Clean Air Markets
CAIR Frequent Questions – Allocations
Q: Do you have any recommendations on how a State might handle the allocation of CAIR NOx allowances to a unit whose applicability under CAIR is uncertain? My state would ideally like to allocate only to CAIR units, but to all CAIR units.
A: In responding to this question, EPA is assuming that the State intends that the unit whose applicability is in question would have an allowance allocation if the unit is subject to CAIR, but does not intend for the unit to have any allocation if the unit is not subject to CAIR. There are unique circumstances where the applicability of CAIR to a unit is uncertain because of a pending rulemaking that includes proposed revisions to the applicability of CAIR (e.g., the proposed revision to the definition of cogeneration unit in 72 FR 20465 - 80, April 25, 2007) or because of an ongoing adjudicative proceeding to determine whether a unit is subject to CAIR (such as a proceeding to respond to a petition for an applicability determination). In these unique cases, EPA suggests that the State might want to take the approach of including the unit in the NOx annual and NOx ozone season allowance allocation table submitted by the State to EPA, consistent with the CAIR allocation timing requirements and with the NOx allowance allocation methodologies adopted by the State in its CAIR rules (i.e., treat the unit as if it is a CAIR unit when determining allowance allocations).
Under this approach, the State might also want to include in its submission to EPA a statement requesting that EPA not record the allocations in the unit's compliance account until the unit's applicability under CAIR is determined. The State would get the unit owner's agreement in writing to this approach. All other CAIR NOx allowance allocations in the State's allocation table submission would be recorded by EPA by the applicable deadline for CAIR NOx allowance recordation, even if the unit's applicability is determined after that deadline. If it is ultimately determined that the unit is subject to CAIR, EPA would record the allowance allocations for the applicable control periods in the compliance account for the unit. If it is ultimately determined that the unit is not subject to CAIR, the State could then revise the allowance allocations - consistent with the State's NOx budgets and the allowance allocation formulas in the State's SIP as approved by EPA - to allocate to the State's CAIR NOx units the allowances initially reserved for the unit, and EPA would record the revised allocations. These allocations would be in addition to the initial allocations of allowances for CAIR NOx units for the control periods involved. The revised allocations would be made in a new State allocation table that would only include the additional allocations.
Alternatively, if the State is not opposed to a potentially-affected unit receiving allowances even if it is ultimately determined not to be a CAIR unit, the State might want to allocate to the potentially-affected unit and, if the unit is later determined not to be a CAIR unit, from then on not allocate additional allowances to the unit.
Q: How much flexibility do states have with respect to designing allocation schemes? For example, can states require that unallocated allowances be retired into a state account?
A: States have flexibility in the design of NOx allocation schemes. (See preamble discussion at 70 FR 25162, 25278 (2005) and §§ 51.123(o)(2)(ii) and 51.123(aa)(2)(iii)). EPA is not encouraging States to withhold or retire allowances to create a tighter program. EPA believes that the state caps set in CAIR already represent the appropriate amount of cost-effective reductions in NOx emissions required to prevent significant contribution to non-attainment through transport of emissions to downwind ozone and PM 2.5 non-attainment areas. EPA is not encouraging States to withhold or retire allowances to create a tighter program. Where necessary, the Agency believes that the States should be looking at lowering emissions of other sources of NOx given the large amount of reductions the power industry is already making. However, CAIR does not prohibit States from creating a tighter program, and the Clean Air Act generally authorizes States to adopt requirements more stringent than federal requirements. EPA suggests that States interested in adopting tighter requirements for EGUs consider the need for this based on the modeling and analysis done by States for general attainment planning. In every case, the State SIPs must include control measures and demonstrate that the measures will allow the State to meet its State budget. (See preamble discussion at 70 FR 25162, 25256-63 (2005) and §§ 51.123(e) and (q) and 51.124(e)). While EPA has committed to administer the CAIR trading programs in order to efficiently and effectively eliminate significant contribution through transport of these emissions, EPA has not made a commitment to administer more aggressive NOx trading programs.
Q: Does footnote 128 essentially say that states must submit their 2009 CAIR NOx annual and CAIR ozone-season allowances to EPA by 1/1/06 (i.e., prior to their CAIR SIP submittals in Sept. 2006)? (pg. 25278/3)
A: No. Footnote 128 is recognizing that since allocations for the first year of CAIR NOx are due on 10/31/06 (after the CAIR SIP submittal deadline of 09/11/06) that the notification period will be less than 3 years.
Q: Under EPA’s “modified output” example for allocating NOx allowances, can a state retire the allowances for a retired plant? (pg. 25279/1)
A: States have flexibility in deciding how to allocate NOx allowances under the trading programs. A State could retire allowances for a retired plant through modification to the example allocation methodology mentioned.