........................................................            0          100          100  ...........  ...........  ...........  ...........
2009.........................................................            0          100          100  ...........  ...........  ...........  ...........
2010.........................................................            0         41.9         0.47          125          125          125          125
2011.........................................................            0         32.0          4.9          125          125          125          125
2012.........................................................            0         17.7          4.9          125          125          125          125
2013.........................................................            0         18.0          4.9          125          125          125          125
2014.........................................................            0         14.2          4.9          125          125          125          125
--------------------------------------------------------------------------------------------------------------------------------------------------------

     (2) Recoupment allowances. In the control period beginning January
1, 2013 and ending December 31, 2013, and again in the control period
beginning January 1, 2014 and ending December 31, 2014, certain
companies are granted HCFC consumption and production allowances in
addition to the percentage of baseline listed in the table at paragraph
(a)(1) of this section. The following companies will receive the
amounts listed below in both 2013 and 2014: 2,374,846 kg of HCFC-22
consumption allowances and 2,305,924 kg of HCFC-22 production
allowances to Arkema; 1,170 kg of HCFC-142b consumption allowances to
DuPont; 29,146 kg of HCFC-142b consumption allowances and 53,549 kg of
HCFC-142b production allowances to Honeywell; 578,948 kg of HCFC-22
consumption allowances to Solvay Fluorides; and 144,900 kg of HCFC-142b
production allowances to Solvay Solexis.
* * * * *

0
3. Amend Sec.  82.23 by revising paragraphs (a)(ii) introductory text,
(a)(ii)(A), (b)(1), and (d) to read as follows:

Sec.  82.23  Transfers of allowances of class II controlled substances.

    (a) * * * (ii) The Administrator will determine whether the records
maintained by EPA indicate that the transferor possesses unexpended
allowances sufficient to cover the transfer claim on the date the
transfer claim is processed. The transfer claim is the quantity (in
kilograms) to be transferred plus 0.1 percent of that quantity. The
Administrator will take into account any previous transfers, any
production, and allowable imports and exports of class II controlled
substances reported by the transferor. Within three working days of
receiving a complete transfer claim, the Administrator will take action
to notify the transferor and transferee as follows: (A) The
Administrator will issue a notice indicating that EPA does not object
to the transfer if EPA's records show that the transferor has
sufficient unexpended allowances to cover the transfer claim. In the
case of transfers of production or consumption allowances, EPA will
reduce the transferor's balance of unexpended allowances by the
quantity to be transferred plus 0.1 percent of that quantity. In the
case of transfers of export production or Article 5 allowances, EPA
will reduce the transferor's balance of unexpended allowances,
respectively, by the quantity to be transferred plus 0.1 percent of
that quantity. The transferor and the transferee may proceed with the
transfer when EPA issues a no objection notice. However, if EPA
ultimately finds that the transferor did not have sufficient unexpended
allowances to cover the claim, the transferor and transferee, where
applicable, will be held liable for any knowing violations of the
regulations of this subpart that occur as a result of, or in
conjunction with, the improper transfer.
* * * * *
    (b) * * * (1) Effective January 1, 2003, a person (transferor) may
convert consumption allowances, production allowances or Article 5
allowances for one class II controlled substance to the same type of
allowance for another class II controlled substance listed in Appendix
B of this subpart, following the procedures described in paragraph
(b)(3) of this section.
* * * * *
    (d) Permanent transfers. The procedures in paragraph (a) of this
section apply to permanent inter-company transfers of baseline

production allowances or baseline consumption allowances. A person
receiving a permanent transfer of baseline production allowances or
baseline consumption allowances (the transferee) for a specific class
II controlled substance will be the person who has their baseline
allowances adjusted in accordance with phaseout schedules in this
subpart. No person may conduct permanent inter-pollutant transfers of
baseline production allowances or baseline consumption allowances.

[FR Doc. 2013-07758 Filed 4-2-13; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 78, Number 73 (Tuesday, April 16, 2013)]
[Notices]
[Page 22595]
[FR Doc No: 2013-08828]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Public Notice for Waiver of Aeronautical Land-Use Assurance

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of intent of waiver with respect to land; Oceana County
Airport; Shelby, Michigan.

-----------------------------------------------------------------------

SUMMARY: The Federal Aviation Administration (FAA) is considering a
proposal to change a portion of airport land from aeronautical use to
non-aeronautical use and to authorize the sale of airport property
located at Oceana County Airport, Shelby, Michigan. The proposal
consists of 1.82 acres of airport property for which the current use
and present condition is the Oceana County Animal Shelter.

DATES: Comments must be received on or before May 16, 2013.

ADDRESSES: Documents are available for review by appointment at the FAA
Detroit Airports District Office, 11677 South Wayne Road, Suite 107,
Romulus, Michigan 48174 or at Oceana County Airport, Shelby, Michigan.
Written comments on the Sponsor's request must be delivered or mailed
to: Diane Morse, Program Manager, Detroit Airports District Office,
Federal Aviation Administration, 11677 South Wayne Road, Suite 107,
Romulus, Michigan 48174. Telephone Number:<PHONE_NUMBER>/FAX Number:
(734) 229-2950.

