CAIR Revised Regulatory Impact Statement Summary
6 NYCRR Part 243, CAIR NOx Ozone Season Trading Program, 6 NYCRR Part 244, CAIR NOx Annual Trading Program, 6 NYCRR Part 245, CAIR SO2 Trading Program
On April 25, 2005, the United States Environmental Protection Agency (EPA) issued a final administrative action in which it made findings that numerous states, including New York State, had failed to submit State Implementation Plan (SIP) provisions that EPA determined are required under federal Clean Air Act (CAA) Section 110(a)(2)(D) to address interstate pollutant transport with respect to the national ambient air quality standards (NAAQS) for ozone, and particulate matter with an aerodynamic diameter less than or equal to a nominal 2.5 micrometers (PM2.5). 'Finding of Failure To Submit Section 110 State Implementation Plans for Interstate Transport for the National Ambient Air Quality Standards for 8-Hour Ozone and PM2.5', 70 FR 21147-151 (April 25, 2005) (the Finding). CAA Section 110(a)(1) requires states to submit new SIP provisions to account for a new or revised NAAQS within three years after the promulgation of such standard, or any shorter period that EPA might mandate. The Finding started a two-year clock for the promulgation of a Federal Implementation Plan (FIP) under CAA Section 110(c)(1). For any state, including New York State, that fails to receive EPA approval for submitted SIP provisions within the two-year period, EPA will impose a FIP to implement adequate pollutant transport measures.
In a final administrative action announced on May 12, 2005, EPA identified 23 states and the District of Columbia as containing sources of ozone season1 emissions of nitrogen oxides (NOx) that contribute to attainment or maintenance problems in downwind states with respect to the ozone NAAQS. In addition, EPA identified 25 States and the District of Columbia as containing sources of annual NOx and sulfur dioxide (SO2) emissions that cause attainment or maintenance difficulties in downwind states with respect to the PM2.5 NAAQS. 'Rule To Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule); Revisions to Acid Rain Program; Revisions to the NOx SIP Call; Final Rule', 70 FR 25162-405 (May 12, 2005) (CAIR). New York State was listed as a state that must address emissions of NOx and SO2 because it contributes to nonattainment of both the ozone and PM2.5 NAAQS in downwind states. CAIR specified exact tonnages of NOx and SO2 that New York State must reduce in order to satisfy its obligations under CAA Section 110(a)(2)(D). CAIR established budgets for electricity generating units (EGUs) in New York State and other CAIR states for emissions of NOx and SO2.
EPA determined the level of emissions reductions in CAIR based on an assumed imposition of highly cost-effective emissions controls on EGUs in the states subject to CAIR. For a State such as New York that contributes to downwind nonattainment of both the ozone and PM2.5 NAAQS, CAIR provides three model rules that the State may adopt so that it can participate in interstate emissions cap-and-trade programs. As a general matter, these cap-and-trade programs were designed by EPA to apply to EGUs. The model rules, codified at 40 CFR Part 96, place State-wide caps on the annual and ozone season emissions of NOx and annual emissions of SO2 from EGUs collectively. The ozone season NOx program, found at 40 CFR 96 Sections 301-388, addresses EGU emissions reductions needed for attainment of the ozone NAAQS. The annual NOx program and the annual SO2 program, found at 40 CFR 96 Sections 101-188 and 40 CFR 96 Sections 201-288, respectively, address EGU emissions reductions needed for attainment of the PM2.5 NAAQS. While a subject state retains the discretion to reduce emissions by the requisite amounts in any manner that it sees fit, adoption of the model rules would produce SIP revisions that EPA will find readily approvable to address the SIP deficiencies identified in the Finding.
The proposed rules constitute New York State's adoption of the three emissions cap-and-trade rules of CAIR. Part 243 establishes the CAIR NOx Ozone Season Trading Program; Part 244 establishes the CAIR NOx Annual Trading Program; and Part 245 establishes the CAIR SO2 Trading Program. Certain revisions to Part 200 are necessary in order to facilitate the administration of these programs. These include the addition of references to Table 1 of Section 200.9 Referenced Material.
