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Subpart 242-5: CO2 Allowance Allocations

(Statutory authority: Environmental Conservation Law, §§ Environmental Conservation Law, §§ 1-0101, 1-0303, 3-0301, 11-0303, 11-0305, 11-0535, 13-0105, 15-0109, 15-1903, 16-0111, 17-0303, 19-0103, 19-0105, 19-0107, 19-0301, 19-0303, 19-0305, 24-0103, 25-0102, 34-0108, 49-0309, 71-2103, 71-2105; Energy Law, §§ 3-101, 3-103; Public Authorities Law, §§ 1850, 1851, 1854, 1855)

[Filed 11/27/13. Effective 1/1/14.]

[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.

§242-5.1 CO2 Budget Trading Program base budget

(a) The CO2 Budget Trading Program base budget is 35,228,822 tons, for the 2014 allocation year.

(b) The CO2 Budget Trading Program base budget is 34,348,101 tons, for the 2015 allocation year.

(c) The CO2 Budget Trading Program base budget is 33,489,399 tons, for the 2016 allocation year.

(d) The CO2 Budget Trading Program base budget is 32,837,536 tons, for the 2017 allocation year.

(e) The CO2 Budget Trading Program base budget is 32,016,597 tons, for the 2018 allocation year.

(f) The CO2 Budget Trading Program base budget is 31,216,182 tons, for the 2019 allocation year.

(g) The CO2 Budget Trading Program base budget is 30,435,778 tons, annually for the 2020 allocation year and each succeeding allocation year.

§242-5.2 CO2 Budget Trading Program adjusted budget.

(a) For allocation years 2014 through 2020, the New York CO2 Budget Trading Program adjusted budget shall be the maximum number of allowances available for allocation in a given allocation year, except for CO2 offset allowance and CO2 CCR allowances. For allocation year 2021 and each succeeding allocation year, the CO2 Budget Trading Program adjusted budget shall be the same as the CO2 Budget Trading Program base budget.

(b) First control period interim adjustment for banked allowances. By January 15, 2014 the department shall determine the first control period interim adjustment for banked allowances quantity for allocation years 2014 through 2020 by the following formula:

FCPIABA = (FCPA/7) x RS%

Where:

FCPIABA is the first control period interim adjustment for banked allowances quantity in tons.

FCPA, the first control period adjustment, is the total quantity of allocation year 2009, 2010 and 2011 CO2 allowances held in general and compliance accounts, including compliance accounts established pursuant to the CO2 Budget Trading Program, but not including accounts opened by participating states, as reflected in the CO2 Allowance Tracking System on January 1, 2014.

RS% is 64,310,805/165,184,246

(c) Second control period interim adjustment for banked allowances. On March 17, 2014 the department shall determine the second control period interim adjustment for banked allowances quantity for allocation years 2015 through 2020 by the following formula:

SCPIABA = ((SCPA-SCPE)/6) x RS%

Where:

SCPIABA is the second control period interim adjustment for banked allowances quantity in tons.

SCPA, the second control period adjustment, is the total quantity of allocation year 2012 and 2013 CO2 allowances held in general and compliance accounts, including compliance accounts established pursuant to the CO2 Budget Trading Program, but not including accounts opened by participating states, as reflected in the CO2 Allowance Tracking System on March 17, 2014.
SCPE, the second control period emissions, is the total quantity of calendar year 2012 and 2013 emissions from all CO2 budget sources in all participating states, reported pursuant to the CO2 Budget Trading Program as reflected in the CO2 Allowance Tracking System on March 17, 2014.

RS% is 64,310,805/165,184,246

(d) CO2 Budget Trading Program adjusted budget for 2014. The department shall determine the New York CO2 Budget Trading Program adjusted budget for the 2014 allocation year by the following formula:

AB = BB - FCPIABA

Where:

AB is the New York CO2 Budget Trading Program 2014 adjusted budget in tons.

BB is the New York CO2 Budget Trading Program 2014 base budget in tons.

FCPIABA is the first control period interim adjustment for banked allowances quantity in tons.

(e) CO2 Budget Trading Program adjusted budgets for 2015 through 2020. On April 15, 2014, the department shall determine the New York CO2 Budget Trading Program adjusted budgets for the 2015 through 2020 allocation years by the following formula:

AB = BB - (FCPIABA + SCPIABA)

Where:

AB is the New York CO2 Budget Trading Program 2015 through 2020 adjusted budget for each respective allocation year in tons.

BB is the New York CO2 Budget Trading Program 2015 through 2020 base budget for each respective allocation year in tons.

FCPIABA is the first control period interim adjustment for banked allowances quantity in tons.

SCPIABA is the second control period interim adjustment for banked allowances quantity in tons.

