ENV-37-15-00013-P Parts 243, 244, and 245 Implement Cap-and-Trade Programs That Reduce NOx and SO2 Emissions from EGUs Larger Than 25 MWe

9/16/15 N.Y. St. Reg. ENV-37-15-00013-P

NEW YORK STATE REGISTER

VOLUME XXXVII, ISSUE 37

September 16, 2015

RULE MAKING ACTIVITIES

DEPARTMENT OF ENVIRONMENTAL CONSERVATION

PROPOSED RULE MAKING

HEARING(S) SCHEDULED

 

I.D No. ENV-37-15-00013-P

Parts 243, 244, and 245 Implement Cap-and-Trade Programs That Reduce NO_x and SO₂ Emissions from EGUs Larger Than 25 MWe

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:

Proposed Action:

Repeal of Parts 243, 244 and 245; addition of new Parts 243, 244 and 245; and amendment of Part 200 of Title 6 NYCRR.

Statutory authority:

Environmental Conservation Law, sections 1-0101, 3-0301, 19-0103, 19-0105, 19-0301, 19-0303, 19-0305, 19-0311, 71-2103 and 71-2105

Subject:

Parts 243, 244, and 245 implement cap-and-trade programs that reduce NO_x and SO₂ emissions from EGUs larger than 25 MWe.

Purpose:

Repeal 6 NYCRR 243, 244, 245 CAIR; replace with 6 NYCRR 243, 244, 245 CSAPR; revise Part 200 to incorporate these changes.

Public hearing(s) will be held at:

5:00 p.m., October 19, 2015 at Department of Environmental Conservation, 625 Broadway, Public Assembly Rm. 129, Albany, NY.

Interpreter Service:

Interpreter services will be made available to hearing impaired persons, at no charge, upon written request submitted within reasonable time prior to the scheduled public hearing. The written request must be addressed to the agency representative designated in the paragraph below.

Accessibility:

All public hearings have been scheduled at places reasonably accessible to persons with a mobility impairment.

Substance of proposed rule (Full text is posted at the following State website:http://www.dec.ny.gov):

6 NYCRR Part 243, Transport Rule NO_x Ozone Season Trading Program

6 NYCRR Part 244, Transport Rule NO_x Annual Trading Program

6 NYCRR Part 245, Transport Rule SO₂ Group 1 Trading Program

6 NYCRR Part 200, General Provisions

The Department is adopting Parts 243, 244 and 245 to repeal the existing defunct CAIR program regulations and to implement an allocation protocol for the three Transport Rule programs that are more in line with the environmental and energy goals of New York. The 2015 New York State Energy Plan – The Energy to Lead, calls for increased energy efficiency and renewable energy. After setting aside 5% of New York’s Transport Rule budget for new sources, Parts 243, 244 and 245 will allocate allowances based on recent emissions (the average of the 3 last years for which data are available) and provide the remaining allowances to New York State Energy Research and Development Authority (NYSERDA), who will use the proceeds of the sale of those excess allowances to promote energy efficiency and renewable energy technologies. This methodology provides sources with the amount of allowances needed to operate, while the sale of these excess allowances will aid New York in meeting the State Energy Plan goals for energy efficiency and renewable energy.

Proposed 6 NYCRR Part 243 establishes the Transport Rule NO_x Ozone Season Trading Program; proposed 6 NYCRR Part 244 establishes the Transport Rule NO_x Annual Trading Program; and proposed 6 NYCRR Part 245 establishes the Transport Rule SO₂ Group 1 Trading Program. These programs are designed to reduce ozone and particulate matter with an aerodynamic diameter less than or equal to a nominal 2.5 micrometers (PM2.5) in New York State and downwind states by limiting emissions of NO_x and SO₂ year-round from fossil fuel-fired electricity generating units.

Proposed Parts 243, 244, and 245 incorporate the United States Environmental Protection Agency’s federal Cross-State Air Pollution Rule (CSAPR) and allow the Department to allocate allowances created under CSAPR to affected units in NYS.