The New York State Legislature has accorded the New York State Department of Environmental Conservation (Department) with the primary authority to formulate and implement the SIP. The provisions of State law, taken together, clearly empower the Department to promulgate and implement the proposed rules as SIP provisions. The statutory authority to promulgate Parts 243, 244, and 244 in the State derives primarily from the Department's obligation to prevent and control air pollution, as set out in the Environmental Conservation Law (ECL) at Sections 1-0101, 3-0301, 19-0103, 19-0105, 19-0301, 19-0303, 19-0305, and 19-0311. The promulgation of the CAIR rules is also consistent with the Department's obligations under Energy Law 3-101 and Energy Law 3-103. The legislative objectives underlying the above statutory authority are essentially directed toward promoting the safety, health and welfare of the public, protecting the State's natural environment, and also helping to assure a safe, dependable and economical supply of energy to the people of the State. The general powers of the New York State Energy Research and Development Authority (NYSERDA) that are relevant to the Program's ability to sell allowances are set forth in the Public Authorities Law Sections 1851, 1854 and 1855.
New York State contains nonattainment areas for primary and secondary ozone and PM2.5 NAAQS.2 As such, the air quality in these areas is not, allowing for an adequate margin of safety, sufficient to protect public health, and is not sufficient to protect the public welfare from any known or anticipated adverse effects associated with the presence of the relevant air pollutants.3
CAIR and its supporting record, including the rule making records generated during the 1997 promulgations of the ozone and PM2.5 NAAQS, contain ample descriptions of the health and environmental rationales for controlling emissions of NOx and SO2 from EGUs. (70 FR 25170, 25306-08).
By action dated July 18, 1997, EPA revised the NAAQS for particulate matter to add new standards for fine particles (PM2.5) (62 FR 38652). EPA established health- and welfare-based (primary and secondary) annual and 24-hour standards for PM2.5. Individuals particularly sensitive to fine particle exposure include older adults, people with heart and lung disease, and children. The secondary standards are designed to protect against major environmental effects caused by PM such as visibility impairment-including Class I areas which contain national parks and wilderness areas across the country-soiling, and materials damage.
By action dated July 18, 1997, EPA promulgated identical revised primary and secondary ozone standards that specified an eight-hour ozone standard of 0.08 parts per million (ppm) (62 FR 38652). In general, the revised eight-hour standards are more protective of public health and the environment and more stringent than the pre-existing one-hour ozone standards that they replaced. EPA published the eight-hour ozone nonattainment designations that became effective on June 15, 2004. On December 22, 2006, the U.S. Circuit Court of Appeals for the District of Columbia vacated EPA's eight-hour ozone NAAQS Implementation Rule. The schedule for demonstrating attainment with the eight-hour Ozone NAAQS will change, although the standard remains in effect and the State will have to demonstrate compliance with it. Implementation of the CAIR programs remain an essential component of New York State's SIP to achieve attainment of the eight-hour ozone NAAQS.
EPA undertook extensive computer modeling which shows that CAIR will assist New York State's efforts towards reaching attainment of the eight-hour ozone and PM2.5 NAAQS.4 Measured from 2003 levels in New York State, EPA estimates that CAIR will result in SO2 emission reductions of about 213,000 tons or 84 percent and NOx emission reductions of about 32,000 tons or 48 percent. At the end of 2004, EPA had designated 30 New York counties as being components of ozone nonattainment areas. EPA's CAIR modeling shows that CAIR, in conjunction with existing CAA programs as well as New York State's clean air programs, are predicted to bring 19 of these counties into attainment by 2010. EPA's modeling also shows that even after the full implementation of CAIR in 2015, nine counties would remain in nonattainment of the ozone NAAQS. However, EPA expects that CAIR will further reduce ground-level ozone levels in these nine counties. The Department is currently working to establish or revise additional SIP programs to bring all areas into attainment.
EPA allows states to add the portion of the NOx SIP Call trading budget attributed to non-EGUs and small EGUs to the State's CAIR NOx Ozone Season Trading Budget. New York State has chosen to include all of the affected sources currently covered by Part 204, NOx Budget Trading Program in the CAIR NOx Ozone Season Trading Program (Part 243). The NOx budgets for small EGUs, non-EGUs, and Portland cement kilns will be added to New York's ozone season EGU budget established under CAIR to form the sector budgets under Part 243, CAIR NOx Ozone Season Trading Program. Small EGUs include fossil fuel-fired units serving a generator with a nameplate capacity of 15 MWe to 25 MWe. Non-EGUs include fossil fuel-fired large non-EGUs with a heat input rating of 250 MMBtu/hr or greater. Portland cement kilns consist of fossil fuel-fired cement kilns with heat input rating of 250 MMBtu/hr or greater.
