97-16511. Acid Rain Program: Phase II Early Reduction Credits

[Federal Register Volume 62, Number 121 (Tuesday, June 24, 1997)]
[Rules and Regulations]
[Pages 34148-34151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16511]



[[Page 34147]]

_______________________________________________________________________

Part IV





Environmental Protection Agency





_______________________________________________________________________



40 CFR Part 73



Acid Rain Program: Phase II Early Reduction Credits; Final Rule

Federal Register / Vol. 62, No. 121 / Tuesday, June 24, 1997 / Rules 
and Regulations

[[Page 34148]]



ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 73

[FRL-5845-3]


Acid Rain Program: Phase II Early Reduction Credits

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: Title IV of the Clean Air Act, as amended by Clean Air Act 
Amendments of 1990, (the Act) authorizes the Environmental Protection 
Agency (EPA or Agency) to establish the Acid Rain Program in order to 
reduce the adverse health and ecological impacts of acidic deposition. 
On March 23, 1993, the Agency promulgated final rules allocating 
allowances to utility units, including the criteria and method of 
allocating early reduction credits under section 404(e) of the Act. 
This action implements a settlement of litigation between EPA and a 
utility regarding Phase II early reduction credits. The settlement 
provides a method by which additional allowances may be loaned to units 
receiving early reduction credits as an incentive to further reduce 
emissions prior to the units becoming subject to the applicable Acid 
Rain Program emission limitations.
    In the proposed rules section of this Federal Register, EPA is 
proposing a rule that is identical to this direct final rule. If 
significant, adverse comments are timely received on the proposed rule 
(see DATES section), this direct final rule will be withdrawn and all 
such comments will be addressed in a subsequent final rule based on the 
proposed rule. If no significant, adverse comments are timely received 
on the proposed rule, then the direct final rule becomes effective as 
published and no further action is contemplated on the parallel 
proposal published today.

DATES: This rule is effective August 8, 1997, unless significant, 
adverse comments are received by July 24, 1997. If significant, adverse 
comments are received, EPA will publish notice in the Federal Register 
withdrawing the direct final rule.
    Judicial Review. Under section 307(b)(1) of the Clean Air Act 
(Act), judicial review of this rule is available only by filing a 
petition for review in the U.S. Court of Appeals for the District of 
Columbia Circuit within 60 days of today's publication of these direct 
final revisions. Under section 307(b)(2) of the Act, the requirements 
that are the subject of today's document may not be challenged later in 
civil or criminal proceedings brought by EPA to enforce these 
requirements.

ADDRESSES: Docket and Comments. Docket No. A-97-31, containing 
supporting information used to develop these amendments, is available 
for public inspection and copying from 8:00 a.m. to 5:30 p.m., Monday 
through Friday, excluding legal holidays, at EPA's Air Docket Section 
(6102), Waterside Mall, Room M1500, 1st Floor, 401 M Street, SW, 
Washington DC 20460, telephone [phone]. Written comments should be 
submitted to the same address. Information concerning the original 
rules is found in Docket No. A-92-06, the proposed allowance allocation 
rule. A reasonable fee may be charged for copying.

FOR FURTHER INFORMATION CONTACT: Kathy Barylski at [phone] Acid 
Rain Division (6204J), U.S. Environmental Protection Agency, 401 M St., 
S.W., Washington, DC 20460; or the Acid Rain Hotline at [phone]. 
Electronic copies of this rulemaking can be accessed through the Acid 
Rain Division website at http://www.epa.gov/acidrain.

SUPPLEMENTARY INFORMATION: In the Proposed Rules Section of this 
Federal Register, EPA is proposing rule revisions that provide a method 
by which additional allowances may be loaned to units receiving early 
reduction credits. This will provide an incentive to further reduce 
emissions prior to the units becoming subject to the applicable Acid 
Rain Program emission limitations. EPA considers these revisions to be 
noncontroversial and anticipates no adverse comments. However, if EPA 
timely receives significant, adverse comments, EPA will publish a 
document in the Federal Register withdrawing the direct final rule. In 
that event, all public comments received will be treated as comments on 
the proposed rule as published in the Proposed Rules Section of this 
Federal Register and will be addressed in a subsequent final rulemaking 
document. EPA will not institute a second comment period on the 
document in the Proposed Rules Section of this Federal Register or on 
any subsequent final rule addressing withdrawn portions of this final 
rule. Any parties interested in commenting on these revisions to part 
73 should do so at this time.

