Clean Air Markets
CAIR Frequent Questions – SIP Call Transition
This page was last updated June 2, 2006.
Q: My State is a NOx SIP Call state. Now that there is a CAIR NOx ozone season trading program, what happens to the NOx SIP Call trading program?
A: EPA will not administer the NOx SIP Call trading program after 2008, so States have to take some regulatory action to continue to meet their NOx SIP Call obligations. One choice is to participate in the CAIR NOx ozone season trading program, expanded to cover all units that would otherwise be covered by the State's NOx SIP Call trading program. See 40 CFR 51.123(bb)(1) and (3). States may also meet the requirements of 40 CFR 51.121 through some other means that achieves the emission reductions required by the NOx SIP Call. There are a number of issues that will need to be considered in the context of individual State rules. States, EPA Regions, and the Clean Air Markets Division will need to work together to achieve a smooth transition.
Q: What happens to the NOx SIP Call trading program after the 2008 ozone season?
A: Because EPA will not be administering the NOx Budget trading program for any ozone seasons after 2008, all NOx SIP Call States will need to sunset the NOx SIP Call trading program provisions. See 40 CFR 51.121(r). While the trading program will not apply to the 2009 control period and thereafter, some of the reconciliation activities for the 2008 control period will take place in calendar year 2009. EPA suggests States adopt the following language in their current NOx SIP Call trading rules: "The provisions of [insert State NOx SIP Call trading rule citation] shall not apply to the control period beginning in 2009 and any control period thereafter."
Q: If a unit has excess emissions in a control period, the NOx SIP Call trading program requires the owners and operators to surrender NOx SIP Call allowances from a subsequent control period. If the program sunsets in 2008 and a source has excess emissions in the 2008 control period, how will this surrender requirement be fulfilled?
A: Under the NOx SIP Call trading program, an excess emissions penalty assessed for the 2008 control period requires the deduction of allowances from a subsequent control period. Generally, no allowances will be allocated for the 2009 control period and thereafter. Therefore, States should consider adding language to the compliance provisions of the States' current NOx SIP Call trading rules to provide that the Administrator will deduct, for excess emissions for 2008, CAIR NOx Ozone Season allowances allocated for the 2009 control period.
Q: My State has some allowances in set-asides under the NOx SIP Call trading program that have not been allocated or requested. What happens to these allowances after 2008?
A: The definition of "CAIR NOx Ozone Season allowance" includes NOx SIP Call allowances issued for a control period during 2003 through 2008. This includes allowances held in State accounts as well as allowances held in private accounts. In its SIP revision, a State should consider including provisions that indicate what the State plans to do with any NOx SIP Call allowances held in State accounts. For example, if a State has a new unit set-aside and the provisions governing that set-aside require that any unused allowances be held for allocation in a future year, the CAIR NOx ozone season rule should address what will happen to the unused set-aside allowances accumulated through 2008.
Q: My State already allocated NOx SIP Call allowances through 2009. Will my State have to take back or terminate those allowances and issue CAIR NOx Ozone Season allowances for 2009?
A: For a few States, NOx SIP Call allowances have already been allocated for 2009 and recorded by EPA. Each such State has the option of providing in the CAIR NOx ozone season trading rule that those NOx SIP Call allowance allocations will be the CAIR NOx ozone season allocations for 2009 for the State, as long as the resulting total amount of CAIR NOx Ozone Season allowance allocations for the State for 2009 will not exceed the State's CAIR NOx ozone season trading budget for 2009. See 40 CFR 51.123(aa)(2)(iii)(B). Under this approach, those NOx SIP Call allowances will be usable in the CAIR NOx ozone season program, and any transfers of those allowances will be preserved and will not be affected by the sunsetting of the NOx SIP Call trading program.
Q: Can units in the NOx SIP Call trading program that do not qualify as electric generating units (EGUs) subject to CAIR participate in the CAIR trading programs?
A: States have the option of bringing in, for the CAIR NOx ozone season program only, those units in the State's NOx SIP Call trading program that are not EGUs under CAIR. (These additional units are referred to below as "non-EGUs".) EPA advises States exercising this option to consider the following matters.
