1 Proposed Rulemaking to Implement Provisions of the Federal Clean Air Interstate Rule Environmental Quality Board Meeting Harrisburg, PA February 20, 2007 Thomas K. Fidler Deputy Secretary for Waste, Air and Radiation Management Department of Environmental Protection Commonwealth of Pennsylvania

2 Federal Clean Air Interstate Rule On May 12, 2005, EPA promulgated the final Clean Air Interstate Rule (CAIR). EPA found that 28 states and the District of Columbia contribute significantly to downwind PM2.5 and 8-hour ozone nonattainment areas. EPA required states to submit State Implementation Plan revisions for SO 2 and NOx by September 11, 2006.

3 Federal Clean Air Interstate Rule EPA recommended that states achieve the required NOx and SO 2 reductions by controlling emissions from electric generating units. EPA established emission budgets for each affected state with compliance starting: NOx Phase 1January 1, 2009 NOx Phase 2January 1, 2015 SO 2 Phase 1January 1, 2010 SO 2 Phase 2January 1, 2015

4 PA CAIR Proposed Rulemaking Amends 25 Pa. Code Chapters 121, 129 and 145; and to add Chapter 145, Subchapter D. Establishes additional NOx and emission control requirements for large electric generating units. Includes amendments to transition from the NOx SIP Call rules to the CAIR program.

5 PA CAIR Proposed Rulemaking Will achieve NOx reductions from electric generating units, also known as EGUs, currently covered by the NOx Budget Trading Program. Includes requirements that are similar to the existing requirements of the NOx Budget Trading Program.

6 PA CAIR Proposed Rulemaking Establishes three CAIR trading programs: Annual NOx Phase 1 budget - 99,049 tons Annual NOx Phase 2 budget - 82,541 tons Ozone Season NOx Phase 1 budget - 42,171 tons Ozone Season NOx Phase 2 budget - 35,143 tons Annual SO 2 Phase 1 budget - 275,990 tons Annual SO 2 Phase 2 budget - 193,193 tons Adds the CAIR Ozone Season NOx Program to replace the existing NOx Budget Trading Program.

7 PA CAIR Proposed Rulemaking CAIR SO 2 Program The provisions of the federal CAIR SO 2 trading program are incorporated by reference. Compliance with the CAIR SO 2 requirements will begin January 1, The CAIR SO 2 Program will increase the number of Acid Rain Program SO 2 allowances that must be surrendered in order to comply with the CAIR SO 2 budget.

8 PA CAIR Proposed Rulemaking Amends the existing Small Source NOx Program requirements in § Requires sources subject to the Small NOx program to surrender CAIR NOx Ozone Season allowances in Clarifies requirements for alternative actual emission calculations and recordkeeping procedures.

9 PA CAIR Proposed Rulemaking Transition from NOx Budget Trading Program to CAIR As proposed, §145.8(a) specifies the following: Allocations for the 2009 NOx Ozone Season will be made by EPA under the Federal CAIR. For 2010 and each year thereafter, DEP will allocate NOx allowances for the NOx Ozone Season Program pursuant to Subchapter D of the proposed rulemaking.

10 PA CAIR Proposed Rulemaking Transition from NOx Budget Trading Program to CAIR As proposed, §145.8(b) will: Replace the existing NOx Budget emission limitations and monitoring requirements. Require compliance with the CAIR NOx Ozone Season requirements of Subchapter D beginning with the May 1, 2010 control period. Require that 40 CFR be used to determine the amount of NOx allowances that should be surrendered if NOx Ozone Season emission limitations are exceeded.

11 PA CAIR Proposed Rulemaking Section provides for transitioning non-EGUs in the NOx Budget Trading Program to equivalent alternative limits for the NOx Ozone Season program, beginning in 2009.

12 PA CAIR Proposed Rulemaking Non-EGU NOx Ozone Season Compliance Alternatives Cap emissions at the 2005 NOx allocation rate and surrender CAIR NOx allowances if limits are not met. Comply with CAIR NOx Ozone Season requirements and receive allowances. Opt into the CAIR Program.

13 PA CAIR Proposed Rulemaking Alternative Emission Reduction Measures Provide NOx allocations to alternative emission reduction measures that qualify for credit under the Alternative Energy Portfolio Act. Broaden the range of potential reduction strategies that will help meet the CAIR budgets.

14 PA CAIR Proposed Rulemaking Alternative NOx Emission Reduction Measures Provide a greater amount of allowances for fossil units at lower prices. Reduce load and make more allowances available at lower prices as efficiency grows. Bring more ACT 213 related economic activity to the Commonwealth. Renewables could affect only 15% of the NOx budget.

15 PA CAIR Proposed Rulemaking General NOx Allocation Method The Federal CAIR program provides permanent allocations to entities whether or not they provide economically beneficial production or services. The proposed amendments provide more equitable results and promote new cleaner generation in the Commonwealths deregulated electric market.

16 PA CAIR Proposed Rulemaking Proposed NOx Allocation Methodology Allowances would be distributed based on ongoing production and service activities. This approach would diminish negative economic distributional effects that occur under the federal CAIR.

17 PA CAIR Proposed Rulemaking NOx Allocation Methodology Applies EPAs modified heat input method used for new units to all electric generating units and qualifying resources. Ensures a more equitable distribution of allowances. Promotes efficiency and new capacity development.

18 PA CAIR Proposed Rulemaking The Department would allocate additional annual NOx allowances to the owner/operator of CAIR SO 2 units previously exempted under Title IV if operation commenced prior to January 1, Approximately 1.3% of the Annual NOx Budget would be available for each control period from Beginning January 1, 2016, the Department would not allocate additional NOx allowances. The Department may extend, terminate or modify the allocation of additional NOx allowances after providing notice in the Pennsylvania Bulletin.

19 PA CAIR Proposed Rulemaking Committee Review Air Quality Technical Advisory Committee – Reviewed on December 14, 2006 and voted at its January 4, 2007 meeting to advance the proposal. Citizens Advisory Council – Reviewed on January 17, Small Business Compliance Advisory Committee – Reviewed on January 24, 2007.

20 PA CAIR Proposed Rulemaking Air Quality Technical Advisory Committee Recommendations Add provisions to provide a formula for SO 2 compensatory NOx allowance allocations to waste coal units not covered under the Acid Rain Program.

21 PA CAIR Proposed Rulemaking Air Quality Technical Advisory Committee Recommendations (Contd) Seek comment in the Preamble on: Fixed new source set-aside or unlimited with future allowances. Appropriateness of allocating to demand side management load shifting. Appropriateness of no limit on non-EGU energy resource allocations.

22 DEP Recommendation Approve the proposed PA CAIR rulemaking for public review and comment with a 60-day public comment period and three public hearings. Thank you for consideration of the proposal.