I. Affected Entities
II. Background
III. Phase II Early Reduction Credits
    A. Review of 1993 Rule
    B. Issues Resolved in Settlement
    1. General Approach
    2. Eligibility Criteria
    3. Loan of Allowances
    4. Reference Point
    C. Environmental Benefit
IV. Administrative Requirements
    A. Executive Order 12866
    B. Unfunded Mandates Act
    C. Paperwork Reduction Act
    D. Regulatory Flexibility
    E. Miscellaneous
    F. Submission to Congress and the General Accounting Office

I. Affected Entities

    Entities potentially regulated by this action are fossil-fuel fired 
boilers or turbines that serve generators producing electricity for 
sale. Regulated categories and entities include:


------------------------------------------------------------------------
                                                Examples of regulated   
                 Category                             entities          
------------------------------------------------------------------------
Industry..................................  Electric service providers. 
------------------------------------------------------------------------

    This table is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities that may be affected by this 
action. To determine whether your facility may be affected by this 
action, you should carefully examine the applicability criteria in 
Sec. 72.6 and the exemptions in Secs. 72.7 and 72.8 of title 40 of the 
Code of Federal Regulations and the revised Secs. 72.6, 72.7, 72.8, and 
72.14 proposed on December 27, 1996 (61 FR 68340). If you have 
questions regarding the applicability of this action to a particular 
entity, consult the persons listed in the preceding FOR FURTHER 
INFORMATION CONTACT section.

II. Background

    The overall goal of the Acid Rain Program is to achieve significant 
environmental benefits through reductions in emissions of sulfur 
dioxide (SO2) and nitrogen oxides (NOx), the 
primary causes of acid rain. To achieve this goal at the lowest cost to 
society, the program employs both traditional and innovative, market-
based approaches for controlling air pollution. In addition, the 
program encourages energy efficiency and promotes pollution prevention.
    Title IV of the Clean Air Act sets as a primary goal the reduction 
of annual SO2 emissions by 10 million tons below 1980 
levels. To achieve these SO2 emissions reductions, the law 
requires a two-phase tightening of restrictions placed on fossil fuel-
fired power plants. Phase I began in 1995 and affected 110 mostly coal-
burning electric utility plants located in 21 eastern and midwestern 
states. Phase II, beginning in 2000, tightens the annual emissions 
limits imposed on these large, higher

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emitting plants and also sets restrictions on smaller or cleaner plants 
fired by coal, oil, or gas. Title IV also requires certain coal-fired 
units to reduce their emissions of NOX to a level achievable 
through installation of applicable NOX control technology. 
See 40 CFR part 76.
    The centerpiece of the Acid Rain Program is a unique trading system 
in which allowances (each authorizing the emission of up to one ton of 
SO2) may be bought and sold at prices determined by the free 
market. Most existing utility units are allocated allowances based on 
their historic fuel use and emission rates specified in the Act. 
Affected utility units are required to limit SO2 emissions 
to the number of allowances they hold, but because allowances are 
transferrable, utilities may meet their emissions control requirements 
in the most cost-effective manner.
    This rule relates to a small number of utilities eligible for 
allowances under section 404(e) of the Act. Section 404(e) allows a 
carefully delineated group of utilities to receive allowances for 
SO2 emissions reductions achieved before their units are 
subject to the Acid Rain Program SO2 emissions limitations. 
For Phase I of early reduction credits, from 1991 through 1994, a 
utility received 314,248 allowances. This rule modifies the Phase II 
early reduction credits program, from 1995 through 1999.

