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Subpart 238-5: SO2 Allowance Allocations

(Statutory authority: Environmental Conservation Law, §§ 1-0101, 3-0301, 19-0103, 19-0105, 19-0107, 19-0301, 19-0302, 19-0303, 19-0305, 19-0311, 19-0319, 70-0109; Energy Law, §§ 3-101, 3-103)

[Filed 4/6/10. Effective 30 days after filing.]

[This is page 1 of 1 of this Subpart. A complete list of Subparts in this regulation appears in the Chapter 3 contents page. A list of sections in this Subpart appears below.]

For administrative information about this posting, contact: Division of Air Resources. The Bureau of Air Quality Planning at (518) 402-8396 is the contact for technical questions pertaining to this rule.

Contents:

Sec.

§238-5.1 ADR SO2 Trading Program Budgets

(a) Phase 1 ADR SO2 Trading Program Budget for the 2005, 2006, and 2007 control periods is 197,046 tons for each control period.

(b) Phase 2 ADR SO2 Trading Program Budget for the control periods of 2008 and beyond is 131,364 tons for each control period.

§238-5.2 Timing requirements for SO2 allowance allocations

(a) By October 1, 2004, the department will determine the SO2 allowance allocations, in accordance with section 238-5.3 of this Subpart, for the 2005, 2006 and 2007 control periods.

(b) By January 1, 2005 and January 1st of each year thereafter until January 1, 2010, the department will allocate SO2 allowances, in accordance with section 238-5.3 of this Subpart, for the control period in the year that is three years after the year of the applicable deadline for allocation under this subdivision. If the department fails to allocate SO2 allowances in accordance with this subdivision, the department will, for the applicable control period, repeat the SO2 allowance allocations that were performed for the preceding control period. The department will not allocate SO2 allowances after January 1, 2010.

§238-5.3 SO2 allowance allocations

(a) For each instance that the department allocates SO2 allowances for the 2005, 2006 and 2007 control periods, the department will determine the number of SO2 allowances to be allocated to each SO2 budget unit under section 238-1.4 of this Part in accordance with the following procedures:

(1) First round calculation.

(i) Units which have not previously received SO2 allowances from the department general account established for the distribution of SO2 allowances allocated to the new SO2 budget unit set-aside allocation under subdivision (c) of this section. Multiply the greatest heat input experienced by the unit for any single control period among the three control periods preceding the date by which the department must make the SO2 allocations pursuant to section 238-5.2 of this Subpart by:

(a) for units whose primary fuel is coal, the lesser of:

(1) 0.9 lb/mmBtu; or

(2) the highest actual average annual emission rate experienced by the unit during the 1998 through 2001 time frame;

(b) for units whose primary fuel is other than coal, the lesser of:

(1) 0.45 lb/mmBtu; or

(2) the highest actual average annual emission rate experienced by the unit during the 1998 through 2001 time frame.

(ii) Units which have previously received SO2 allowances from the department general account established for the distribution of SO2 allowances allocated to the new SO2 budget unit set-aside allocation under subdivision (c) of this section. Multiply the greatest heat input experienced by the unit for any single control period among the three control periods preceding the date by which the department must make the SO2 allocations pursuant to section 238-5.2 of this Subpart by:

(a) for units whose primary fuel is coal, 0.9 lb/mmBtu;

(b) for units whose primary fuel is oil, 0.45 lb/mmBtu;

(c) for units whose primary fuel is other than coal or oil, 0.001 lb/mmBtu;

(2) Second round calculation. Determine the allocation factor by dividing the number representing 94 percent of the Phase 1 ADR SO2 Trading Program Budget by the sum of the first round calculation results for all the units.

(3) Third round calculation. Multiply the allocation factor by each unit's first round calculation result.

(4) Fourth round calculation. The number of SO2 allowances to be allocated to each unit will be the lesser of:

(i) the number representing the unit's CPPTE; or

(ii) the third round calculation result for the unit plus the number representing the unit's proportional share of any unassigned SO2 allowances remaining in the 94 percent portion of the Phase 1 ADR SO2 Trading Program Budget as determined by dividing the unit's first round calculation result by the sum of the first round calculation results for all units.

