“Building a Common Understanding; The Clean Air Act and Upcoming Carbon Pollution Guidelines for Existing Power Plants..”

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September 23, 2013 version 1

Considerations in the Design of a Program to Reduce Carbon Pollution from Existing Power Plants The EPA recently released an overview presentation entitled “Building a Common Understanding:

The Clean Air Act and Upcoming Carbon Pollution Guidelines for Existing Power Plants,”

(available at: http://epa.gov/airquality/cps/webinar.html)

 which describes President Obama’s Climate Action Plan and the Clean Air Act provisions for addressing carbon emissions from power plants. As follow up to that presentation, this document provides additional materials about issues that should be considered in designing a program to reduce carbon pollution from existing power plants. These materials are intended to provide states and stakeholders with information to plan for open and interactive dialogue with EPA in the fall of 20131.

On June 25, 2013, President Obama issued a Presidential Memorandum directing the EPA to work
expeditiously to complete carbon pollution standards for the power sector. EPA is using its authority
under section 111 of the Clean Air Act to issue requirements that address carbon pollution from
existing power plants and modifications of those plants. The Presidential Memorandum specifically
directs EPA to build upon state leadership, provide flexibility, and take advantage of a wide range of
energy sources and technologies toward building a cleaner power sector that provides reliable and
affordable power to meet our energy needs.

The Presidential Memorandum directs EPA to issue proposed carbon pollution standards and
guidelines, as appropriate, for modified and existing power plants by no later than June 1, 2014, and
to issue final standards and guidelines, as appropriate, by no later than June 1, 2015. In addition, it
directs EPA to include a requirement for state submittal of the implementation plans required under
section 111(d) of the Clean Air Act by no later than June 1, 2016.

Section 111 of the Clean Air Act calls for different types of programs to cut pollution from new and
existing emissions sources. Under section 111(b), EPA issues national emissions standards that
apply to new sources in a category of similar sources. By contrast, for certain pollutants, section
111(d) provides that EPA shall establish a procedure for states to submit plans containing
performance standards for existing sources in a source category. Under section 111(d) EPA issues
guidelines for states to use in developing plans implementing standards of performance for the
affected sources. These state plans are submitted to EPA for approval. Congress recognized that the
opportunity to build emissions controls into a source’s design is greater for new sources than for
existing sources. Partly for that reason, section 111 allows for new source standards and existing
source standards to be quite different.

As the overview presentation describes, section 111(d) of the Clean Air Act is broad and allows for
collaboration between EPA and states to address pollutants that endanger the public health and
welfare. Moving forward, there are different options available for addressing carbon pollution from
existing power plants such as a “source-based approach” and a “system-based approach.” A source based
approach evaluates emission reduction measures that could be taken directly at the affected
sources—in this case, the power plants. A system-based approach evaluates a broader portfolio of

1 We anticipate this document will be periodically updated and revised as we receive feedback from stakeholders during
the interactive dialogue at meetings in the fall of 2013.
September 23, 2013 version

2 measures including those that could be taken beyond the affected sources but still reduce emissions
at the source.

In the following pages, we provide brief synopses of key topics for discussion between EPA and a
wide variety of stakeholders. The topics cover a number of issues relevant to the consideration of
potential design of a program under section 111(d) for existing power plants. We describe why the
topic is important to the design of a carbon pollution program for existing power plants, and provide
specific questions to spark further discussion and exploration with the agency in the coming months.
This document is not intended to portray all potential topics in the design of the program, but is
intended to spark a conversation about new ideas and concepts. A robust discussion among states,
stakeholders, and the EPA will inform the design of a program that ensures cost-effective solutions,
provides flexibility, and builds upon the leadership of states over the past decade.