III. Phase II Early Reduction Credits

A. Review of 1993 Rule

    Section 404(e) of the Act provided a lengthy delineation of 
eligibility criteria for utility units to be allocated the additional 
allowances for early reduction. However, the Act was less specific 
regarding how the reduction of emissions would be calculated. The March 
23, 1993 rule (58 FR 15634) provided a methodology that EPA believed 
fairly represented the intent of the statute and accurately measured 
the reduction in emissions.
    The first issue was to determine the calculation approach. EPA 
considered a pure emissions approach, an emissions rate approach, and a 
hybrid. EPA developed the hybrid approach to encourage the utilities to 
increase utilization at cleaner plants and to discourage operational 
shifts that would result in additional emissions. This approach is not 
addressed in today's rule.
    The second issue was what comparison year to measure the reduction 
against. The 1993 rule finalized use of calendar year 1990 as the 
comparison year.

B. Issues Resolved in Settlement

1. General Approach
    One utility with Phase II affected units that are eligible for 
early reduction credits for emission reductions from 1995 through 1999 
initiated litigation regarding both the method of calculating early 
reduction credits and the comparison year for measuring the reduction. 
EPA and the utility worked together for over two years to craft a 
settlement. Under the settlement, the utility may be loaned allowances 
for fifteen years, while EPA is reasonably assured that the utility 
will make additional emissions reductions, thus benefitting the 
environment. These loaned allowances will be in addition to the early 
reduction credits calculated under the existing rule.
2. Eligibility Criteria
    In order to ensure that the settlement results in an environmental 
benefit, EPA and the utility agreed that the additional loaned 
allowances will only be available if the weighted average emission rate 
(based on heat input) for the Phase I year in question for all of the 
affected units in the unit's dispatch system is below the system-wide 
weighted average emission rate for 1990. The utility's dispatch system 
will be the dispatch system as it existed in 1990. In addition, the 
1990 SO2 emission rate for any unit that did not operate at 
all during 1990 will be deemed to be equal to the weighted average 
emission rate of all the other units at the same plant that did operate 
during 1990.
3. Loan of Allowances
    The additional allowances will be awarded to the year 2000 
subaccount. For each additional allowance, one allowance will be 
deducted from the year 2015 subaccount. If there are not enough 
allowances allocated under subpart B of part 73 to a unit's ATS 
subaccount for the year 2015 to permit the deduction of the entire 
number of allowances required to be deducted, additional allowances 
shall be deducted from the unit's ATS subaccount for subsequent years, 
as necessary to ensure that the required deduction is made. The unit's 
designated representative may designate by serial number any allowances 
to be deducted from the subaccount.
4. Reference Point
    The utility interested in Phase II early reduction credits had 
commented that it believed the credits should be based on the 
difference between a projected emission rate in Phase I and the actual 
rate. EPA is not reconsidering or modifying here the rule provisions 
that base the early reduction credits upon the difference between the 
actual Phase I emission rate and the 1990 emission rate. However, EPA 
and the utility agreed that a projected emission rate will be used for 
awarding the additional loaned allowances.
    The utility had provided a report prepared in 1991 estimating that 
the utility's average fuel sulfur content would rise through Phase I, 
resulting in an average emission rate of 1.75 lb/mmBtu, in the absence 
of any early reduction credit program. During the course of settlement, 
the utility provided additional materials from 1995 that confirmed that 
its average fuel sulfur content would otherwise rise to at least 1.75 
lb/mmBtu. Thus, the Agency and the utility agreed that a ``projected 
baseline emission rate'' of 1.75 lb/mmBtu would be used to calculate 
the loaned allowances.
    The Agency and the utility agreed that the additional loaned 
allowances would be calculated in an amount equal to the product, 
rounded to the nearest whole number, of (a) the unit's Phase I year 
utilization (in mmBtu) and (b) the amount (in lbs/mmBtu) by which the 
unit's ``projected baseline emission rate'' exceeds the greater of its 
actual Phase I year emission rate or its 1990 emission rate.