The NOx ozone season Portland Cement Kiln Unit Sector Budget has been revised as part of the CAIR rulemakings. The current Part 204 Portland Cement Kiln Unit Sector Budget is 8,085 tons per ozone season. The budget for these units has been revised to 6,271 tons per ozone season, representing a reduction of 1,814 tons of NOx per ozone season starting in 2009.
The CAIR NOx Trading Program budgets are designed to allocate 10 percent of the emissions allowances to the Energy Efficiency and Renewable Energy Technology Account (the EERET Account). The EERET Account will be administered by the New York State Energy Research and Development Authority (NYSERDA) and the allowances in the account will be sold in order to help achieve the emissions reduction goals of the CAIR NOx Trading Programs by promoting or rewarding investments in energy efficiency and renewable technologies, and/or innovative abatement technologies.
ICF International has conducted electricity system modeling analysis to estimate the incremental cost of implementing CAIR and the Clean Air Mercury Rule (CAMR) in New York. The analysis compared a reference or business-as-usual case (absent either CAIR or CAMR) to each of three policy cases: New York's proposed approach for implementing both CAIR and CAMR, CAIR only, and CAMR only. CAIR and CAMR policies (implemented together) could increase wholesale electricity prices by an average of 1.7 percent or $1.14 MWh over the 2010 to 2020 timeframe. For a typical residential customer (using 750 Kwh per month5), this translates into a monthly retail bill increase of $0.86.
Considering only this rulemaking and none of the other requirements that are resulting in reductions in NOx and SO2 emissions at these facilities (NSR/PSD settlements, mercury control and BART and other potential haze requirements), the annual NOx program will cost the EGUs $17.2 million a year from 2009 to 2014 and $30.2 million in 2015 and beyond. This is estimated by using the average cost of NOx control that EPA identified in the CAIR regulatory support documents multiplied by the total emission reductions required under CAIR (sum of allowances under Parts 204 and 237 minus the CAIR annual NOx allowances). Using the same formula to estimate the cost of control, the ozone season NOx program will cost the EGUs $9.2 million starting in 2009 and $24.6 million starting in 2015. It should be noted that no additional costs are expected for the non-EGU owners since there is no change to the number of allowances to be distributed to them under Part 243. In addition, the Portland cement kiln owners will not experience an increase in cost as a result of Part 243 because, as noted above, the reduction in allowances distributed to this sector under Part 243 is reflective of actual emissions of these units plus a margin for growth. The costs to EGUs associated with SO2 control under Part 245 is expected to be $0 in 2009 and $25.7 million in 2015 (sum of allowances Part 238 minus the CAIR SO2 budget multiplied by the average cost of control estimated by EPA).
There will be costs associated with Local Governments. The Jamestown Board of Public Utilities (JBPU), a municipally owned public utility, owns and operates the S. A. Carlson Generating Station (SACGS). The emissions monitoring at SACGS currently meets the monitoring provisions of CAIR. Therefore, no additional monitoring, record keeping or reporting costs will be incurred as a result of this program.
The JBPU will need to either limit emissions at the SACGS to no more than its allowance allocations under Parts 243, 244, and 245 or purchase allowances equal to the number of tons emitted in excess of the number of allowances initially allocated to it. Given the highly variable nature of control equipment cost, the Department limited the analysis of control costs to the purchase of allowances to comply with the program. The Department estimated allocations for SACGS and subtracted those allocations from 2006 facility emissions. The estimated cost for purchasing allowances was determined to be approximately $1.4 million annually for the period from 2010 through 2014 and $2.4 million in 2015 and beyond.
There will be costs associated with the administration of CAIR. The Department will need to review monitoring plans submitted to comply with the requirements of Parts 243, 244, and 245. However, since these plans have been used to comply with current Parts 204, 237, and 238 these costs will not amount to an increase above what is already contemplated. The administrative aspects of the regulation and central office support for permitting and compliance activities will need to increase beyond what is currently required to implement existing regulations, but not significantly. The Department estimates that three to four additional person years will be required to implement these programs at a cost of $110,000 per person year or $440,000 annually.
The owners and operators of each source subject to CAIR and each unit at the source shall keep each of the following documents for a period of five years from the date the document is created:the account certificate of representation form; all emissions monitoring information; copies of all reports and other submissions and all records made or required under CAIR; and copies of all documents used to complete a permit application and any other submission under CAIR or to demonstrate compliance with CAIR.