Note: In this fourth round calculation SO2 allowances may initially remain unassigned because the CPPTE limitation of subparagraph (i) of this paragraph may affect some units sooner than others leaving some SO2 allowances unallocated after the calculation is first performed. Thus, this fourth round calculation may be performed more than once in order to allocate all remaining unassigned SO2 allowances.

(b) For each instance that the department allocates SO2 allowances for each control period commencing on or after January 1, 2008, the department will determine the number of SO2 allowances to be allocated to each SO2 budget unit under section 238-1.4 of this Part in accordance with the following procedures:

(1) First round calculation.

(i) Units which have not previously received SO2 allowances from the department general account established for the distribution of SO2 allowances allocated to the new SO2 budget unit set-aside allocation under subdivision (c) of this section. Multiply the greatest heat input experienced by the unit for any single control period among the three control periods preceding the date by which the department must make the SO2 allocations pursuant to section 238-5.2 of this Subpart by:

(a) for units whose primary fuel is coal, the lesser of:

(1) 0.6 lb/mmBtu; or

(2) the highest actual average annual emission rate experienced by the unit during the 1998 through 2001 time frame;

(b) for units whose primary fuel is other than coal, the lesser of:

(1) 0.3 lb/mmBtu; or

(2) the highest actual average annual emission rate experienced by the unit during the 1998 through 2001 time frame.

(ii) Units which have previously received SO2 allowances from the department general account established for the distribution of SO2 allowances allocated to the new SO2 budget unit set-aside allocation under subdivision (c) of this section. Multiply the greatest heat input experienced by the unit for any single control period among the three control periods preceding the date by which the department must make the SO2 allocations pursuant to section 238-5.2 of this Subpart by:

(a) for units whose primary fuel is coal, 0.6 lb/mmBtu;

(b) for units whose primary fuel is oil, 0.3 lb/mmBtu;

(c) for units whose primary fuel is other than coal or oil, 0.001 lb/mmBtu;

(2) Second round calculation. Determine the allocation factor by dividing the total of the 94 percent portion of the Phase 2 ADR SO2 Trading Program Budget by the sum of the first round calculation results for all the units.

(3) Third round calculation. Multiply the allocation factor by each unit's first round calculation result.

(4) Fourth round calculation. The number of SO2 allowances to be allocated to each unit will be the lesser of:

(i) the number representing the unit's CPPTE; or

(ii) the third round calculation result for the unit plus the number representing the unit's proportional share of any unassigned SO2 allowances remaining in the 94 percent portion of the Phase 2 ADR SO2 Trading Program Budget as determined by dividing the unit's first round calculation result by the sum of the first round calculation results for all units.

Note: In this fourth round calculation SO2 allowances may initially remain unassigned because the CPPTE limitation of subparagraph (i) of this paragraph may affect some units sooner than others leaving some SO2 allowances unallocated after the calculation is first performed. Thus, this fourth round calculation may be performed more than once in order to allocate all remaining unassigned SO2 allowances.

(c) New SO2 budget unit sector set-aside allocations. The new SO2 budget unit set-aside allocation will consist of three percent of the Phase 1 or Phase 2 ADR SO2 Trading Program Budget set forth in section 238-5.1 of this Subpart, as applicable. For each control period, the department will determine SO2 allowance distributions to any SO2 budget unit that becomes an affected unit, in New York State on or after December 31, 2000, in accordance with the following procedures:

(1) The department will open and manage a general account for the new SO2 budget set-aside allocation for each control period.

(2) Only SO2 budget units may receive SO2 allowances from the new SO2 budget unit set-aside allocations established in paragraph (1) of this subdivision

(3) SO2 allowances may be transferred to SO2 budget units for no more than four control periods, starting with the control period during which the SO2 budget unit commenced, or is projected to commence, operation and ending, at the latest, with the control period preceding the control period for which the SO2 budget unit will receive an allocation pursuant to subdivision (a) or (b) of this section.

(4) The SO2 authorized account representative of an SO2 budget unit may submit a written request to the department to reserve for the SO2 budget unit a number of SO2 allowances in the new SO2 budget unit set-aside allocation general account in an amount no greater than the number representing the unit's CPPTE. The reservation request must be submitted prior to January 1st of the control period to which the reservation request pertains. The department will not consider any request for the reservation of SO2 allowances that is submitted prior to the issuance to the SO2 budget unit of all permits and authorizations by the department that are necessary for operation of the SO2 budget unit. The reservation request must include information detailing the CPPTE of the SO2 budget unit.