C. Environmental Benefit

    Under the existing early reduction credit program (without the 
allowance loan provisions), the utility would only significantly reduce 
the emission rate at one large coal plant (to 1.2 lb/mmBtu) and would 
sign new coal contracts for an average of 1.75 lb/mmBtu. This would 
result in total early reduction credits of about 106,000 and total 
system-wide SO2 emissions of approximately 1.34 million 
tons, over the five year period from 1995 through 1999.
    The utility has estimated that, with the new allowance loan 
provisions, it would likely sign new coal contracts or buy spot market 
coal with lower sulfur content and would reduce the emission rate at 
most of its units. Using an estimate that new coal contracts could 
average 1.4 lb/mmBtu, the early reduction credit program, as revised by 
today's rule, could result in 173,000 early reduction credits, 158,000 
loaned allowances, and total SO2 emissions of 1.19 million 
tons.
    The environment could experience a reduction of 150,000 tons of 
SO2 over five years (1.34 million tons minus 1.19 million 
tons), and 67,000 tons of the reduction (173,000 early reduction 
credits minus 106,000 early reduction

[[Page 34150]]

credits) would be offset by early reduction credits. Therefore, the 
utility would receive 158,000 loaned allowances to compensate for an 
additional 83,000 tons of emission reductions (150,000 tons of emission 
reductions minus 67,000 tons of emission reductions offset by early 
reduction credits). EPA believes that, because the allowances are 
merely loaned, the environment may benefit by up to 83,000 tons less of 
SO2 emitted to the atmosphere.

IV. Administrative Requirements

A. Executive Order 12866

    Under Executive Order 12866, 58 FR 51735 (October 4, 1993), the 
Administrator must determine whether the regulatory action is 
``significant'' and therefore subject to Office of Management and 
Budget (OMB) review and the requirements of the Executive Order. The 
Order defines ``significant regulatory action'' as one that is likely 
to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, it has been 
determined that this rule is not a ``significant regulatory action'' 
because the rule does not meet any of the criteria listed above. As 
such, this action was not submitted to OMB for review.

B. Unfunded Mandates Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (``Unfunded 
Mandates Act'') requires that the Agency prepare a budgetary impact 
statement before promulgating a rule that includes a federal mandate 
that may result in expenditure by State, local, and tribal governments, 
in aggregate, or by the private sector, of $100 million or more in any 
one year. Section 203 requires the Agency to establish a plan for 
obtaining input from and informing, educating, and advising any small 
governments that may be significantly or uniquely affected by the rule.
    Under section 205 of the Unfunded Mandates Act, the Agency must 
identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule for which a budgetary impact statement must 
be prepared. The Agency must select from those alternatives the least 
costly, most cost-effective, or least burdensome alternative that 
achieves the objectives of the rule, unless the Agency explains why 
this alternative is not selected or the selection of this alternative 
is inconsistent with law.
    Because this rule is estimated to result in the expenditure by 
State, local, and tribal governments or the private sector of less than 
$100 million in any one year, the Agency has not prepared a budgetary 
impact statement or specifically addressed the selection of the least 
costly, most cost-effective, or least burdensome alternative. Because 
small governments will not be significantly or uniquely affected by 
this rule, the Agency is not required to develop a plan with regard to 
small governments.
    The revisions to part 73 will not have a significant effect on 
regulated entities or State permitting authorities. The revisions 
represent an economic benefit to the affected utility and a benefit to 
the environment. The early reduction credit program is operated 
entirely by the EPA and, therefore, the changes will not burden the 
State or local permitting authorities.

C. Paperwork Reduction Act

    This rule will increase the information collection requirements of 
the existing regulations, but only for utilities that are eligible and 
wish to participate in the early reduction credit program. As only two 
utilities are eligible for early reduction credits, an information 
collection report is not required in connection with today's rule. 
Therefore, no information collection report has been prepared or 
submitted to the OMB under the Paperwork Reduction Act, 44 U.S.C. 3501, 
et seq.

D. Regulatory Flexibility

    EPA has determined that it is not necessary to prepare a regulatory 
flexibility analysis in connection with this rule. EPA has also 
determined that this rule will not have a significant economic impact 
on a substantial number of small entities. Only two utilities are 
potentially affected by this rule, and neither of those utilities is a 
small entity.

E. Miscellaneous

    In accordance with section 117 of the Act, issuance of this rule 
was preceded by consultation with any appropriate advisory committees, 
independent experts, and federal departments and agencies.