(f) Publication of adjusted budgets. After making the determination in subdivisions 242-5.2(d) and (e), the department or its agent will publish the CO2 Budget Trading Program adjusted budgets for the 2014 through 2020 allocation years.

§242-5.3 CO2 allowance allocations

(a) Energy efficiency and clean energy technology account. The department will allocate the CO2 Budget Trading Program adjusted budget to best achieve the emissions reduction goals of the CO2 Budget Trading Program by promoting or rewarding investments in energy efficiency, renewable or non-carbon-emitting technologies, and/or innovative carbon emissions abatement technologies with significant carbon reduction potential.

(1) NYSERDA will establish and administer the energy efficiency and clean energy technology account pursuant to 21 NYCRR Part 507.

(2) The department will allocate most of the CO2 Budget Trading Program base budget or adjusted budget to the energy efficiency and clean energy technology account.

(3) NYSERDA will administer the energy efficiency and clean technology account so that allowances will be sold in a transparent allowance auction or auctions. The proceeds of the auction or auctions will be used to promote the purposes of the energy efficiency and clean energy technology account and for administrative costs associated with the CO2 Budget Trading Program. The auction will be carried out to achieve the following objectives: achieve fully transparent and efficient pricing of allowances; promote a liquid allowance market by making entry and trading as easy and low-cost as possible; be open to participation by the categories of bidders determined by NYSERDA or its designee in consultation with the Auction Advisory Committee which meet the minimum financial requirements; monitor for and guard against the exercise of market power and market manipulation; be held as frequently as is needed to achieve design objectives; avoid interference with existing allowance markets; align well with wholesale energy and capacity markets; and be designed to not act as a barrier to efficient investment in relatively clean existing or new electricity generating sources.

(i) NYSERDA, or its agent, will not be obligated to sell any CO2 allowances for less than the reserve price.

(ii) The department or its agent may retire unsold CO2 allowances at the end of each control period.

(iii) The department or its agent may retire undistributed CO2 allowances at the end of each control period.

(b) Cost Containment Reserve (CCR) allocation and rules for the sale of CO2 CCR allowances. The department shall allocate CO2 CCR allowances, separate from and additional to the CO2 Budget Trading Program base budget set forth in section 242-5.1, to the energy efficiency and clean energy technology account. The CCR allocation is for the purpose of containing the cost of CO2 allowances.

(1) The department shall allocate CO2 CCR allowances in the following manner:

(i) The department shall initially allocate 1,946,639 CO2 CCR allowances for allocation year 2014.

(ii) On or before January 1, 2015 and each calendar year thereafter, the department shall allocate CO2 CCR allowances in an amount equal to 3,893,277, minus the number of CO2 CCR allowances that remain in the energy efficiency and clean energy technology account at the end of the prior calendar year.

(2) NYSERDA or its agent shall follow these rules for the sale of CO2 CCR allowances:

(i) CO2 CCR allowances shall only be sold at an auction in which total demand for allowances, above the CCR trigger price, exceeds the number of CO2 allowances available for purchase at the auction, not including any CO2 CCR allowances;

(ii) If the condition of subparagraph (i) of this paragraph is met at an auction, then the number of CO2 CCR allowances offered for sale by NYSERDA or its agent at the auction shall be equal to the number of CO2 CCR allowances in the energy efficiency and clean energy technology account at the time of the auction;

(iii) After all of the CO2 CCR allowances in the energy efficiency and clean energy technology account have been sold in a given calendar year, no additional CO2 CCR allowances will be sold at any auction for the remainder of the calendar year, even if the condition in subparagraph (i) of this paragraph is met at an auction; and

(iv) At an auction in which CO2 CCR allowances are sold, the reserve price for that auction shall be the CCR trigger price.

(v) If the condition in subparagraph (i) of this paragraph is not satisfied, no CO2 CCR allowances shall be offered for sale at the auction, and the reserve price for the auction shall be equal to the minimum reserve price.

(3) NYSERDA or its agent shall implement the reserve price in the following manner:

(i) No allowances shall be sold at any auction for a price below the reserve price for that auction; and

(ii) If the total demand for allowances at an auction is less than or equal to the number of allowances made available for sale in that auction, then the auction clearing price for the auction shall be the reserve price.

(c) Voluntary renewable energy market and eligible biomass set-aside allocation. The department shall allocate 700,000 tons to the voluntary renewable energy market and eligible biomass set-aside account from the CO2 Budget Trading Program annual adjusted budget set forth in section 242-5.2 of this Subpart, as applicable. The department shall administer the voluntary renewable energy and eligible biomass set-aside account in accordance with the following procedures.

(1) The department will open and manage a general account for the voluntary renewable energy market and eligible biomass set-aside account.