Applicability
In its SIP revision, the State should add the applicability provisions in the State's NOx SIP Call trading rule (including any changes in the NOx SIP Call Phase II) for non-EGUs to the applicability provisions in 40 CFR 96.304 in order to include in the CAIR NOx ozone season trading program all units required to be in the State's NOx SIP Call trading program that are not already included under 40 CFR 96.304. (EPA suggests that the additional language should expressly apply only to units that are not already EGUs covered by CAIR so that a unit will not be covered by both the EGU and non-EGU applicability provisions.) With this additional language, the CAIR NOx ozone season program should cover all large industrial boilers and combustion turbines and all small EGUs (i.e. units serving a generator with a nameplate capacity of 25 MW or less) that the State currently requires to be in the NOx SIP Call trading program. See 40 CFR 51.123(aa)(2)(i).
Definitions
The definitions of "fossil fuel fired" and "cogeneration unit" differ between the NOx SIP Call and CAIR. To the extent these terms are used in the applicability provisions for non-EGUs in the State's NOx SIP Call trading rule, the State should preserve, and include in the CAIR NOx ozone season trading rule, the NOx SIP Call definitions but should specify that these definitions apply only for purposes of determining applicability for units that are not EGUs as defined in CAIR. EPA suggests supplementing the "commence commercial operation" definition in the CAIR NOx ozone season trading rule with the following language:
(3) Notwithstanding paragraphs (1) and (2) of this definition, for a unit not serving a generator producing electricity for sale, the unit's date of commencement of operation shall also be the unit's date of commencement of commercial operation.
This language addresses the fact that: monitoring system certification deadlines are based on commencement of commercial operation; and non-EGUs may not generate electricity and so never "commence commercial operation," as currently defined in the CAIR NOx ozone season trading rule.
EPA suggests supplementing the "commence operation" definition in the CAIR NOx ozone season trading rule with the following language:
(2) Notwithstanding paragraph (1) of this definition, and solely for purposes of 40 CFR Part 96, subpart HHHH, for a unit that is not a CAIR NOx Ozone Season unit under [reference new applicability language covering non-EGUs from State's NOx SIP Call trading program] on the later of November 15, 1990 or the date the unit commences operation as defined in paragraph (1) of this definition and that subsequently becomes such a CAIR NOx Ozone Season unit, the unit's date for commencement of operation shall be the date on which the unit becomes a CAIR NOx Ozone Season unit under [reference new applicability language covering non-EGUs from State's NOx SIP Call trading program].
(i) For a unit with a date of commencement of operation as defined in paragraph (2) of this definition and that subsequently undergoes a physical change (other than replacement of the unit by a unit at the same source), such date shall remain the date of commencement of operation of the unit, which shall continue to be treated as the same unit.
(ii) For a unit with a date for commencement of operation as defined in paragraph (2) of this definition and that is subsequently replaced by a unit at the same source (e.g., repowered), such date shall remain the replaced unit's date of commencement of operation, and the replacement unit shall be treated as a separate unit with a separate date for commencement of operation as defined in paragraph (1) or (2) of this definition as appropriate.
(In order to make this suggested language fit into the current "commence operation" definition, the paragraphs of the current definition need to be redesignated as paragraphs (1), (1)(i), and (1)(ii).) This language addresses situations where a non-EGU does not become subject to CAIR until a date after the unit commences operation; the current definition of "commence commercial operation" includes analogous language.
State Budgets
The State may add, to the State's CAIR NOx ozone season budget, the portion of the NOx SIP Call trading budget attributed to non-EGUs. See 40 CFR 51.123(aa)(2)(iii)(A) and (B). This may include allowances attributed to non-EGUs that were put in a set-aside account. EPA suggests that, with regard to any small EGUs (i.e., units serving a generator with a nameplate capacity of 25 MW or less) required to be in the State's NOx SIP Call trading program, if the NOx SIP Call EGU budget for the State was not expanded to cover these small EGUs, the CAIR NOx ozone season budget should not be expanded to cover them.
Allocations
Once the State has added to the CAIR NOx ozone season budget the amount attributed to non-EGUs from the NOx SIP Call, the State has the option of keeping the "EGU" and "non-EGU" budget amounts distinct from each other, or combining them, for allocation purposes.
Non-EGU allocation timing
EPA suggests that the allocation timing requirements in 40 CFR 51.123(aa)(iii)(C) and (D) should be followed for allocations to all CAIR units, including non-EGUs being brought into CAIR from the NOx SIP Call.