F. Submission to Congress and the General Accounting Office

    Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business 
Regulatory Enforcement Fairness Act of 1996, EPA submitted a report 
containing this rule and other required information to the U.S. Senate, 
the U.S. House of Representatives, and the Comptroller General of the 
General Accounting Office prior to publication of the rule in today's 
Federal Register. This rule is not a ``major rule'' as defined by 5 
U.S.C. 804(2).

List of Subjects in 40 CFR Part 73

    Air pollution control, Electric utilities, Reporting and 
recordkeeping requirements, Sulfur dioxide.

    Dated: June 16, 1997.
Carol M. Browner,
Administrator.

    For the reasons set forth in the preamble, 40 CFR part 73 is 
amended as set forth below.

PART 73--[AMENDED]

    1. The authority citation for part 73 continues to read as follows:

    Authority: 42 U.S.C. 7601 and 7651 et seq.

    2. Section 73.20 is amended by revising paragraph (e)(4) and by 
adding paragraph (f) to read as follows:


Sec. 73.20  Phase II early reduction credits.

* * * * *
    (e) * * *
    (4) For any unit that did not operate during 1990, the unit's 1990 
SO2 emission rate will be equal to the weighted average 
emission rate of all of the other units at the same source that did 
operate during 1990.
* * * * *
    (f) Allowance loan program. (1) Eligibility. Units eligible for 
Phase II early reduction credits under paragraph (a) of this section 
are eligible for allowances under this paragraph (f) if the weighted 
average emission rate (based on heat input) for the prior year for all 
of the affected units in the unit's dispatch system was less than the 
system-wide weighted average emission rate for 1990. The weighted 
average emission rate shall be calculated as follows:

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[GRAPHIC] [TIFF OMITTED] TR24JN97.000


    For the purposes of this calculation, the unit's dispatch system 
will be the dispatch system as it existed as of November 15, 1990.
    (2) Allowance Calculation. Allowances under this paragraph (f) 
shall be calculated as follows:
[GRAPHIC] [TIFF OMITTED] TR24JN97.001

    (3) Allowance Loan. (i) The number of allowances calculated under 
paragraph (f)(2) of this section shall be allocated to the unit's year 
2000 subaccount.
    (ii) The number of allowances calculated under paragraph (f)(2) of 
this section shall be deducted, contemporaneously with the allocation 
under paragraph (f)(3)(i) of this section, from the unit's year 2015 
subaccount.
    (iii) Notwithstanding paragraph (f)(3)(ii) of this section, if the 
number of allowances to be deducted exceeds the amount of allowances 
allocated to the unit for the year 2015, allowances in the year 2015 
subaccount equal to the amount of allowances allocated to the unit for 
the year 2015 shall be deducted. In addition to the deduction from the 
year 2015 subaccount, a sufficient amount of allowances in the year 
2016 subaccount (up to the amount of allowances allocated to the unit 
for the year 2016) shall be deducted contemporaneously, such that the 
sum of the allowances deducted from the subaccounts equals the number 
of allowances required to be deducted under paragraph (f)(3)(ii) of 
this section.
    (iv) Notwithstanding paragraph (f)(3)(ii) of this section, the 
procedure in paragraph (f)(3)(iii) shall be applied as follows to each 
year after 2015 (year-by-year in numerical order) for which the number 
of allowances to be deducted from that year's subaccount exceeds the 
number allocated to the unit for that year: allowances equal to the 
number allocated for that year shall be deducted from that year's 
subaccount and the remainder (up to the amount allocated) necessary to 
equal the number of allowances required to be deducted under paragraph 
(f)(3)(ii) of this section shall be deducted from the next year's 
subaccount.
    (v) The owners and operators of the unit shall ensure that 
sufficient allowances are available to make the full deductions 
required under paragraphs (f)(3)(ii), (iii), and (iv) of this section. 
The designated representative may specify the serial number of each 
allowance to be deducted.
    (4) ERC Units. Any unit to which allowances are allocated under 
paragraph (f)(3)(i) of this section shall be considered an ERC unit for 
purposes of applying the restrictions in paragraph (e)(6) of this 
section.

[FR Doc. 97-16511 Filed 6-23-97; 8:45 am]
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