(2) All submissions to the department required for the retirement of an allowance from the voluntary renewable energy market and eligible biomass set-aside account under this subdivision must be from the sponsor of a voluntary renewable energy purchase, herein referred to as the "VREP applicant" or the CO2 authorized account representative for a CO2 budget source co-firing eligible biomass.

(3) A VREP applicant or a CO2 authorized account representative for a CO2 budget source co-firing eligible biomass may submit a written request to the department to retire a specified number of CO2 allowances in the voluntary renewable energy market and eligible biomass set-aside account, herein referred to as a "VREEB application." A VREEB application must be submitted by the March 1st, immediately following the allocation year for which it is being made and must include information to assure that:

(i) a voluntary renewable energy purchase demonstrates accreditable CO2 emissions reductions or avoidance during the control period in accordance with department measurement and verification protocol; or

(ii) for a CO2 authorized account representative of a CO2 budget source co-firing eligible biomass as a compliance mechanism, CO2 emissions from the CO2 budget source are attributable to the burning of fuel that the department has determined is eligible biomass.

(4) A VREEB application regarding a voluntary renewable energy purchase shall contain data documenting purchases of voluntary renewable energy that meet the requirements of this subdivision. Such data must be from reputable sources, which may include retail electricity providers, organizations that certify renewable energy products, and other parties as determined by the department. To be considered, data must be verifiable and document the following for voluntary renewable energy purchases:

(i) Documentation of voluntary renewable energy or renewable energy attribute credit purchases by retail customers, by customer class, in the State during the control period immediately preceding the application date.

(ii) Documentation that the renewable energy or renewable energy attributes related to voluntary renewable energy or renewable energy attribute credit sales were procured by the retail provider.

(iii) Time period when the retail purchase(s) was made.

(iv) State where the electricity was generated or the renewable energy attribute credit was created, including documentation of facility name, unique generator identification number, and fuel type.

(v) Time period when the electricity was generated or the renewable energy attribute credit was created.

(5) By the October 31st following the March 1st application deadline established in paragraph (2) of this subdivision, the department shall determine the actual MWh of voluntary renewable energy market purchases that occurred during the allocation year. The department shall retire CO2 allowances in the voluntary renewable energy and eligible biomass set-aside account in an amount up to the number of tons of CO2 represented by actual voluntary renewable energy market purchases, based on actual MWh purchases demonstrated by each project sponsor as follows:

CO2 tons = MP x EF

where:

CO2 tons, rounded down to the nearest whole ton, is the number of allowances to be placed in the retirement account.

MP is the MWh of voluntary renewable energy purchased in the State during the control period that meets the requirements of this subdivision.

EF is the CO2 emissions factor for the control area where the electricity represented by the sale was generated.

(6) A VREEB application submitted by a CO2 authorized account representative for a CO2 budget source co-firing eligible biomass as a compliance mechanism shall contain the following information:

(i) Documentation of the department's determination that fuel combusted at the CO2 budget source is eligible biomass.

(ii) The number of tons of CO2 emissions from the CO2 budget source attributable to the burning of eligible biomass during the allocation year, as calculated pursuant to section 242-8.7 of this Part and any other department-approved method.

(iii) By the October 31st following the March 1st application deadline established in paragraph (2) of this subdivision, the department shall determine the actual number of tons of CO2 emissions from the CO2 budget source attributable to the burning of eligible biomass during the allocation year. The department shall retire CO2 allowances in the voluntary renewable energy and eligible biomass set-aside account in an amount up to such number of tons of CO2 emissions.

(7) If more than one VREP applicant or CO2 authorized account representative requests the retirement of CO2 allowances pursuant to this subdivision, and the number of CO2 allowances that are subject to department approved requests exceeds the number of CO2 allowances in the voluntary renewable energy market and eligible biomass set-aside account as of December 31 of the previous calendar year, the department will retire CO2 allowances from the account for the VREP applicants and CO2 authorized account representatives in the order in which the VREP applicants and CO2 authorized account representatives submitted approvable retirement requests. For purposes of this paragraph, VREEB applications will be considered simultaneous if they are made in the same month. Should approvable VREEB applications in excess of the allocation to the relevant voluntary renewable energy market and eligible biomass set-aside account as of December 31 of the previous calendar year be submitted in the same month by different VREP applicants and CO2 authorized account representatives, the department will retire CO2 allowances for those VREP applicants and CO2 authorized account representatives on a basis proportional to the number of CO2 allowances requested by each VREP applicant and CO2 authorized account representative.

(8) 'Flow back of undistributed CO2 allowances from the voluntary renewable energy market and eligible biomass set-aside account'. After retiring allowances pursuant to this subdivision for an allocation year, any remaining CO2 allowances will either remain in the voluntary renewable energy market and eligible biomass set-aside account or be transferred to the energy efficiency and clean energy technology account.

