Market Trading Forum Update

1. Market Trading Forum Update Ira Domsky and Colleen Delaney, Co-chairs

2. Current Issues • Annex Approval • Work for 308/309 Decision • Additional materials needed for 309 SIPs

3. May 21-22 Workshop in Salt Lake • Roll out of MTF material to support this decision • Greater Reasonable Progress than BART for other Class I areas • Critical Mass • Allocations • Draft WRAP comments on proposed Annex approval

4. Greater RP than BART modeling • Should be completed around end of April • MTF will need to review the results and incorporate into existing analysis for 16 Class I areas • Plan to use the same modeling approach – should meet EPA’s requirements for all areas

5. Critical Mass Analysis • ICF presented draft results to MTF on Tuesday • Limited analysis – results need to be viewed in context; i.e. comparison of scenarios • Results are not easily understood and further work is needed to translate and present the results

6. Critical Mass Analysis • Relied on same assumptions as prior analysis • Only source compliance costs were taken into consideration – not income or economic impacts • Command and control assumed for all states/tribes not participating

7. Initial Conclusions • Critical mass is a misnomer, there are cost savings due to trading in all cases • Transaction costs not addressed • Actual trading may differ from model • Intrastate/tribe trades not identified • Effects on benefits not addressed • 308 states are affected – regional power market

8. Initial Conclusions • Regional costs primarily affected: • By relative program stringency for states and tribes remaining in program • Cost of producing power for CA • Biggest impacts on CA and WY • Without WY, greater costs for scrubbing, more fuel switching and new natural gas

9. Initial Conclusions • Tribal allocations are an important source of credits for trading • NM, UT and OR are primary purchasers of credits under all scenarios • AZ, CO and WY are not as dependent on trading partners that have allowances to sell; i.e. intrastate market is functional

10. Allocations • Pechan has been contracted to develop estimates for non-utility floor allocations • Should have draft results by beginning of May • Utility allocations will then be estimated based on results of non-utility floor • Plan to have draft allocation estimates for May workshop

11. WESTAR – Attribution Guidelines • NAM contract • Recommended tools • Criteria • Focused on attribution • WESTAR is in the process of compiling the report – July deadline • Overview of what will be in the report was presented to MTF to get feedback

12. Model Rule/MOU • Need for in depth review by states and tribes • Education about trading • Recommend that Air Managers Committee address this implementation issue

13. Model Rule/MOU • Workshop • State and tribal rule writers • Trading experts (EPA, states with programs) • MOU needs review – no precedent for regional program • What needs to be included? • How will differences be resolved? • Interstate Compact required?

14. Monitoring Protocols • Focus on bigger source categories • Copper smelters • Refineries • Lime and Cement plants • Gas Processing • Explore different approaches for addressing smaller sources

15. NOx and PM • Modeling forum will do two sensitivity runs for stationary sources • 50% decrease in NOx • 50% decrease in PM10 • Need to analyze current inventory data • Identify data gaps • WRAP Policy Analyst will coordinate the work

16. Tribal Outreach • NTEC is working with EPA to develop a consultation process • Will provide feedback to MTF regarding the best way to work with tribes, especially the 4 tribes with major SO2 sources • Need to involve tribes in model rule/MOU isses • What is needed in state SIPs in 2003 • What is needed in interstate/tribe agreements

17. Other Issues • 2000 inventory completed – 27% reduction from 1990. • 13% reduction requirement has been met • Request feedback from EPA – is Pechan report adequate