FOR FURTHER INFORMATION CONTACT: Diane Morse, Program Manager, Detroit
Airports District Office, Federal Aviation Administration, 11677 South
Wayne Road, Suite 107, Romulus, Michigan 48174. Telephone Number: (734)
229-2929/FAX Number:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: In accordance with section 47107(h) of title
49, United States Code, this notice is required to be published in the
Federal Register 30 days before modifying the land-use assurance that
requires the property to be used for an aeronautical purpose.
    The subject land was acquired by Oceana County through the Federal
Aid to Airport Program dated July 11, 1946. The Oceana County Board of
Commissioners intends to purchase the property, at fair market value,
for continued use by the animal shelter. The aforementioned land is not
needed for aeronautical use, as shown on the Airport Layout Plan. There
are no impacts to the airport by allowing the airport to dispose of the
property. This notice announces that the FAA is considering the release
of the subject airport property at Oceana County Airport, from all
federal land covenants. Approval does not constitute a commitment by
the FAA to financially assist in the disposal of the subject airport
property nor a determination that all measures covered by the program
are eligible for grant-in-aid funding from the FAA. The disposition of
proceeds from the sale of the airport property will be in accordance
with FAA's Policy and Procedures Concerning the Use of Airport Revenue,
published in the Federal Register on February 16, 1999 (64 FR 7696).
    Following is a legal description of the property situated in the
State of Michigan, County of Oceana, The North 297' of West 267' of
Northeast quarter of Northwest quarter Section 3, Township 14 North,
Range 17 West, Shelby Township, Oceana County, Michigan.

Legal Description of Property

    Parcel is more particularly described as follows:
    Part of the Northeast quarter of Northwest quarter of Section 3,
Township 14 North, Range 17 West, Shelby Township, Oceana County,
Michigan, described as: Commencing at the North quarter corner of
Section 3; thence North 87[deg]17'00'' West along the north section
line 1051.69 feet to the point of beginning; thence South
01[deg]59'25'' West parallel with and 267.00 feet easterly of the west
1/16 line for a distance of 297.02 feet; thence North 01[deg]59'25''
East along the west 1/16 line 297.02 feet; thence South 87[deg]17'00''
East along the north section line 267.02 feet to the point of
beginning. Contains 1.82 acres more or less. Together with and subject
to covenants, easements, and restrictions of record.

    Issued in Detroit, Michigan, on March 7, 2013.
John L. Mayfield, Jr.,
Manager, Detroit Airports District Office, FAA, Great Lakes Region.
[FR Doc. 2013-08828 Filed 4-15-13; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register Volume 85, Number 204 (Wednesday, October 21, 2020)]
[Notices]
[Pages 66965-66969]
[FR Doc No: 2020-23296]

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD20-14-000]

Carbon Pricing in Organized Wholesale Electricity Markets

AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of proposed policy statement.

-----------------------------------------------------------------------

SUMMARY: The Commission is proposing to issue a policy statement to
encourage efforts to incorporate a state-determined carbon price in
organized wholesale electricity markets.

DATES: Comments are due on or before November 16, 2020; reply comments
are due on or before December 1, 2020.

ADDRESSES: Comments, identified by docket number, may be filed
electronically at http://www.ferc.gov in acceptable native applications
and print-to-PDF, but not in scanned or picture format. For those
unable to file electronically, comments may be filed by mail or hand-
delivery to: Federal Energy Regulatory Commission, Secretary of the
Commission, 888 First Street NE, Washington, DC 20426. The Comment
Procedures Section of this document contains more detailed filing
procedures.

FOR FURTHER INFORMATION CONTACT:
John Miller (Technical Information), Office of Energy Market
Regulation,<PHONE_NUMBER><EMAIL_ADDRESS>Anne Marie Hirschberger (Legal Information), Office of the General
Counsel,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: On September 30, 2020, the Commission
convened a technical conference on

state-determined carbon pricing in organized wholesale electricity
markets operated by regional transmission organizations (RTOs) and
independent system operators (ISOs). As discussed further below, the
record of that conference identified numerous potential benefits from
incorporating a carbon price set by one or more states into RTO/ISO
markets. We issue this proposed policy statement to clarify the
Commission's jurisdiction over RTO/ISO market rules that incorporate a
state-determined carbon price and to encourage RTO/ISO efforts to
explore and consider the benefits of potential Federal Power Act (FPA)
section 205 \1\ filings to establish such rules.\2\
---------------------------------------------------------------------------

    \1\ 16 U.S.C. 824d.
    \2\ This proposed policy statement addresses only filings
pursuant to FPA section 205 and not proceedings initiated pursuant
to FPA section 206. 16 U.S.C. 824e.
---------------------------------------------------------------------------