1. What is state and stakeholder experience with programs that reduce CO2 emissions in the
electric power sector?

Over the past decade, a variety of strategies have been employed that reduce CO2 emissions from the
electric power sector. Some of these have specifically focused on CO2 emissions while others have
had other purposes but still result in CO2 emissions reductions as a co-benefit. Some have been
required by state statute, others initiated by state utility commissions under existing statutory
authorities, while others have been undertaken at the initiative of utilities or independent owners of
power generation facilities. Examples include greenhouse gas (GHG) emissions performance
standards, emissions budget trading programs, resource planning requirements, end-use energy
efficiency resource standards, renewable energy portfolio standards, and appliance and building code
energy standards.

It is important for EPA to understand and consider the full range of existing state programs and the
progress states have made to date. Many states and other stakeholders have advocated that states
should be provided with flexibility in developing their state plans under CAA section 111(d),
including the ability to use a range of existing or future state programs. Consequently, EPA is
exploring how it could provide a framework for state plans that recognizes and builds off efforts
already underway to reduce CO2 emissions from the power sector, provides flexibility for states to
adopt measures that meet the reduction goals, and accommodates the diverse needs of states.

Questions for further discussion

 What actions are states, utilities, and power plants taking today that reduce CO2 emissions
from the electric power system? How might these be relevant under section 111(d)?
 What systems do states and power plants have in place to measure and verify CO2emissions
and reductions?
 How do state programs and measures affect electricity generation and emissions at a regional
level? How are interstate effects accounted for when measuring the progress of a state
program? For example, are the multi-state effects of state renewable portfolio standards, end use
energy efficiency resource standards, emissions performance standards, and emissions
budget trading programs currently accounted for by the state, and if so, how?

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2. How should EPA set the performance standard for state plans?

A key question in designing a program under CAA section 111(d) to limit CO2 emissions from
power plants is: What levels of emission performance are required? CAA Section 111(d) calls for
EPA to issue guidelines for state plans. States are to submit plans that contain standards of
performance for existing sources. EPA is to approve or disapprove those plans. As with previous
section 111(d) rules, EPA believes that its guidelines should identify for sources and states the
required level(s) of performance prior to plan submittal. Under section 111:
“Standard of performance” means “a standard for emissions of air pollutants which
reflects the degree of emission limitation achievable through the application of the best
system of emission reduction which (taking into account the cost of achieving such
reduction and any non air quality health and environmental impact and energy
requirements) the Administrator determines has been adequately demonstrated.”
There are a number of ways to reduce CO2 emissions from existing power plants that might be
included in an evaluation of the best system of emission reduction (BSER), including:

 Onsite actions at individual affected section 111(d) sources.
o Supply-side energy efficiency improvements (“heat rate improvements”).
o Fuel switching or co-firing of lower-carbon fuel.
 Shifts in electricity generation among sources regulated under section 111(d) (e.g., shifts
from higher- to lower-emitting affected fossil units).
 Offsite actions that reduce or avoid emissions at affected section 111(d) sources.
o Shifts from fossil generation to non-emitting generation.
o Reduction in fossil generation due to increases in end-use energy efficiency and
demand-side management.

Questions for further discussion

Which approaches to reducing CO2 emissions from power plants should be included in the
evaluation of the “best system of emission reduction” that is used to determine the
performance level(s) that state plans must achieve? Should the reduction requirement be
source- or system-based?

 How does the amount of flexibility that states are given to include different types of
programs in their state plans relate to the “best system of emissions reduction” that is used to
set the performance bar for state plans? For example, if state standards to improve end-use
energy efficiency were included in state plans, should EPA consider potential improvements
in end-use energy efficiency in setting the performance target for states?

 What should be the form and specificity of the performance level(s) in EPA guidelines?
(Rate-based or mass-based? Separate levels for each subcategory of sources, or one level for
the covered sources in the state? A uniform national level, or different levels by state/region
based on an established evaluation process?)
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 When can emission reductions from existing power plants be achieved, considering different
reduction strategies?
 How should a state, in applying a standard of performance to any particular source, consider
a facility’s “remaining useful life” and other factors?

3. What requirements should state plans meet, and what flexibility should be provided to states
in developing their plans?