The Department considered various alternatives when developing CAIR. These include: No action, where EPA would implement a FIP to establish the federal cap-and-trade programs under 40 CFR Part 97; command-and-control; and auction versus free allocation. Free allocation can be based on heat input or energy output.
There are two ways in which the Department may allocate allowances: Sell them through an auction or give them away as has been done in the past. The Department has opted to continue to allocate the majority of allowances to affected sources based on historical operation. A precedent from other proven allowance trading programs has been established for this type of allowance allocation.6 The Department chose this option in order to meet the Federal deadlines of CAIR and to avoid FIP implications. CAIR is on a strict timeline that does not afford the Department the time to create the necessary structure and work out the details to include and implement a full auction as part of the allocation process. Based on the Department's experience with the EERET account under this program, the Department will consider expanding this type of approach in CAIR at some point in the future.
SO2 allowances have already been allocated and received by sources under title IV of CAA Section 403. Pre-2010 Title IV SO2 allowances can be used for compliance with CAIR. SO2 reductions are achieved by requiring sources to retire more than one allowance for each ton of SO2 emitted. The emission value of an SO2 allowance is independent of the year in which it is used, but is based upon its vintage. Each sulfur dioxide allowance of vintage 2009 and earlier offsets one ton of SO2 emissions. Vintages 2010 through 2014 offset 0.5 tons of emissions, this equates to a 50 percent emission reduction. Vintages 2015 and beyond offset 0.35 tons of emissions, this equates to a 65 percent emission reduction. The Department is proposing to adopt the Federal model rule for SO2 at this time. However, the Department may, in the future, adopt an alternative approach. In the interim, Part 238 will remain in place.
The Department considered utilizing an electricity output based allocation methodology. Advocates for use of an output based methodology agree that this type of approach rewards the most efficient generation. The Department agrees with that assertion, but has not chosen to allocate on an output basis because of the lack of available generation data, as well as deficiencies in the standardization of generation data. It is not likely that the required data will become available in time to finalize New York State's CAIR regulations. Because of the additional burden the output based methodology would place on the Department and on the affected sources, the Department has chosen not to allocate allowances in this manner at this time. The Department includes a Control Period Potential To Emit (CPPTE) component in it's allowance allocation methodology which limits the amount of allowances an affected facility can receive based on the maximum capacity of a unit to emit under its physical and operational design during a control period. If the CPPTE is used in an output based allocation system, there is likely little difference in the actual allowances distributed to facilities.
The Department chose a fuel neutral approach in the allocation methodology for NOx allowances. The Department substantially adopted the methodology used in allocating NOx allowances under Parts 204 and 237. As with Parts 204 and 237, the Department believes that a fuel neutral allocation methodology is appropriate because of the relatively small differences in uncontrolled NOx emission rates (as compared to SO2) resulting from use of different types of fossil fuel.
The Department considered and rejected an energy efficiency and renewable energy generator set-aside under the program. Instead, the Department is proposing to create the EERET Account. The inclusion of the EERET Account will not cause the retail price of electricity to increase because generators incorporate the same dollar value of the allowances in their bids to supply electricity whether the allowances are obtained at no cost or purchased on the open market.
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1 Ozone season, for the purpose of this rulemaking, is defined as the time period from May 1 through September 30.
2 The classifications for the ozone and PM2.5 nonattainment areas may be found at 40 CFR §81.333. A graphical representation of the ozone nonattainment areas may be found at http://www.epa.gov/oar/oaqps/greenbk/ny8.html. A graphical representation of the PM2.5 nonattainment areas may be found at http://www.epa.gov/oar/oaqps/greenbk/mappm25.html.
3 CAA §109(b); 40 CFR §50.2(b).
4 http://www.epa.gov/interstateairquality/ny.html.
5 Typical customer usage numbers from the Energy Information Administration (EIA). Electricity rates from December 2005 Patterns & Trends report.
6 MIT Joint Program on the Science and Policy of Global Change. "Emissions Trading to Reduce Greenhouse Gas Emissions in the United States: The McCain-Lieberman Proposal." Sergy Paltsev, John M. Reilly, Henry D. Jacoby, A. Denny Ellerman and Kok Hou Tay. Report No. 97, June 2003.