I. Background on State Emissions-Reduction Policies and Commission-
Jurisdictional RTO/ISO Markets

    1. States are currently taking a leading role in efforts to address
climate change by adopting policies to reduce their greenhouse gas
(GHG) emissions. The electricity sector is a frequent focus of those
policies. Several states have adopted laws or regulations that require
the substantial or complete decarbonization of the electricity sector
in the coming decades.\3\ Many others have adopted goals or targets to
the same effect.\4\
---------------------------------------------------------------------------

    \3\ E.g., Thirteen states--California, Hawaii, Maine, Maryland,
Massachusetts, Nevada, New Jersey, New Mexico, New York, Oregon,
Vermont, and Washington--and the District of Columbia have adopted
clean energy or renewable portfolio standards of 50% or greater. See
C2ES, U.S. State Electricity Portfolio Standards, https://www.c2es.org/document/renewable-and-alternate-energy-portfolio-standards/.
    \4\ E.g., Nineteen states--California, Colorado, Connecticut,
Hawaii, Louisiana, Maine, Massachusetts, Michigan, Minnesota,
Montana, Nevada, New Hampshire, New Jersey, New York, Oregon,
Pennsylvania, Rhode Island, Vermont, and Washington--and the
District of Columbia have adopted economy-wide decarbonization goals
or targets of 50% or greater. See C2ES, U.S. State Greenhouse Gas
Emissions Targets, https://www.c2es.org/document/greenhouse-gas-emissions-targets/.
---------------------------------------------------------------------------

    2. Carbon pricing has emerged as an important, market-based tool in
state efforts to reduce GHG emissions, including efforts to reduce GHG
emissions from the electricity sector. In this proposed policy
statement, we use the term ``carbon pricing'' to include both ``price-
based'' methods adopted by states that directly establish a price on
GHG emissions as well as ``quantity-based'' approaches adopted by
states that do so indirectly through, for example, a cap-and-trade
system.\5\ Currently, 11 states impose some version of carbon
pricing,\6\ with multiple other states considering adopting a carbon
pricing regime.\7\ Those programs include the ten-state Regional
Greenhouse Gas Initiative (RGGI) \8\ in the Northeast and the cap-and-
trade program administered by the California Air Resources Board.\9\ In
addition, numerous entities, including RTOs and ISOs, have begun
examining approaches to incorporating a state-determined carbon price
in wholesale electricity markets.\10\
---------------------------------------------------------------------------

    \5\ ``Price-based'' methods, such as a carbon fee, use an
explicit charge on each ton of GHG emitted. ``Quantity-based''
methods, such as a cap-and-trade system, limit the amount of
permissible GHG emissions. Cap-and-trade systems establish a total
quantity of GHGs that can be emitted collectively by all entities
covered by the policy within a fixed period (a cap). ``Allowances''
are created for each ton of GHG emissions that can be emitted.
Covered entities must obtain one allowance for each ton of GHG
emitted. Covered entities obtain allowances from either: (1) initial
allocation or auctioning of allowances; or (2) trading of
allowances. Carbon prices thus emerge from the initial allocation of
allowances and the trading of allowances on the secondary market.
The term ``state-determined carbon price'' can refer to a carbon
price set through either a single state or multi-state initiative
(e.g., RGGI).
    \6\ State carbon pricing programs that are currently implemented
include: (1) California's cap-and-trade program (see California Air
Resources Board, Cap-and-Trade Program, https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program/about); (2) Massachusetts' cap-
and-trade program (see Mass. Dept. of Env. Protection, Reducing GHG
Emissions under Section 3(d) of the Global Warming Solutions Act,
https://www.mass.gov/guides/reducing-ghg-emissions-under-section-3d-of-the-global-warming-solutions-act); and (3) the ten-state Regional
Greenhouse Gas Initiative (RGGI), infra n. (see RGGI, Inc., Elements
of RGGI, https://www.rggi.org/program-overview-and-design/elements).
See C2ES, U.S. State Carbon Pricing Policies, https://www.c2es.org/document/us-state-carbon-pricing-policies/.
    \7\ Two states have pursued carbon pricing through rulemakings:
Pennsylvania intends to join RGGI (see Penn. Dept. of Env.
Protection, RGGI, https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx), while Washington adopted a statewide cap-and-trade
program, although implementation is delayed due to litigation (see
State of Washington, Dept. of Ecology, Clean Air Rule, https://ecology.wa.gov/Air-Climate/Climate-change/Greenhouse-gases/Reducing-greenhouse-gases/Clean-Air-Rule). In 2019, 16 other states
considered carbon pricing legislation: Connecticut, Hawaii, Maine,
Maryland, Massachusetts, Minnesota, Montana, New Hampshire, New
Mexico, New York, Oregon, Rhode Island, Texas, Utah, Vermont, and
Washington (see National Conference of Energy Legislators, Carbon
Pricing, State Information, https://www.ncel.net/carbon-pricing/#stateinfo).
    \8\ Those states are: Connecticut; Delaware; Maine; Maryland;
Massachusetts; New Hampshire; New Jersey; New York; Rhode Island;
and Vermont. RGGI, Inc., https://www.rggi.org. Pursuant to state
legislation enacted in April 2020 and a subsequent state rule,
Virginia will join RGGI in 2021. See RGGI, Inc., RGGI States Welcome
Virginia as its CO2 Regulation is Finalized, https://www.rggi.org/sites/default/files/Uploads/Press-Releases/2020_07_08_VA_Announcement_Release.pdf.
    \9\ See California Air Resources Board, Cap-and-Trade Program,
https://ww2.arb.ca.gov/our-work/programs/cap-and-trade-program.
    \10\ For example, ISO-NE's stakeholder discussions regarding
carbon pricing (see van Welie Opening Comments at 2-3, Tr. 100:1-6
(van Welie); ISO-NE Pre-Technical Conference Statement at 6-7);
NYISO's carbon pricing draft proposal (see Dewey Opening Remarks at
3-5; Tr. 89:20-90:3 (Dewey); NYISO, Carbon Pricing, https://www.nyiso.com/carbonpricing); and PJM's Carbon Pricing Senior Task
Force (see Giacomoni Comments at 2-3; Tr. 146:13-147:3 (Giacomoni);
PJM, Carbon Pricing Senior Task Force, https://www.pjm.com/committees-and-groups/task-forces/cpstf.aspx).
---------------------------------------------------------------------------