Many states and stakeholders have voiced support for state flexibility to include different types of
program designs in their state plans. There are numerous and varied means for reducing or avoiding
carbon pollution from existing electric generating units (EGUs), including options that target
electricity supply and those that target electricity demand. States have been leaders in exploring
these options, and many states have developed a portfolio of programs and measures that reduce
electricity sector CO2 emissions while providing significant economic, consumer and reliability

Under CAA section 111(d), state standards for existing sources must reflect the level of emissions
performance achievable through the application of the “best system of emission reduction” (BSER),
but states have significant flexibility in the design of their plans. In considering criteria for
approvability of state plans, relevant questions include the breadth of that flexibility, who is
responsible for achieving the required level of emissions performance, and how performance would
be measured and verified under different state program designs.

Questions for further discussion

 What level of flexibility should be provided to states in meeting the required level of
performance for affected EGUs contained in the emission guidelines?
 Can a state plan include requirements that apply to entities other than the affected EGUs? For
example, must states place all of the responsibility to meet the emission performance
requirements on the owners or operators of affected EGUs, or do states have flexibility to
take on some (or all) of the responsibility to achieve the required level of emissions
performance themselves or assign it to others (e.g., to require an increase in the use of
renewable energy or require end-use energy efficiency improvements, which will result in
emissions reductions from affected EGUs)?
 What components should a state plan have, and what should be the criteria for approvability?
 Can a state plan include programs that rely on a different mix of emission reduction methods
than assumed in EPA’s analysis of the “best system of emission reduction” that is used to set
the performance standard for state plans?
 What should be the process for demonstrating that a state plan will achieve a level of
emissions performance comparable to the level of performance in the EPA emission
 What enforceability, measurement, and verification issues might arise, depending on the
types of state measures and programs that states include in their plans? For example, what
issues are raised by actions that have indirect affects on EGU emissions, such as end-use
energy efficiency resource standards, renewable portfolio standards, financial assistance
programs to encourage end-use energy efficiency, building energy codes, etc.)?

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 Do different CO2 reduction methods under different state plan approaches necessitate
different timelines for the achievement of emission reductions?
 What issues arise from the fact that operation and planning of the electricity system is often
regional, but CAA section 111(d) calls for state plans? How should interstate issues be
addressed, where actions in one state may affect EGU emissions in another state? For
example, where actions have interstate impacts, which state would receive credit for the
emission reductions in its state plan? Could EPA provide for coordinated submittal of state
plans that demonstrate performance on a regional basis?

4. What can EPA do to facilitate state plan development and implementation?

Under CAA section 111(d), states are able to determine the combination of measures that will
achieve an equivalent or better level of emission performance as those specified by EPA’s emissions
guidelines. To help states develop their plans, EPA has historically issued a model rule under section
111(d). However, many states are deploying a range of policies, programs, and measures that reduce
electricity sector CO2 emissions. In these circumstances, the potential role of a model rule is less
clear, and any such model rule would need to consider the unique regional and sometimes integrated
nature of these existing programs. In addition, states without current programs may be better
informed by the experiences of their sister states in finding the appropriate mix of measures and

EPA is exploring whether and how to develop a “toolbox” of decision-making and implementation
resources for states that might include information about state programs and measures that reduce
electricity sector CO2 emissions. Examples of information in the decision-making toolbox might
include criteria for demonstrating how system-wide actions can meet the level of performance in the
emission guidelines; a compendium of existing state energy and GHG policies, programs, and
measures that includes information about key design attributes and how the states are estimating
energy savings and emission reductions; and links to tools that help quantify energy savings and
emissions reductions from state programs and measures.

Questions for further discussion

 What types and amount of guidance and implementation support should be provided to
 Are there benefits for coordination among neighboring states in the development and
submittal of state plans? Should EPA facilitate the coordination of multi-state plan
 Would certain types of measures that might be included in state plans increase the need for
coordination among states?
 Are there model rules that EPA could develop that would assist states, and what would those
rules cover?

There are many other questions that deserve consideration in the development of the section 111(d) guidelines, and EPA encourages the suggestion of other topics.

                          EPA welcomes input on these and any other questions.