Proposed Parts 243, 244, and 245 establish emission budgets for NO_x and SO₂, respectively. They also establish trading programs by allocating allowances that are limited authorizations to emit up to one ton of NO_x or SO₂ in the respective control periods or any control period thereafter. Affected units are required to hold allowances for compliance deduction at the respective allowance transfer deadlines, the tonnage equivalent to the emissions at the unit for the control period immediately preceding such deadline.

Proposed Part 243 applies to units that serve an electrical generator with a nameplate capacity greater than 25 megawatts of electrical output, sells any amount of electricity, and operates during the ozone season from May 1 through September 30. Under proposed Part 243, the Department would begin allocating New York’s portion of the CSAPR ozone season budget beginning on May 1, 2017.

Proposed Parts 244 and 245 apply to units that serve an electrical generator with a nameplate capacity equal to or greater than 25 megawatts of electrical output and sells any amount of electricity. The control period for Proposed Parts 244 and 245 runs from January 1 to December 31. The Department would begin allocating New York’s portion of the CSAPR annual budgets beginning on January 1, 2017.

New York’s CSAPR budget are defined under 40 CFR Part 97 as follows:

40 CFR Part 97 Subpart AAAAA – Transport Rule NO_x Annual Trading Program. The NO_x annual trading budget for 2017 and thereafter is 21,722 tons.

40 CFR Part 97 Subpart BBBBB – Transport Rule NO_x Ozone Season Trading Program. The NO_x ozone season trading budget for 2017 and thereafter is 10,369 tons.

40 CFR Part 97 Subpart CCCCC – Transport Rule SO₂ Group 1 Trading Program. The SO₂ trading budget for 2017 and thereafter is 27,556 tons.

Under this proposal, the Department would determine the number of Transport Rule allowances to be allocated to each Transport Rule unit for the 2017 control period and beyond in the following manner:

(i) 5 percent of the Transport Rule Trading Program budget will be allocated to the new unit set-aside account.

(ii) Allowances totaling the 3-year average emissions of all Transport Rule units for which data are available will be proportionally allocated to each of the existing individual Transport Rule units.

(iii) After allocating based on subparagraphs (i) and (ii) of this paragraph, the Energy Efficiency and Renewable Energy Technology (EERET) account will receive the remainder of allowances from the Transport Rule Trading Program Budget.

(‘a’) The EERET account will be allocated a minimum of 10 percent of the Transport Rule Trading Program budget.

(‘b’) If subparagraphs (i)-(iii) of this paragraph result in in an EERET account allocation of less than 10 percent of the Transport Rule Trading Program budget, the allowances allocated under subparagraph (ii) of this paragraph will be reduced proportionally by the amounts necessary to ensure that 10 percent of the Trading Program budget is allocated to the EERET account.

Under this proposal, an authorized account representative of a new unit may submit a written request to the Department to reserve allowances for the new unit in an amount no greater than the unit’s potential to emit. For proposed Part 243, the request must be made prior to May 1 of the control period for which the request is being made or prior to the date the unit commences operation, whichever is later. For proposed Parts 244 and 245, the request must be made prior to January 1 of the control period for which the request is being made or prior to the date the unit commences operation, whichever is later. The unit must have all of its required permits for the Department to consider these requests.

If more than one Transport Rule unit requests the reservation of Transport Rule allowances and the number of requested allowances exceeds the allocation to the relevant Transport Rule new unit set-aside account, the Department would reserve Transport Rule allowances from the account for the units in the order in which the Transport Rule units submitted approvable reservation requests. Under this proposal, requests are considered simultaneous if they are made in the same calendar quarter. Should approvable reservation requests in excess of the allocation to the relevant Transport Rule new unit set-aside account be submitted in the same calendar quarter by different Transport Rule units, the Department will reserve Transport Rule allowances for those units on a basis proportional to the number of Transport Rule allowances requested by each Transport Rule unit. Unused new unit set-aside allowances would be transferred to the EERET account. Allowances transferred to the EERET account would be completed at the end of the control period and would be available for sale by NYSERDA beginning in the control period immediately following the allocation transfer.