(d) Long term contract set-aside allocation. The department shall allocate 1,500,000 tons to the long term contract set-aside account from the CO2 Budget Trading Program annual adjusted budget set forth in section 242-5.2 of this Part, as applicable. The department shall administer the long term contract set-aside account in accordance with the following procedures.

(1) The department will open and manage a general account for the long term contract set-aside account for each allocation year.

(2) The sponsor for a long term contract hardship demonstration must establish a compliance account under subdivision 242-6.2(a) of this Part. All submissions to the department required for the reward of allowances from the long term contract set-aside account under this section must be from the CO2 authorized account representative for the compliance account, herein referred to as the "LTC applicant."

(3) The LTC applicant may submit a written request to the department for the reward of a specified number of CO2 allowances in the long term contract set-aside account. This request must be submitted by the December 1st, immediately preceding the allocation year for which it is being made and must include information to assure, to the department's satisfaction, that:

(i) the long term contract was entered into prior to March 2006;

(ii) the LTC applicant's purchase of allowances at auction or in the secondary market leads to financial hardship, because the LTC applicant is unable to pass on the cost of CO2 allowances to the purchasing party under the conditions of the long term contract; and

(iii) each CO2 budget unit at the CO2 budget source covered by the long term contract uses natural gas as its primary fuel, or the CO2 budget source's emission rate is no higher than 1100 lbs/MWhr.

(4) The written request submitted pursuant to paragraph (3) of this subdivision shall contain, at a minimum, the following information.

(i) A copy of the long term contract and explanation that the LTC applicant is unable to:

(a) pass the cost of allowances on to the purchasing party, or

(b) renegotiate the terms of the contract;

(ii) Financial statements from each of the previous five years that clearly demonstrate the revenues and expenses of the LTC applicant's budget source;

(iii) Fuel, total net output and emissions data from the previous three year period;

(iv) The portion of emissions from the CO2 budget unit or units covered by the long term contract during the upcoming year;

(v) Costs associated with the CO2 Budget Trading Program compared to all other costs associated with the operation of the CO2 budget unit or units; and

(vi) A demonstration that the LTC applicant will suffer losses in excess of the value of allowances sought, supported by projected costs and revenues for the allocation year for which the LTC application pertains.

(5) Except as may be modified by paragraphs (6) or (9) of this subdivision, the department will determine the number of CO2 allowances to be allocated to each LTC applicant that the department determines meets the eligibility requirements of paragraph (3) of this subdivision, in accordance with the following procedures:

LTC Allowances = (((LTCer) x (TO))/2000) -RLTCA;

where:

"LTC Allowances" are the result of the calculation;

"LTCer" is the applicable emission rate

"TO" is total net output from the LTC facility;

"RLTCA" is the number of allowances remaining in an LTC applicant's compliance account

(i) For the purposes of this subdivision, total net output shall be the greatest total net output experienced by the unit for any single calendar year among the three calendar years, for which data is submitted, proceeding the date by which the department must make the CO2 allocations pursuant to this subdivision.

(ii) For the purposes of this subdivision, the "LTCer" will be the lesser of the actual emission rate included in the application and 1100 lbs/MWhr.

(iii) For the purposes of this subdivision, there will be no "RLTCA" for the first application, but for each subsequent application, the department will determine the "RLTCA" to be the difference between the allowances in the LTC applicant's compliance account and actual emissions for that allocation year.

(6) The number of CO2 allowances to be allocated to an eligible LTC applicant, as determined pursuant to paragraph (5) of this subdivision, shall be discounted by the department as follows, if applicable:

(i) by the percentage of CO2 allowance cost that the LTC applicant is able to pass on to the purchasing party; and

(ii) by the percentage of CO2 emissions from the CO2 budget source that are not covered by the long term contract.

(7) Allowances will be allocated to the LTC applicant's compliance account.

(8) Allowances allocated pursuant to this subdivision must only be used for compliance with the CO2 budget emissions limitation for the source. The sale or transfer of allowances from the LTC applicant's compliance account will be considered a violation of this subdivision.

(9) If more than one LTC applicant requests the award of CO2 allowances and the number of CO2 allowances that are subject to the department approved requests exceeds the number of CO2 allowances in the relevant long term contract set-side account, the department will award CO2 allowances for those LTC applicants on a basis proportional to the number of CO2 allowances requested by each LTC applicant.

(10) Flow back of undistributed CO2 allowances from the long term contract set-aside account. After allocating allowances pursuant to this subdivision for an allocation year, the department will transfer any remaining CO2 allowances from the long term contract set-aside account to the energy efficiency and clean energy technology account.