    3. As with any state regulation of electricity generation
facilities, state efforts to reduce GHG emissions in the electricity
sector may indirectly affect matters subject to Commission
jurisdiction.\11\ And while the Commission is not an environmental
regulator, under FPA section 205 \12\ the Commission may be called upon
to review proposals that address the rules that incorporate a state-
determined carbon price into RTO/ISO markets.
---------------------------------------------------------------------------

    \11\ See, e.g., Coal. for Competitive Elec., Dynegy Inc. v.
Zibelman, 906 F.3d 41, 57 (2d Cir. 2018), cert. denied sub nom.
Elec. Power Supply Ass'n v. Rhodes, 139 S. Ct. 1547 (2019)
(explaining that the state payments to address environmental
externalities at issue in that case had ``(at best) an incidental
effect'' on RTO/ISO markets); see also FERC v. Elec. Power Supply
Ass'n, 136 S. Ct. 760, 776 (2016), as revised (Jan. 28, 2016) (EPSA)
(noting that the federal and state spheres of jurisdiction under the
FPA ``are not hermetically sealed from each other'').
    \12\ 16 U.S.C. 824d(a) (``All rates and charges made, demanded,
or received by any public utility for or in connection with the
transmission or sale of electric energy subject to the jurisdiction
of the Commission, and all rules and regulations affecting or
pertaining to such rates or charges shall be just and reasonable.'')
(emphasis added).
---------------------------------------------------------------------------

    4. RTO/ISO markets already address various matters related to
federal and state environmental regulations. For example, the
Commission has long permitted generating resources to recover through
wholesale rates the costs of complying with environmental regulations,
including the costs of emissions pricing regimes.\13\ Permitting
generating resources to recover through wholesale rates the costs
associated with a state-determined carbon price in RTO/ISO markets is
consistent with that precedent.\14\
---------------------------------------------------------------------------

    \13\ See Policy Statement and Interim Rule Regarding Ratemaking
Treatment of the Cost of Emissions Allowances in Coordination Rates,
59 FR 65,930, at 65,935 (1994) (Policy Statement on Costs of
Emissions Allowances) (``We will allow the recovery of incremental
costs of emission allowances in coordination rates whenever the
coordination rate also provides for recovery of other variable costs
on an incremental basis.''); see also Grand Council of Crees v.
FERC, 198 F.3d 950, 957 (D.C. Cir. 2000) (holding that just and
reasonable rates may account for a seller's ``need to meet
environmental requirements,'' which ``may affect the firm's
costs''); see generally Peskoe Pre-Conference Filing at 1-2
(discussing these orders in greater detail); Konschnik Opening
Statement at 1, Tr. 25:5-18 (Konschnik) (similar).
    \14\ See Peskoe Pre-Conference Filing at 1 (``The Commission has
recognized that environmental compliance costs are appropriately
included in wholesale rates, and there is no basis for the
Commission to treat carbon price costs any differently.'') (citing
Policy Statement on Costs of Emissions Allowances, 59 FR 65,930 at
65,935).