Under this proposal, New York’s Transport Rule Trading Program Budgets are designed to allocate a minimum of 10% of each trading program’s allowance budget to the EERET account. The EERET account would be administered by NYSERDA and the allowances in the account may be sold or distributed in order to help achieve the emissions reduction goals of the Transport Rule Trading Programs by promoting or rewarding investments in energy efficiency and renewable technologies, and/or innovative abatement technologies.

This proposed rulemaking allows NYSERDA to open an EERET account from which NYSERDA may sell allowances allocated to the EERET account by the Department. NYSERDA would be required to promptly sell or distribute the allowances as part of a fair, open and transparent process. NYSERDA may use proceeds of the allowance sales to fund energy efficiency projects, renewable energy, or clean energy technology. NYSERDA currently administers similar energy efficiency and clean energy technology programs, and the addition of the EERET Account would be easily accomplished. If for any reason the EERET allowances are not sold or distributed by NYSERDA, the allowances would flow back to the Department and be redistributed to the affected units.

Table 1 in section 200.9 cites the portions of federal statute and regulations that are incorporated by reference into Parts 243, 244, and 245.

Text of proposed rule and any required statements and analyses may be obtained from:

Michael F. Miliani, P.E., NYSDEC, Division of Air Resources, 625 Broadway, Albany, NY 12233-3255, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

Five days after the last scheduled public hearing.

Additional matter required by statute:

Pursuant to Article 8 of the State Environmental Quality Review Act, a Short Environmental Assessment Form, a Negative Declaration and a Coastal Assessment Form have been prepared and are on file.

Regulatory Impact Statement

INTRODUCTION

The New York State Department of Environmental Conservation (Department) proposes to repeal 6 NYCRR Part 243, CAIR NO_x Ozone Season Trading Program, 6 NYCRR Part 244, CAIR NO_x Annual Trading Program, and 6 NYCRR Part 245, CAIR SO₂ Trading Program (collectively, the New York State Clean Air Interstate Rules or NYS CAIR) and replace them with three new rules, 6 NYCRR Part 243, Transport Rule NO_x Ozone Season Trading Program, 6 NYCRR Part 244, Transport Rule NO_x Annual Trading Program, and 6 NYCRR Part 245, Transport Rule SO₂ Trading Program. These proposed rules incorporate the United States Environmental Protection Agency’s (EPA) federal Cross-State Air Pollution Rule (CSAPR) and allow the Department to allocate CSAPR allowances to regulated entities in New York.

The Department is proposing this rulemaking because NYS CAIR are obsolete and superseded by CSAPR. CSAPR regulates regional cap-and-trade programs that regulate emissions from large fossil fuel-fired electricity generating units (EGUs) that have a nameplate capacity greater than 25 megawatts electrical (MWe) and produce electricity for sale. To administer and enforce the New York State components of the regional cap-and-trade program, the Department must incorporate CSAPR into regulation.

STATUTORY AUTHORITY

The statutory authority for this action is found in the Environmental Conservation Law (ECL), Sections 1-0101, 3-0301, 19-0103, 19-0105, 19-0301, 19-0303, 19-0305, 19-0311, 71-2103 and 71-2105.

ECL section 1-0101 makes it the policy of New York State to conserve, improve and protect natural resources, the environment, and control air pollution in order to enhance the health, safety, and welfare of the people of New York State and their overall economic and social wellbeing and coordinate the State’s environmental plans, functions, powers and programs with those of the federal government and other regions and manage air resources. This section also makes it the policy of the State to foster, promote, create and maintain conditions for air resources that are shared with other states.

ECL section 3-0301 grants the Department power to adopt, formulate, promulgate, amend and repeal regulations for preventing, controlling, or prohibiting air pollution and to include in such regulations provisions prescribing the degree of air pollution or air contamination and the extent to which air contaminants may be emitted to the air by any source in any area of the State.

ECL section 19-0103 declares that it is the policy of New York State to maintain a reasonable degree of purity of air resources, which shall be consistent with the public health and welfare and the public enjoyment thereof, the industrial development of the State, and to that end to require the use of all available practical and reasonable methods to prevent and control air pollution in the State.

ECL section 19-0105 declares that it is the purpose of ECL Article 19 to safeguard the air resources of New York State under a program that is consistent with the policy expressed in section 19-0103 other provisions of Article 19.

