NO x Budget Trading Program aka “NO x SIP Call”

1. NOx Budget Trading Programaka “NOx SIP Call” EPRI CEMS User Group Meeting May 4, 2004 Mary Shellabarger, EPA

2. Background of NOx SIP Call • Issued in 1998: required 22 States & DC to submit State Implementation Plans (SIPs) providing NOx emission reductions to mitigate ozone transport in eastern U.S • Assigns a total NOx emissions “budget” for each identified State • Permits States to choose what NOx measures to adopt to meet the State-wide emission budget

3. Background, cont. • EPA encouraged the use of an emissions trading program to achieve reductions from large electric generating units and industrial boilers • Requires compliance with Part 75 monitoring • Requires measurement and reporting of all emissions • Sets goals and control requirements in terms of allowable emissions • Reduce and cap total emissions • Sources must hold allowances equal to emissions

4. Participants • “Core” units affected by the NOx Budget Trading Program include • fossil fuel fired electric generators >25 MW • industrial boilers and turbines >250 mmBtu/hr • Some Northeast states include sources between 15 and 25 MW • NY added source category: cement kilns • All states include opt-in provisions

5. Timing • Phase I: 19 states & DC submitted SIPs with trading programs (Phase I) • 9 northeastern states • CT, MA, RI, NY, NJ, PA, MD, DE, DC • required to: monitor in 2002, comply in 2003 • 11 additional states (or portions) • VA, WV, NC, SC, KY, TN, AL, IL, IN, MI, OH • required to: monitor in 2003, comply in 2004

6. 2003 Compliance • 8 states & DC participating • Budget: 165K allowances 140K basic allocations • 25K compliance supplement pool • Emissions: 140K tons • (compare to 185K in 2002 for same group) • Bank: 25K allowances

7. 2004 Implementation • 19 states and DC participating • Budget: 665K allowances • 500K basic allocations • 140K compliance supplement pool • 25K bank from 2003 • Emissions: ? • Bank: ?

8. About 2004 Emissions • Shortened compliance season for “new” 11 states • ozone season emissions reported: 5/1 to 9/30 • emissions counted towards compliance: 5/31 to 9/30 • Regular compliance season for northeast states • emissions reported and counted: 5/1 - 9/30

9. Reporting 2004 Emissions • All sources report hourly and cumulative (both ozone season and annual) data for the entire ozone season as indicated in the EDR instructions • ETS will calculate and present in the feedback an EPA Accepted value for NOx mass based upon the State-specific compliance period • EPA strongly encourages sources with shortened compliance period to verify total NOx mass by using MDC hourly with the date filter set for May 31 - September 30

10. 2004 Dates • May 1: all monitors installed and certified • May 1 or 31: 1st day of compliance period • July 1-30: reporting period for 2Q EDR • Sept. 30: last day of compliance period • Oct 1-30: reporting period for 3Q EDR • Nov. 30: compliance reports due • Nov. 30: allowance transfer deadline

11. New Unit Allocations • Reminder for new units that receive an allocation from a new unit set-aside • Check your state’s allocation rule for the end-of-ozone season “take-back” procedure • Make sure that it’s understood by allowance managers before allowance transfer deadline

12. New Units, cont. • Allocation adjusted “to account for actual utilization” • allocation based on lowest permitted emissions rate times maximum design heat input • units only allowed to keep allowances equivalent to lowest permitted emissions rate times actual utilization • excess allowances deducted as part of compliance

13. Compliance 2004 • Ozone season ends Sept. 30 • EDRs due Oct. 30 • Allowance transfer deadline Nov. 30 • eligible allowances: 2003, 2004 • no flow control • Compliance certification due Nov. 30

14. Compliance Certification • Electronic submission through CBS or paper submission • ID each affected unit • compliance certification statement • signature of AAR • Optional: • common stack apportionment • identification of allowance serial numbers

15. Compliance process at EPA • Before the allowance transfer deadline, EPA will compare preliminary emissions data with allowance account holdings • EPA makes courtesy calls to alert AAR of potential problem • Allowance transfers received and processed • Emissions data received and quality assured • Allowances are deducted to account for emissions • (and for new units, to account for actual utilization)

16. Allowance Deduction Process • One unit at a time, in numerical order • Fulfill obligations of first unit before moving on to next unit • AAR-specified allowances first • other allowances by FIFO (first in, first out) • current year allowances • banked allowances • If a unit doesn’t have enough allowances, go to overdraft account

17. Excess Emissions • When there are not enough allowances to cover emissions in the unit account or overdraft account • Allowances are deducted from following year’s allocation at 3:1 rate • 3 allowances for each ton of excess • Other enforcement action possible

18. Future Reference: Flow Control • No flow control for 2004 compliance, possible for 2005 compliance • Compare number of banked allowances to regional budget • If total number of banked allowances exceeds 10 % of regional budget, PFC is calculated for following year

19. Remember in 2004: • Monitors should have been installed and certified by May 1 • When does your compliance season start? • May 1 or May 31 • Allowance transfer deadline Nov. 30: • Will you have a new unit take back? • Flexibility of overdraft accounts • Use the CAMD Business System!