---------------------------------------------------------------------------

    5. The Commission has also accepted filings to establish wholesale
market rules that address how a state-determined carbon price operates
within markets that encompass more than one state. As one example, the
California Air Resources Board (CARB) administers a multi-sector cap-
and-trade program that includes the electricity sector.\15\ As part of
its Energy Imbalance Market (EIM), the California Independent System
Operator (CAISO) has proposed, and the Commission has accepted, tariff
provisions to address how resources located outside California offer
into the EIM in light of California's carbon pricing regime.\16\ Those
rules permit a resource to fashion its offers into the EIM such that
they include a carbon price if they are dispatched to serve load in
California and not include a carbon price if they are dispatched to
serve load in the rest of the EIM.\17\ Similarly, CAISO has also
proposed, and the Commission has accepted, measures for addressing
resource shuffling in the EIM \18\ by more accurately assessing which
resources are dispatched to serve load in California.\19\
---------------------------------------------------------------------------

    \15\ See supra n.6.
    \16\ Cal. Indep. Sys. Operator Corp., 153 FERC ] 61,087, at PP
9-11, 57 (2015).
    \17\ Id.
    \18\ In this context, CARB determined that CAISO's initial
method for accounting for emissions from EIM resources that serve
California load incorrectly assumed that the least-emitting
resources served California load, when instead some of those
resources would have already been dispatched to serve load outside
of California. Therefore, there was a ``backfill'' of higher-
emitting resources to serve non-California load, or a ``shuffling''
of resources. CARB concluded that, but for California's demand in
the EIM, those higher-emitting resources would not have been
dispatched at all and therefore those emissions should be attributed
to serving California load. See, e.g., Wolak Comments at 2-3, Hogan
Comments at 4-5, Tr. 101:16-24 (Wolak).
    \19\ Cal. Indep. Sys. Operator Corp., 165 FERC ] 61,050, at PP
7, 17 (2018).
---------------------------------------------------------------------------

II. Discussion

A. Incorporating a State-Determined Carbon Price in RTO/ISO Markets

    6. In this section, we clarify that the Commission has the
jurisdiction over RTO/ISO market rules that incorporate a state-
determined carbon price in those markets. We also explain that it is
the policy of this Commission to encourage efforts to incorporate a
state-determined carbon price in RTO/ISO markets.
1. Commission Jurisdiction Regarding Rules That Incorporate a State-
Determined Carbon Price Into RTO/ISO Markets
    7. We clarify that wholesale market rules that incorporate a state-
determined carbon price in RTO/ISO markets can fall within the
Commission's jurisdiction as a practice affecting wholesale rates.\20\
Whether the rules proposed in any particular FPA section 205 filing do,
in fact, fall under Commission jurisdiction is a determination we will
make based on the facts and circumstances in any such proceeding.
Accordingly, contrary to the suggestion in the Dissent, we are
proposing a framework for applying our jurisdiction, not ``pre-
judging'' particular matters or preemptively ``dismiss[ing] . . .
potential jurisdictional concerns.'' \21\
---------------------------------------------------------------------------

    \20\ 16 U.S.C. 824d(a) (``All rates and charges made, demanded,
or received by any public utility for or in connection with the
transmission or sale of electric energy subject to the jurisdiction
of the Commission, and all rules and regulations affecting or
pertaining to such rates or charges shall be just and reasonable.'')
(emphasis added).
    \21\ Dissent at P 5.
---------------------------------------------------------------------------

    8. In EPSA, the Supreme Court articulated a two-part test for
evaluating whether a Commission action is within its jurisdiction to
regulate practices affecting wholesale rates. First, the activity being
regulated must ``directly affect'' wholesale rates.\22\ Although the
Court did not exhaustively define what it means to ``directly affect''
wholesale rates, it noted that the wholesale market rules established
in Order No. 745 \23\ ``meet that standard with room to spare.'' \24\
As the Court explained, those rules address how demand response
resources participate in the RTO/ISO markets, including the levels at
which they bid and are compensated.\25\
---------------------------------------------------------------------------

    \22\ EPSA, 136 S. Ct. at 774 (citing Cal. Indep. Sys. Operator
Corp. v. FERC, 372 F.3d 395, 403 (2004)).
    \23\ Demand Response Compensation in Organized Wholesale Energy
Markets, Order No. 745, 134 FERC ] 61,187, order on reh'g &
clarification, Order No. 745-A, 137 FERC ] 61,215 (2011), reh'g
denied, Order No. 745-B, 138 FERC ] 61,148 (2012).
    \24\ EPSA, 136 S. Ct. at 774.
    \25\ Id. at 774-75.
---------------------------------------------------------------------------

    9. The wholesale market rules that incorporate a state-determined
carbon price into RTO/ISO markets can satisfy that ``directly affect''
standard. Like the rules at issue in Order No. 745, the wholesale
market rules that incorporate a state-determined carbon price could,
depending on the particular circumstances, govern how resources
participate in the RTO/ISO market, how market operators dispatch those
resources, and how those resources are ultimately compensated.\26\ As
such, those wholesale market rules can affect wholesale rates in
essentially the same way described in EPSA.
---------------------------------------------------------------------------