ECL section 19-0301 declares that the Department has the power to promulgate regulations for preventing, controlling or prohibiting air pollution and shall include in such regulations provisions prescribing the degree of air pollution that may be emitted to the air by any source in any area of the State. ECL section 19-0303 provides that the terms of any air pollution control regulation promulgated by the Department may differentiate between particular types and conditions of air pollution and air contamination sources.

ECL section 19-0305 authorizes the Department to enforce the codes, rules and regulations established in accordance with Article 19.

ECL section 19-0311 directs the Department to establish an operating permit program for sources subject to Title V of the CAA. Section 19-0311 specifically requires that complete permit applications must include, among other things, compliance plans and schedules of compliance. This section further expresses that any permits issued must include, among other things, terms setting emissions limitations or standards, terms for detailed monitoring, record keeping and reporting, and terms allowing Department inspection, entry, and monitoring to assure compliance with the terms and conditions of the permit.

ECL Sections 71-2103 and 71-2105 describe the civil and criminal penalty structures for violations of Article 19.

LEGISLATIVE OBJECTIVES

The legislative objectives of ECL Article 19 are made clear in section 19-0301 and 19-0303, outlined above. ECL Article 19 was enacted to safeguard the air resources of New York from pollution and ensure protection of public health and welfare, natural resources of the State, and integrating industrial development and sound environmental practices. This proposal furthers the statutory and public policy objectives because it would allow the Department to control emissions of NO_x and SO₂ that contribute to local and regional nonattainment of the ozone and PM2.5 National Ambient Air Quality Standards (NAAQS). State regulation of these pollutants protect New York’s air resources, public health and welfare.

NEEDS AND BENEFITS

The Department is proposing to repeal existing Parts 243, 244, and 245, NYS CAIR, and replace them with allocation methodologies for New York’s portion of the CSAPR emissions budgets for the NO_x ozone season and NO_x and SO₂ annual programs. This will enable the state to control how CSAPR allowances are allocated beginning with the 2017 control periods. The Department is making this proposal because CSAPR affects numerous sources within New York State and because the Department is best equipped to address needs and inquiries of affected or interested parties within New York. The responsibility for implementing all other aspects of CSAPR would remain with EPA under a Federal Implementation Plan (FIP). The Department’s proposed action is considered a partial State Implementation Plan (SIP).

CSAPR requires 23 states, including New York, to reduce annual SO₂ and NO_x emissions to help downwind areas attain the 24-hour and/or annual PM2.5 NAAQS. The rule addresses all upwind states' transport obligations under the 1997 annual PM2.5 and 2006 24-hour PM2.5 standards. Twenty-five states, including New York, are required to reduce ozone season NO_x emissions to help downwind areas attain the 1997 8-hour ozone NAAQS.

New York’s CSAPR budgets are defined under 40 CFR Part 97 as follows:

40 CFR Part 97 Subpart AAAAA – Transport Rule NO_x Annual Trading Program. The NO_x annual trading budget for 2017 and thereafter is 21,722 tons.

40 CFR Part 97 Subpart BBBBB – Transport Rule NO_x Ozone Season Trading Program. The NO_x ozone season trading budget for 2017 and thereafter is 10,369 tons. The ozone season is the period between May 1 and September 30, inclusive, of each year.

40 CFR Part 97 Subpart CCCCC – Transport Rule SO₂ Group 1 Trading Program. The SO₂ trading budget for 2017 and thereafter is 27,556 tons.

Under NYS CAIR, a 10 percent portion of the allowance pool was set aside to be administered by NYSERDA. The allowances in that account were sold to help achieve the emission reduction goals of the CAIR NO_x Trading Programs by promoting or rewarding investments in energy efficiency and renewable technologies, and/or innovative abatement technologies. Proceeds from the sale of set-aside allowances could be used to support clean energy programs that reduce NO_x emissions. The Department proposes to implement a similar set-aside for allocation of CSAPR allowances under each of the CSAPR control programs and will require that NYSERDA make the allowances held in their accounts available for sale in the open market at the time they are allocated into NYSERDA’s accounts.