Q: What if my State doesn't want to include its NOx SIP Call non-EGUs in the CAIR NOx ozone season program?
A: EPA will no longer administer the NOx SIP Call trading program after 2008, so if a State does not bring the NOx SIP Call non-EGUs into the CAIR NOx ozone season trading program, the State will have to demonstrate that its NOx SIP Call non-EGU reduction obligations are being met in some other way. As explained in 40 CFR 51.121(r):
(r)(1) Notwithstanding any provisions of paragraph (p) of this section, subparts A through I of part 96 of this chapter, and any State's SIP to the contrary, the Administrator will not carry out any of the functions set forth for the Administrator in subparts A through I of part 96 of this chapter, or in any emissions trading program in a State's SIP approved under paragraph (p) of this section, with regard to any ozone season that occurs after September 30, 2008.
(2) Except as provided in 51.123(bb), a State whose SIP is approved as meeting the requirements of this section and that includes an emissions trading program approved under paragraph (p) of this section must revise the SIP to adopt control measures that satisfy the same portion of the State's NOx emission reduction requirements under this section as the State projected such emissions trading program would satisfy.
If a State chooses not to bring in the non-EGUs, but still plans to achieve NOx SIP Call reductions from non-EGUs, the State will have to meet the requirements in 40 CFR 51.121(f)(2), which states that:
(f)(2) Should a State elect to impose control measures on fossil fuel-fired NOx sources serving electric generators with a nameplate capacity greater than 25 MWe or boilers, combustion turbines or combined cycle units with a maximum design heat input greater than 250 mmBtu/hr as a means of meeting its NOx budget, then those measures must:
(i)(A) Impose a NOx mass emissions cap on each source; (B) Impose a NOx emissions rate limit on each source and assume maximum operating capacity for every such source for purposes of estimating mass NOx emissions; or
(C) Impose any other regulatory requirement which the State has demonstrated to EPA provides equivalent or greater assurance than options in paragraphs (f)(2)(i)(A) or (f)(2)(i)(B) of this section that the State will comply with its NOx budget in the 2007 ozone season; and
(ii) Impose enforceable mechanisms, in accordance with paragraphs (b)(1) (i) and (ii) of this section, to assure that collectively all such sources, including new or modified units, will not exceed in the 2007 ozone season the total NOx emissions projected for such sources by the State pursuant to paragraph (g) of this section.
The State will also have to meet the requirements in 40 CFR 51.121(i)(4), which states that:
(i)(4) If the revision contains measures to control fossil fuel-fired NOx sources serving electric generators with a nameplate capacity greater than 25 MWe or boilers, combustion turbines or combined cycle units with a maximum design heat input greater than 250 mmBtu/hr, then the revision must require such sources to comply with the monitoring provisions of part 75, subpart H.
Q: Do states need to adopt entirely new rules or can states alter existing NOx SIP call rules to comply with the CAIR ozone program?
A: Generally speaking, for a variety of reasons, new rules will need to be developed. There are a number of differences between the NOx SIP Call and CAIR model trading rules that would likely make the approach of modifying the NOx SIP Call trading rules much more difficult than simply adopting new rules for CAIR. While it is ultimately up to the State, EPA recommends that States adopt new ozone season trading rules for CAIR rather than modifying their NOx SIP Call rules.
Q: Will EPA track NOx emissions from NOx SIP Call non-EGUs if such non-EGUs participate in the ozone season CAIR trading program?
A: Yes, if the State exercises its option to include these sources in the CAIR NOx ozone season program, these sources will be subject to all the CAIR NOx ozone season program requirements, which include reporting emissions in accordance with Part 75. These sources will be treated like any other CAIR NOx ozone season unit.
Q: It appears that Rhode Island can participate in the CAIR ozone season NOx trading program if it modifies its NOx SIP Call trading rule to conform to the CAIR ozone season NOx trading rule. Rhode Island is not subject to findings of significant contribution for 8-hour ozone or PM2.5. However, CAIR precludes states not subject to findings of significant contribution for PM2.5 from participating in the annual NOx and SO2 trading programs. How does EPA justify this inconsistent approach?
A: See 70 FR 25257 for discussion of allowing the inclusion of RI and NH in the regional ozone season trading program.