    \26\ See, e.g., Tr. 23:3-22 (D. Hill); 28:24-29:8, 52:24-53:13
(Peskoe); D. Hill Comments at 5-7; Peskoe Pre-Conference Filing at
2-3; Price Comments at 8-9; Rossi Pre-Conference Filing at 3. See
generally Transmission Planning and Cost Allocation by Transmission
Owning and Operating Public Utilities, Order No. 1000, 136 FERC ]
61,051, at PP 203-224 (2011), order on reh'g, Order No. 1000-A, 139
FERC ] 61,132, order on reh'g and clarification, Order No. 1000-B,
141 FERC ] 61,044 (2012), aff'd sub nom. S.C. Pub. Serv. Auth. v.
FERC, 762 F.3d 41 (D.C. Cir. 2014) (requiring that regional
transmission planning processes consider transmission needs driven
by public policy requirements (which can include state public
policies)).
---------------------------------------------------------------------------

    10. Second, EPSA explained that the Commission cannot regulate a
matter that FPA section 201(b) reserves for exclusive state
jurisdiction, ``no matter how direct, or dramatic, its impact on
wholesale rates.'' \27\ The Court explained, however, that the effects
that wholesale market rules have on retail rates or other matters
subject to exclusive state jurisdiction do not, in and of themselves,
cause the Commission to exceed its jurisdiction.\28\ Instead, those
effects are the inevitable result of the fact that the FPA divides
jurisdiction over the electricity sector between the Commission and the
states.\29\ In turning to the specifics of Order No. 745, the Court
concluded that the rule did not regulate retail rates because ``every
aspect of [the rule] happens exclusively on the wholesale market and
governs exclusively that market's rules'' and ``the Commission's
justifications for regulating demand response are all about, and only
about, improving the wholesale market.'' \30\ Under those
circumstances, the Court explained, ``section 201(b) imposes no bar''
on Commission authority.\31\
---------------------------------------------------------------------------

    \27\ EPSA, 136 S. Ct. at 775.
    \28\ Id. at 776 (``[A] FERC regulation does not run afoul of
Sec.  824(b)'s proscription just because it affects--even
substantially--the quantity or terms of retail sales.'').
    \29\ Id. (``It is a fact of economic life that the wholesale and
retail markets in electricity, as in every other known product, are
not hermetically sealed from each other. To the contrary,
transactions that occur on the wholesale market have natural
consequences at the retail level. And so too, of necessity, will
FERC's regulation of those wholesale matters.'').
    \30\ Id.
    \31\ Id.
---------------------------------------------------------------------------

    11. The wholesale market rules that incorporate a state-determined
carbon price in RTO/ISO markets can satisfy this standard as well.
Wholesale market rules that incorporate a state-determined carbon price
into RTO/ISO markets would not regulate a matter reserved exclusively
to the states under the FPA, or otherwise displace state authority,
including state authority over

generation facilities.\32\ Instead, wholesale market rules that
incorporate a state-determined carbon price in RTO/ISO markets can
``govern exclusively'' the wholesale market and do so for the purpose
of improving that market.\33\ If so, the wholesale market rules that
incorporate a state-determined carbon price could affect matters within
state jurisdiction, including a state's regulation of generation
facilities, without running afoul of section 201(b)'s limitation on
Commission jurisdiction.\34\ Under that arrangement, and as in the
CAISO EIM example discussed above,\35\ the state would retain authority
over that carbon price as well as other measures for regulating
generation facilities. For these reasons, incorporating a state-
determined carbon price into RTO/ISO markets would not in any way
diminish state authority.
---------------------------------------------------------------------------

    \32\ See 16 U.S.C. 824(b).
    \33\ EPSA, 136 S. Ct. at 776.
    \34\ Id.
    \35\ See supra P 6.
---------------------------------------------------------------------------

    12. Finally, we note that incorporating a state-determined carbon
price into RTO/ISO markets could represent another example of the type
of ``program of cooperative federalism'' that the Court noted with
approval in EPSA.\36\ RTO/ISO market rules that incorporate a state-
determined carbon price could, as discussed above, improve the
efficiency and transparency of the organized wholesale markets by
providing a market-based method to incorporate state efforts to reduce
GHG emissions. Because the decision about the carbon price would be
determined by the state--which could select a price of zero, should it
choose--state authority would be unaffected, further removing any doubt
that rules that incorporate such a state-determined carbon price would
comply FPA section 201(b).\37\
---------------------------------------------------------------------------

    \36\ EPSA, 136 S. Ct. at 779-80.
    \37\ Id. at 780.
---------------------------------------------------------------------------

2. Commission Encouragement of Efforts To Incorporate a State-
Determined Carbon Price Into RTO/ISO Markets

    13. As noted, on September 30, 2020, the Commission held a
technical conference on the integration of state-determined carbon
pricing in RTO/ISO markets. Participants at the conference identified a
diverse range of potential benefits that could arise from such a
proposal. Those benefits include the development of technology-neutral,
transparent price signals within RTO/ISO markets and providing market
certainty to support investment.\38\ In addition, participants
explained that carbon pricing is an example of an efficient market-
based tool that incorporates state public policies into RTO/ISO
markets, without in any way diminishing state authority.\39\
---------------------------------------------------------------------------