This proposal bases the quantity of allowances allocated to NYSERDA on the difference between the CSAPR control period budgets established by EPA and the most recently available historic actual emission levels experience by the affected units in each control program. The Department would use available data to allocate allowances to each affected unit as closely as possible to the average number of tons typically emitted by each unit in order to provide each facility with the number of allowances they will likely need to operate within the CSAPR program budgets.

This proposal grants the Department responsibility for allocating CSAPR allowances to ensure that New York facilities receive sufficient allowances to operate. The Department would review allocations every year in order to account for any operational changes. Operational changes include, but are not limited to shifting new sources to the main CSAPR accounts, facility shutdowns, addition of pollution control systems and fuel switching. By adjusting allocations on a periodic basis, the Department can adapt to an ever-changing electricity marketplace and regulatory environment. This approach is more flexible than EPA’s allocation strategy in which allocations do not change over time.

COSTS

CSAPR allowances are currently sold in the market for approximately $125/ton NO_x and $40/ton SO₂. Based on a 25% to 40% NYSERDA set-aside, there would be a potential shift of more than $1.3 million annually away from affected EGUs within the CSAPR programs as compared to the allocation strategy developed by the EPA. The NYSERDA account is expected to hold allowances that are in excess of what EGUs in NY have typically emitted under normal operation in previous years.

New York’s CSAPR rules impose no additional costs on the Department. These rules will not impose additional costs to local government entities.

PAPERWORK

The proposed rule will not impose any new paperwork requirements for regulated parties.

LOCAL GOVERNMENT MANDATES

This proposal is not expected to result in any additional recordkeeping, reporting, or other requirement for any local government entity.

DUPLICATION

The proposed regulations do not duplicate, overlap, or conflict with any other State or federal requirements.

ALTERNATIVES

The Department considered two alternatives before submitting a proposal for repeal and subsequent replacement of Part 243, 244, and 245:

First, the Department could take no action. EPA would continue to run the program under the FIP. EPA would retain the responsibility of allocating allowances. The Department would have no influence or control over any part of the program. EPA’s allocation strategy does not change over time and may not reflect operational changes within the mix of sources that generate electricity in New York. The Department is proposing this rule because it would allow it to control how New York’s allowances are distributed to affected units, including considering changes in generation.

Second, the Department can do a rulemaking to replace the FIP. This would require a greater effort to incorporate the entire federal program into State regulation and would allow the Department to implement all aspects of the CSAPR program for NY’s sources including allocating allowances and ensuring compliance with the CSAPR rules. The deadline set by EPA for completing this rulemaking is December 1, 2015. A rulemaking to replace the FIP with a full SIP would be difficult to complete in such a short period of time.

FEDERAL STANDARDS

This proposal does not result in the imposition of requirements that exceed any minimum standards of the federal government for the same or similar subject areas.

COMPLIANCE SCHEDULE

There is no need for a specific compliance schedule because it does not impose any new compliance obligations on regulated entities. The EPA is still responsible for implementing and enforcing the provisions of the federal program until such time that the FIP is replaced with a full SIP. This rulemaking would only change the method by which allowances are allocated to regulated entities. Affected facilities must have sufficient allowances in their CSPAR accounts on the compliance dates in the federal program. Facility representatives will be provided with the number of allowances they will receive by the Department at least 1-year in advance of the 2017 control periods. All of the compliance obligations for the affected facilities will remain the same when the Department transitions to a partial SIP and begins to allocate allowances for the 2017 control periods.

Regulatory Flexibility Analysis

EFFECT OF RULE

There are no small businesses affected by this rulemaking. The only local government potentially affected by this rulemaking is the Jamestown Board of Public Utilities (JBPU) operator of the Samuel A. Carlson Generating Station. S.A. Carlson is a coal-fired power station located in Jamestown, New York. S.A. Carlson operates 3 units that regulated under the Cross-State Air Pollution Rule (CSAPR).