(5) Following department approval of the request for reservation of SO2 allowances, the department will reserve SO2 allowances in the new SO2 budget unit set-aside allocation general account for each control period preceding the control period for which the SO2 budget unit will receive an allocation pursuant to subdivision (a) or (b) of this section in an amount no greater than the SO2 budget unit's CPPTE.

(6) If more than one SO2 budget unit requests the reservation of SO2 allowances and the number of requested SO2 allowances exceeds the allocation to the new SO2 budget unit set-aside allocation general account, the department will reserve SO2 allowances from the account for the units in the order in which the SO2 budget units submitted approvable reservation requests. For the purposes of this paragraph, requests will be considered simultaneous if they are made in the same calendar quarter. Should approvable reservation requests in excess of the allocation to the new SO2 budget unit set-aside allocation general account be submitted in the same calendar quarter by different SO2 budget units, the department will reserve SO2 allowances for those units on a basis proportional to the number of SO2 allowances requested by each SO2 budget unit.

(7) By December 31st of the year following the submission of an approvable reservation request, the department will transfer reserved SO2 allowances to the compliance account of the relevant SO2 budget unit in an amount no greater than the number representing the unit's CPPTE.

(8) Flowback of undistributed SO2 allowances from the new SO2 budget unit sector set-aside allocations. After making the deductions for compliance under section 238-6.5(b), (d), (e) and (f) of this Part for a control period, the department will determine whether any SO2 allowances remain in the new SO2 budget unit set-aside allocation general account for the control period. Subject to the condition that no SO2 allowances will be transferred to an SO2 budget unit's compliance account which are in excess of the unit's CPPTE, the department will transfer any such remaining SO2 allowances from the new SO2 budget unit set-aside allocation general account to the compliance account of each SO2 budget unit that was allocated SO2 allowances pursuant to subdivisions (a) and (b) of this section using the methodology:

Existing SO2 budget unit's share of SO2 allowances remaining in the new SO2 budget unit set-aside allocation general account = Total SO2 allowances remaining in the new SO2 budget unit set-aside allocation general account x (the individual SO2 budget unit's SO2 allowance allocation determined in accordance with subdivisions [a] and [b] of this section ÷ the 94 percent portion of the Phase 1 or Phase 2 ADR SO2 Trading Program Budget, as applicable)

Where:

Total SO2 allowances remaining in the new SO2 budget unit set-aside allocation general account is the total number of SO2 allowances remaining in the new SO2 budget unit set-aside allocation general account (established under paragraph [1] of this subdivision) for the particular control period to which the new SO2 budget unit set-aside allocation applies; and

the individual SO2 budget unit's SO2 allowance allocation is the number of SO2 allowances allocated under subdivision (a) or (b) of this section to the individual SO2 budget unit for the control period to which the new SO2 budget unit set-aside allocation applies.

Note: In this flowback methodology SO2 allowances may initially remain unassigned because the CPPTE limitation under this subdivision may affect some units sooner than others leaving some SO2 allowances unallocated after the methodology is first performed. Thus, this methodology may be performed more than once in order to allocate all remaining unassigned SO2 allowances.

The department will only transfer SO2 allowances in whole ton increments. The department will continue to hold any fractional shares of SO2 allowances in the name of the SO2 budget unit as banked SO2 allowances until they may be combined with other fractional shares of SO2 allowances in future years and then transferred as whole ton increments.

(d) Energy efficiency and renewable energy set-aside allocation. The energy efficiency and renewable energy set-aside allocation will consist of three percent of the Phase 1 or Phase 2 ADR SO2 Trading Program Budget set forth in section 238-5.1 of this Subpart, as applicable. For each control period, the department will determine the number of SO2 allowances to be distributed to each sponsor of an energy efficiency and renewable energy project in accordance with the following procedures.

(1) The department will open and manage a general account for the energy efficiency and renewable energy set-aside allocation for each control period.