    \38\ See Tr. 24:1-3 (D. Hill), 85:17-21 (Bowring), 95:14-16
(Olson), 171:1-10 (White), 177:1-3 (Mukerji), 219:6-25 (Wadsworth),
261:24-262:5 (``From a pure business perspective, clarity and
certainty are so important. And for those of us that are involved in
making these long-term capital-intensive investments in energy
infrastructure, having this mechanism that can provide long-term
price signals for investment would be hugely valuable.'') (Beane),
264:17-19 (Crane), 278:8-10, 279:10-15 (Segal), 283:17-19 (Wiggins),
300:20-301:12 (Beane), 312:22-313:15 (Beane), 314:14-22 (Crane),
317:11-20 (Segal), 326:17-327:7 (Wiggins).
    \39\ See, e.g., Tr. 27:7-11, 29:9-24 (Peskoe), 31:15-32:12
(Price), 85:9-21 (Bowring), 200:11-23 (Breidenich).
---------------------------------------------------------------------------

    14. We agree that proposals to incorporate a state-determined
carbon price in RTO/ISO markets could, if properly designed and
implemented, significantly improve the efficiency of those markets.\40\
Accordingly, we propose to make it the policy of this Commission to
encourage efforts by RTOs/ISOs and their stakeholders--including
States, market participants, and consumers--to explore establishing
wholesale market rules that incorporate state-determined carbon prices
in RTO/ISO markets. Although we will review any specific FPA section
205 filing based on the facts and circumstances presented in each
proceeding, we encourage interested parties to explore approaches to
propose wholesale market rules to incorporate a state-determined carbon
price in RTO/ISO markets.
---------------------------------------------------------------------------

    \40\ See, e.g., Tr. 31:15-25 (Price), 99:16-22 (van Welie),
150:6-23 (Mukerji), 169:5-12. (Hogan), 170:1-15 (Mukerji), 170:20-
171:10 (White), 175:5-20 (Rothleder), 219:1-221:4 (Wadsworth),
265:4-21 (Crane), 271:1-5 (T. Hill), 282:15-22 (Tierney).
---------------------------------------------------------------------------

B. Considerations for Evaluating an FPA Section 205 Proposal To
Incorporate a State-Determined Carbon Price in RTO/ISO Markets

    15. The Commission will review any FPA section 205 filing that
proposes to establish wholesale market rules that incorporate a state-
determined carbon price in RTO/ISO markets based on the particular
facts and circumstances presented in that proceeding. Nevertheless,
certain questions and issues are likely to arise in any such filing.
Below, we identify certain information and considerations that, based
on the record at the Carbon Pricing Technical Conference, we believe
may be germane to the Commission's evaluation of a section 205 filing
to determine whether an RTO/ISO's market rules that incorporate a
state-determined carbon price in RTO/ISO markets are just, reasonable
and not unduly discriminatory or preferential. The Commission seeks
comment on whether these are the appropriate information and
considerations the Commission should take into account or whether
different or additional considerations may be or must be taken into
account.

    a. How, if at all, do the relevant market design considerations
change depending on the manner in which the state or states
determine the carbon price (e.g., price-based or quantity-based
methods)? How will that price be updated?
    b. How does the FPA section 205 proposal ensure price
transparency and enhance price formation?
    c. How will the carbon price or prices be reflected in LMP?
    d. How will the incorporation of the state-determined carbon
price into the RTO/ISO market affect dispatch? Will the state-
determined carbon price affect how the RTO/ISO co-optimizes energy
and ancillary services? Are any reforms to the co-optimization rules
necessary in light of the state-determined carbon price?
    e. Does the proposal result in economic or environmental
leakage? \41\ How does the proposal address any such leakage?
---------------------------------------------------------------------------

    \41\ See Hogan Comments at 4, Wolak Comments at 2, Singh
Comments at 2-3. See also Tr. 56:12-57:10 (Price) (generally
discussing economic and environmental leakage), Tr. 46:2-18 (Peskoe)
(discussing the Commission's jurisdiction over proposals from public
utilities to address leakage).
---------------------------------------------------------------------------

III. Comment Procedures

    16. The Commission invites comments on this Proposed Policy
Statement by November 16, 2020 and reply comments by December 1, 2020.
Comments must refer to Docket No. AD20-14-000, and must include the
commenter's name, the organization they represent, if applicable, and
their address in their comments.
    17. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at http://www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
    18. Commenters that are not able to file comments electronically
must send an original of their comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE,
Washington, DC 20426.
    19. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