COMPLIANCE REQUIREMENTS

This rulemaking does not impose any new compliance obligations on regulated entities. The EPA is still responsible for implementing and enforcing the provisions of the federal program until such time that the Federal Implementation Plan (FIP) is replaced with a full State Implementation Plan (SIP). This rulemaking would only change the method by which allowances are allocated to regulated entities. Affected facilities must have sufficient allowances in their CSAPR accounts on the compliance dates in the federal program. Facility representatives will be provided with the number of allowances they will receive by the Department at least 1-year in advance of the 2017 control periods. All of the compliance obligations for the affected facilities will remain the same when the Department transitions to a partial SIP and begins to allocate allowances for the 2017 control periods.

PROFESSIONAL SERVICES

The Department does not expect that any type of professional service will be required for a small business or local government to comply with this rule.

COMPLIANCE COSTS

Under the Department’s proposed allocation method, the affected units at S.A. Carlson units are expected to receive CSAPR allowances for the 2017 NO_x control periods that are very close to what the average actual emissions have been in recent years. S.A. Carlson has switched fuel from coal to primarily natural gas. This will essentially eliminate the need for SO₂ allowances. CSAPR allowances are currently sold in the market for approximately $125/ton NO_x and $40/ton SO₂.

ECONOMIC AND TECHNOLOGICAL FEASIBILITY

S.A. Carlson no longer burns coal in any of the electricity generating units at their facility. Units #11 and #12 have been shut down. Unit #20 continues to burn natural gas. The remaining units at the facility (#9, #10) have switched fuel types from coal to natural gas. This will minimize the need for NO_x allowances and virtually eliminate the need for SO₂ allowances. The Department expects that S.A. Carlson will be provided with an adequate number of allowances to operate within the emissions cap. As a result of the switch from coal to natural gas for units #9 and #10, these changes will have only minimal impact on economics (thousands of dollars) and no impact on technical feasibility.

MINIMIZING ADVERSE IMPACT

The Department does not expect this rule to impose any adverse economic impact on small businesses or local governments. CSAPR regulates NO_x and SO₂ emissions from large fossil fuel-fired electricity generating units that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. This rulemaking would only change the method by which allowances are allocated to affected units within New York State. All of the compliance obligations for the affected facilities are currently governed by EPA’s FIP and will remain the same when the Department transitions to a partial SIP and begins to allocate allowances for the 2017 control periods. The Department would review the allocations every year in order to account for any operational changes. By adjusting allocations on a periodic basis, the Department can adapt to an ever-changing electricity marketplace and regulatory environment. This approach is more flexible than EPA’s allocation strategy in which allocations do not change over time.

SMALL BUSINESS AND LOCAL GOVERNMENT PARTICIPATION

The Department held a stakeholder meeting on April 27, 2015 in which facility representatives of affected CSAPR sources, including local governments, were provided an opportunity to provide pre-proposal input to the rule making process.

The Department plans on holding a public hearing during the proposal stage. The location of this hearing would be convenient for persons from local governments and small businesses to participate. Additionally, there would be a public comment period in which interested parties who are unable to attend a public hearing can submit written comments on the proposed regulation.

Rural Area Flexibility Analysis

A RAFA is not required for this rulemaking. The Department is proposing this rulemaking because the CAIR trading programs, incorporated in existing Part 243, 244, and 245, are obsolete and superseded by CSAPR. CSAPR regulates NO_x and SO₂ emissions from large fossil fuel-fired electricity generating units that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. This rulemaking would only change the method by which allowances are allocated to affected units within NYS. The Department does not expect this rule to impose any adverse impact on rural areas or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas. All of the compliance obligations for the affected facilities are currently governed by EPA’s federal program and will remain the same when the Department transitions to a partial SIP and begins to allocate allowances for the 2017 control periods.

Job Impact Statement

A JIS is not required. The Department is proposing this rulemaking because the CAIR trading programs, incorporated in existing Part 243, 244, and 245, are obsolete and superseded by CSAPR. CSAPR regulates NO_x and SO₂ emissions from large fossil fuel-fired electricity generating units that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. This rulemaking would only change the method by which allowances are allocated to affected units within NYS. The Department does not expect this rule to have a substantial adverse impact on jobs and employment opportunities. All of the compliance obligations for the affected facilities are currently governed by EPA’s federal program and will remain the same when the Department transitions to a partial SIP and begins to allocate allowances for the 2017 control periods.