(2) Project sponsors of any of the following types of projects in New York State may be eligible for the receipt of SO2 allowances from the energy efficiency and renewable energy set-aside allocation:

(i) end-use efficiency projects;

(ii) renewable energy projects;

(iii) in-plant energy efficiency projects; and

(iv) fossil fuel-fired electricity generating units which produce electricity more efficiently than the annual average heat rate attributable to all fossil fuel-fired electricity generated in New York State.

(3) The SO2 authorized account representative of a project sponsor may submit a written request to the department to reserve a number of SO2 allowances in the relevant energy efficiency and renewable energy set-aside allocation general account. The reservation request must be submitted by July 1st after the control period for which the request is being made and must include information to assure that projects demonstrate accreditable SO2 emissions reductions or avoidances during the control period in accordance with department measurement and verification protocols.

(4) The department will give first priority in reserving SO2 allowances in the relevant energy efficiency and renewable energy set-aside allocation general account to sponsors of eligible end-use energy efficiency projects and renewable energy projects. Project sponsors of in-plant energy efficiency projects or fossil fuel-fired electricity generating units which achieve an annual average heat rate that is more efficient than the annual average heat rate attributable to all fossil fuel-fired electricity generated in New York State shall only have reservation requests granted after the department has satisfied all approved SO2 allowance reservation requests related to end-use energy efficiency projects and renewable energy projects.

(5) If more than one project sponsor of an end-use energy efficiency project or renewable energy project requests the reservation of SO2 allowances and the number of SO2 allowances that are subject to department approved requests exceeds the number of SO2 allowances in the relevant energy efficiency and renewable energy set-aside allocation general account, the department will reserve SO2 allowances from the account for the project sponsors in the order in which the project sponsors submitted approvable reservation requests. For the purposes of this paragraph, requests will be considered simultaneous if they are made in the same calendar quarter. Should approvable reservation requests in excess of the allocation to the relevant energy efficiency and renewable energy set-aside allocation general account be submitted in the same calendar quarter by different project sponsors, the department will reserve SO2 allowances for those project sponsors on a basis proportional to the number of SO2 allowances requested by each project sponsor.

(6) If after the department has satisfied all approvable SO2 allowance reservation requests related to end-use energy efficiency projects and renewable energy projects, more than one in-plant energy efficiency project or unit which produces electricity more efficiently than the annual average heat rate attributable to all fossil fuel-fired electricity generated in New York State requests the reservation of SO2 allowances and the number of SO2 allowances that are subject to department approved reservation requests exceeds the number of SO2 allowances remaining in the energy efficiency and renewable energy set-aside allocation general account, the department will reserve SO2 allowances in the account for the project sponsors in the order in which the project sponsors submitted approvable reservation requests. For the purposes of this paragraph, requests will be considered simultaneous if they are made in the same calendar quarter. Should approvable reservation requests in excess of the remaining allocation to the relevant energy efficiency and renewable energy set-aside allocation general account be submitted in the same calendar quarter by different project sponsors, the department will reserve SO2 allowances for those project sponsors on a basis proportional to the number of SO2 allowances requested by each project sponsor.

(7) Project sponsors of end-use energy efficiency projects, renewable energy projects, and/or in-plant energy efficiency projects may request the reservation of SO2 allowances for any control period, or portion thereof, that is within five years following project implementation.

(8) The department will distribute SO2 allowances from the relevant energy efficiency and renewable energy set-aside allocation general account to the general account of a project sponsor within two years from the start of the control period for which the request was made.

(9) No SO2 allowances will be reserved or distributed for the early implementation of projects. Project sponsors may receive SO2 allowances only for projects achieving accreditable SO2 emissions reductions or avoidances during control periods starting on or after January 1, 2004.

(10) Flowback of undistributed SO2 allowances from the energy efficiency and renewable energy set-aside allocations. After making both the deductions for compliance under section 238-6.5(b), (d), (e) and (f) of this Part for a control period and the distributions to project sponsors under this subdivision and subject to the condition that no SO2 allowances will be transferred to an SO2 budget unit's compliance account which are in excess of the unit's CPPTE, the department will transfer any remaining SO2 allowances from the energy efficiency and renewable energy set-aside allocation general account to the compliance account of each SO2 budget unit that was allocated SO2 allowances pursuant to subdivisions (b) and (c) of this section using the following:

Existing SO2 budget unit's share of SO2 allowances remaining in the energy efficiency and renewable energy set-aside allocation general account = Total SO2 allowances remaining in the energy efficiency and renewable energy set-aside allocation general account × (the individual SO2 budget unit's SO2 allowance allocation ÷ the 94 percent portion of the Phase 1 or Phase 2 ADR SO2 Trading Program Budget, as applicable)

Where:

Total SO2 allowances remaining in energy efficiency and renewable energy set-aside allocation general account is the total number of SO2 allowances remaining in the energy efficiency and renewable energy set-aside allocation general account (established under paragraph [1] of this subdivision) for the particular control period to which the set-aside allocation applies; and

the individual SO2 budget unit's SO2 allowance allocation is the number of SO2 allowances allocated under subdivision (a) or (b) of this section to the individual SO2 budget unit for the control period to which the energy efficiency and renewable energy set-aside allocation applies.

Note: In this flowback methodology SO2 allowances may initially remain unassigned because the CPPTE limitation under this subdivision may affect some units sooner than others leaving some SO2 allowances unallocated after the methodology is first performed. Thus, this methodology may be performed more than once in order to allocate all remaining unassigned SO2 allowances.

The department will only transfer SO2 allowances in whole ton increments. The department will continue to hold any fractional shares of SO2 allowances in the name of the SO2 budget unit as banked SO2 allowances until they may be combined with other fractional shares of SO2 allowances in future years and then transferred as whole ton increments.

(e) Supplemental SO2 allowance award for SO2 emissions reductions at upwind units. The department may award supplemental SO2 allowances to SO2 budget units for SO2 emission reductions achieved at an upwind unit subject to the following requirements:

(1) Application requirements.

(i) The SO2 budget unit must submit by July 1st its application for an award of supplemental SO2 allowances for SO2 emissions reductions at the upwind unit during the immediately prior control period.

(ii) The application must designate the account to which the SO2 budget unit seeks to have the supplemental SO2 allowances allocated.

(iii) SO2 emissions reductions must be quantified as the decrease (in tons) from the upwind unit's baseline SO2 mass emissions to the upwind unit's actual SO2 mass emissions. The baseline SO2 mass emissions is the quantity of SO2 mass emissions (in tons) that is the lowest of the following:

(a) the lowest quantity of SO2 mass emissions that the upwind unit experienced during the control periods 2000, 2001 and 2002; or

(b) the upwind unit's lowest CPPTE among the control periods 2000, 2001 and 2002. Each application for the award of supplemental SO2 allowances must contain a written statement from the highest ranking official in the relevant air pollution control agency of the state in which the upwind unit resides confirming that the baseline SO2 mass emissions figure submitted with the application is no greater than the upwind unit's lowest CPPTE during the control periods 2000, 2001 and 2002. For purposes of this subdivision, the definition of CPPTE is revised to substitute the phrase "relevant air pollution control agency of the state in which the upwind unit resides" for the word "department."

(iv) The SO2 emissions reductions from the upwind unit must be quantified on a unit basis, separate from a larger source in which the unit may be encompassed.

(v) The upwind unit must be shown to have been in continuous compliance with the monitoring and reporting requirements set forth in Subpart 238-8 of this Part since January 1, 2000.

(2) The upwind unit must be located in a state for which the administrator has finally approved revisions to that state's state implementation plan which were mandated pursuant to 40 CFR 51.121 and 51.122.

(3) The department will allocate awarded supplemental SO2 allowances to the designated account by the September 30th following the July 1st application deadline established in subparagraph (1)(i) of this subdivision.

(4) The department will award one supplemental SO2 allowance to the subject SO2 budget unit for every three tons of SO2 emissions reduced at the upwind unit as quantified pursuant to subparagraph (1)(iii) of this subdivision.

(5) Each SO2 budget unit must transfer to the department Federal SO2 allowance retirement account one Federal SO2 allowance for each ton of SO2 emissions reductions quantified pursuant to subparagraph (1)(iii) of this subdivision.