IV. Document Availability

    20. User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's Online
Support at<PHONE_NUMBER> (toll free at 1-866-208-3676) or email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. Email the Public Reference Room at
<EMAIL_ADDRESS>    21. The Commission provides all interested persons an opportunity
to view and/or print the contents of this document via the internet
through the Commission's Home Page (http://www.ferc.gov). At this time,
the Commission has suspended access to the Commission's Public
Reference Room, due to the proclamation declaring a National Emergency
concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020.
    22. From the Commission's Home Page on the internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
    23. User assistance is available for eLibrary and the Commission's
website during normal business hours from the Commission's Online
Support at<PHONE_NUMBER> (toll free at 1-866-208-3676) or email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. Email the Public Reference Room at
<EMAIL_ADDRESS>    By direction of the Commission. Commissioner Danly is concurring in
part and dissenting in part with a separate statement attached.

    Issued: October 15, 2020.
Kimberly D. Bose,
Secretary.

United States of America

Federal Energy Regulatory Commission

Carbon Pricing in Organized Wholesale Electricity Markets

Docket No. AD20-14-000

    DANLY, Commissioner, concurring in part and dissenting in part:
    1. The Commission issues a proposed policy statement today in this
docket to ``encourage'' Regional Transmission Organizations (RTOs) and
Independent System Operators (ISOs) to develop potential Federal Power
Act section 205 \1\ filings proposing market rules to accommodate
state-determined carbon pricing programs.\2\ I dissent in part because
I believe that the issuance of a policy statement on this subject--a
wholly discretionary act--is unnecessary and unwise. I concur with that
part of the policy statement noting that we have jurisdiction to
entertain section 205 filings that seek to accommodate state carbon-
pricing policies, which is a fundamental principle that cannot be
doubted.
---------------------------------------------------------------------------

    \1\ 16 U.S.C. 824d (2018).
    \2\ Carbon Pricing in Organized Wholesale Elec. Mkts., 172 FERC
] 61,062 (2020).
---------------------------------------------------------------------------

    2. As to my concern that the Commission should not exercise its
discretion to issue a policy statement, I expressed similar concerns in
my recent dissent to Order No. 2222 requiring RTOs/ISOs to promulgate
rules to accommodate distributed energy resource aggregators.\3\ There
I questioned the Commission's seizure of authority at the expense of
the States and advocated that ``[w]e should allow the RTOs and ISOs . .
. to develop their own DER programs in the first instance.'' \4\
``[T]hen the question of the Commission's jurisdiction will be ripe.''
\5\
---------------------------------------------------------------------------

    \3\ See Participation of Distributed Energy Res. Aggregations in
Mkts. Operated by Reg'l Transmission Orgs. & Indep. Sys. Operators,
172 FERC ] 61,247 (2020) (Danly, Comm'r, dissenting).
    \4\ Id. (Danly, Comm'r, dissenting at P 4).
    \5\ Id.
---------------------------------------------------------------------------

    3. This policy statement does not mandate that RTOs/ISOs adopt
carbon-pricing accommodation regimes. I agree that the Commission
should not issue such a mandate.
    4. Instead, the policy statement ``encourages'' RTO/ISO rule
changes. Without seeing a proposal, the Commission predetermines that
any such proposal will be within the Commission's jurisdiction and
``would not in any way diminish state authority.'' \6\ That may well
turn out to be true, but I would have waited until we had an actual 205
filing before us rather than pre-judging the issue based on unstated
assumptions about how such programs might work. It is easy to imagine
any number of RTO/ISO carbon-pricing proposals that would violate the
Federal Power Act by impermissibly invading the authorities reserved to
the States. This policy statement is not, as the majority's order
characterizes it ``another example of the type of `program of
cooperative federalism' that the Court noted with approval in EPSA.''
\7\ There is no program. This is instead a non-binding, blanket
dismissal of potential jurisdictional concerns.
---------------------------------------------------------------------------

    \6\ Carbon Pricing in Organized Wholesale Elec. Mkts., 172 FERC
] 61,062 at P 12.
    \7\ Id. P 13 (quoting FERC v. Elec. Power Supply Ass'n, 136 S.
Ct. 760, 779-80 (2016)).
---------------------------------------------------------------------------

    5. As to the substance of the policy statement, I concur. I cannot
do otherwise. The policy statement amounts to little more than a
statement of fact: Section 205 of the Federal Power Act has not been
repealed and the Commission therefore has jurisdiction to entertain
section 205 filings that seek to accommodate state carbon-pricing
policies. Surely, that need not be stated. And to the extent the
Commission feels the need to ``clarify'' the fact that we have the
power to accept just and reasonable tariff revisions that are designed
to include mandatory state charges in energy and capacity market
offers, I am hard-pressed to identify a more settled area of Commission
law.
    For these reasons, I respectfully concur in part and dissent in
part.

James P. Danly,

Commissioner.

[FR Doc. 2020-23296 Filed 10-20-20; 8:45 am]
BILLING CODE 6717-01-P