(6) For any control period, the department will award to all SO2 budget units collectively a quantity of supplemental SO2 allowances that does not exceed:

(i) 10 percent of the ADR SO2 Trading Program Budget for control period 2005;

(ii) eight percent of the ADR SO2 Trading Program Budget for control period 2006;

(iii) six percent of the ADR SO2 Trading Program Budget for control period 2007;

(iv) five percent of the ADR SO2 Trading Program Budget for control period 2008;

(v) four percent of the ADR SO2 Trading Program Budget for control period 2009 and subsequent control periods.

(7) If SO2 budget units collectively apply for the award of more supplemental SO2 allowances than permitted for a control period in paragraph (6) of this subdivision, the department will award the supplemental SO2 allowances in the order in which the applicants submit complete and approvable applications. For the purposes of this paragraph, requests will be considered simultaneous if they are made in the same calendar quarter. Should approvable applications in excess of the applicable percentage established in paragraph (6) of this subdivision be submitted in the same calendar quarter by different SO2 budget units, the department will award supplemental SO2 allowances for those units on a basis proportional to the number of supplemental SO2 allowances requested by each SO2 budget unit.

(8) Supplemental SO2 allowances awarded under this subdivision may be deducted for compliance under section 238-6.5 of this Part for the two control periods following the department's allocation of such supplemental SO2 allowances pursuant to paragraph (3) of this subdivision. The department or its agent will deduct as retired any supplemental SO2 allowances that are not deducted for compliance under this Subpart for the two complete control periods following the department's allocation of such supplemental SO2 allowances.

(f) Early reduction SO2 allowances. The department will award early reduction SO2 allowances (ERAs) for reductions in SO2 emissions that are the result of control of a SO2 budget unit's SO2 emission rate below allowable and past actual SO2 emission rates. These reductions must be achieved by a SO2 budget unit during the early reduction control periods of 2002, 2003 and 2004. The department may award ERAs, usable for compliance in control periods 2005 and 2006, subject to the following requirements:

(1) the SO2 budget unit must submit its application for the award of ERAs by May 1, 2005;

(2) the SO2 budget unit must use the following methodology to demonstrate the number of ERAs that should be awarded to it for reductions in SO2 emissions achieved at the SO2 budget unit during a particular early reduction control period:

(i) in determining the number of ERAs to be awarded, the department will determine the baseline SO2 emission rate, BSER, (in pounds/mmBtu) as the lesser of:

(a) the allowable SO2 emission rate, ALSER, (in pounds/mmBtu) for the SO2 budget unit prorated on actual fuel use for the early reduction control period which is determined by the following:

ALSER = (BUER × BUFHI + PER × PFHI)/(BUFHI + PFHI)

where:

BUER is as determined in section 238-1.2(b)(13) of this Part;

BUFHI is the total heat input of the backup fuel utilized during the control period for which the application for early reduction allowances is being made;

PER is as determined in section 238-1.2(b)(13) of this Part;

PFHI is the total heat input of the primary fuel utilized during the control period for which the application for early reduction allowances is being made;

(b) the actual average SO2 emission rate (in pounds/mmBtu) for the 2000 and 2001 control periods;

(3) in determining the number of ERAs to be awarded, the department will determine the capacity utilization, CU (in mmBtu), as the lesser of:

(i) the average capacity utilization (in mmBtu) of the SO2 budget unit for the 2000 and 2001 control periods; or

(ii) the actual capacity utilization (in mmBtu) of the SO2 budget unit for the early reduction control period(s) during which the early reductions were made;

(4) the department will calculate the number of ERAs to be awarded to a particular SO2 budget unit for the early reduction control periods by the following:

(i) if the SO2 budget unit's actual SO2 emission rate, ASER, for the early reduction control period is greater than the TCER, then the award of ERAs shall be determined by the following:

ERA = [CU × (BSER - ASER) × 0.5 ] ÷ 2000

TCER is the targeted collective emission rate of the program (0.9 pounds/mmBtu while burning coal and 0.45 pounds/mmBtu while burning gas or oil);

(ii) if the SO2 budget unit's actual SO2 emission rate, ASER, for the early reduction control period is less than the TCER, then the award of ERAs shall be determined by the following:

ERA = CU × {[(BSER - TCER ) × 0.5] + (TCER - ASER)} ÷ 2000

(5) once the department confirms a SO2 budget unit's early reductions of SO2 emissions, it will allocate ERAs to the SO2 budget unit's compliance account by December 31, 2005.