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CAMR Frequent Questions
This Web page was created to help answer questions that EPA has been asked about implementation of the Clean Air Markets Rule (CAMR). Every attempt will be made to keep the site current. Please check back regularly.
NOTE: New questions and answers appear at the beginning of each section.
- Meeting State Budgets
- Use of the Model Trading Rules
- Viability of a Trading Market if Not All States Participate
Meeting State Budgets
Q: If a state chooses not to participate in the regional cap and trade program to meet its CAMR requirements, how does it demonstrate that Hg emissions will not exceed the state’s annual electric generating unit (EGU) Hg budget pursuant to § 60.24(h)(3) of the CAMR?
A: EPA recommends that states not participating in allowance trading place a cap on total mercury emissions from their coal-fired EGUs. Adopting an enforceable cap would provide the greatest possible certainty that the state’s Hg emissions are in compliance with the state’s annual EGU Hg budget. This cap could be implemented in a number of ways, such as by dividing the state budget among sources using individual source caps or at the state level through an intrastate trading program.
If a state chooses not to place a cap on emissions, EPA believes that a robust demonstration that the budget will not be exceeded in any year is necessary to comply with § 60.24. One way to do this would be through a sensitivity analysis based on a highest mercury case scenario using conservative parameters (e.g. maximum utilization, high mercury content coal and high growth in coal-fired generation). In addition, a state rule should specify what corrective action will be taken in the event that, contrary to the projections, Hg EGU emissions exceed the state’s Hg EGU budget. In submitting these demonstrations, states should note that it will likely be more difficult to demonstrate with reasonable certainty that the budget for phase II (2018 and thereafter) of CAMR will not be exceeded in any year because the cap will be lower and the control period is infinite, allowing the potential for more EGU growth and increased Hg emissions. EPA is willing to work with any state on mechanisms that the state might propose to achieve the same level of assurance, as provided by an enforceable cap, that the state budget will not be exceeded.
Q: Can a State allocate fewer allowances than its full State budget and still be eligible to participate in the EPA-run Hg Budget Trading Program?
A: Yes. The EPA stated in the CAMR preamble that States can be more stringent than the emission guidelines and the model rule (40 CFR part 60, subpart HHHH) by providing fewer allowances to its sources than EPA allocated to the State on an annual basis, and still participate in the national trading program. Specifically, the preamble provides:
"EPA finalizes that in order for a State Plan to be approved for State participation in the Hg Budget Trading Program, the State rule should not deviate from the model rule except in the area of allowance allocation methodology. Allowances allocation methodology includes any updating system and any methodology for allocating to new units. Additionally, States may incorporate a mechanism for implementing more stringent controls at the State level within their allowance allocation methodology." 70 FR 28606, 28632 (May 18, 2005)
The EPA intended this as a clear statement that States can withhold allowances, resulting in a more stringent program at the State level, and still participate in the national trading program. This position is consistent with both Clean Air Act section 111(d) and subpart B of 40 CFR part 60.
However, EPA requests that States contemplating such an approach consider the following:
- In reducing the number of allowances allocated to individual sources, a State, or more likely a combination of States, could potentially increase the stringency of the national program beyond what EPA believes is feasible based on currently available control technology.
- If States that chose to withhold allowances were to do so at a level that did not create feasibility concerns, control strategies for sources in these States would not be expected to change significantly, and these States would risk increasing the cost of CAMR on their sources by reducing the number of allowances that these sources have available to use for compliance or sell on the market.
- There is some uncertainty in current emissions estimates and forecasting of future emissions. States should carefully consider this fact before permanently removing allowances from the program, as higher than estimated emissions could result in higher than projected Hg allowance prices. To address this uncertainty, States that are contemplating allocating less than their full budget could consider holding back, in a special account, a portion of the State's allowances, and defer the decision to permanently remove those allowances from the program until monitoring data under 40 CFR Part 75 becomes available. Actual monitoring data for all affected units will provide a more accurate assessment of total mercury emissions than current estimates and projections. This approach would allow these States the flexibility ultimately to allocate all or some of the held-back allowances, if conditions warrant.
Use of the Model Trading Rules
Q: Can a state participate in the EPA-administered trading program but add some restrictions on which allowances can be used? For example, can we require our CAMR units to buy allowances from in-state sources first before going out of state for additional allowances?
A: The trading program flexibilities do not allow restrictions to be placed on buying and selling allowances. In order to participate in the EPA-administered Hg trading program, a State must adopt EPA’s model trading rule without substantive changes, except for the allowance allocation methodology. For example, substantive changes to the allowance transfer provisions of the model rule cannot be made. The allowance transfer provisions allow sources to buy and sell, without limitation, Hg allowances that are issued under the EPA Hg trading program to any entity. A state provision barring or limiting the purchase of such allowances from out-of-state entities would be contrary to the allowance transfer provisions and thus constitute a substantive change that would prevent EPA approval of the participation of the state’s sources, and of use of the state's Hg allowances, in the EPA-administered Hg trading program. This approach is consistent with the approach taken by the courts with regard to the Acid Rain SO2 trading program (under title IV of the Clean Air Act), on which EPA’s Hg trading program is modeled. In Clean Air Markets Group v. Pataki, 338 F.3d. 82 (2d Cir. 2003), the Court held that a provision adopted by New York State effectively barring sales of SO2 allowances to sources in certain states was inconsistent with the Acid Rain SO2 trading program, which provided for unlimited trading of allowances.
Viability of a Trading Market if Not All States Participate
Q: What is the viability of a mercury emissions trading market if not all states elect to participate?
A: EPA expects a robust trading market even though some states are electing to directly control mercury and not participate in the trading program. In July 2006, EPA conducted modeling meant to be illustrative of a reduced market based on states and tribes EPA would anticipate to participate in the national trading program. EPA's modeling showed that mercury allowance prices would be lower than in a full national market. This is because several high-demand states such as Illinois and Pennsylvania would not participate in the market. EPA's projection of the limited market showed it to cover nearly 69 percent of the original budget for mercury allowances and that it would include over 700 units representing over 200 GW of capacity -- nearly equivalent to the highly successful NOx Budget Trading Program across a larger number of states. View the full discussion paper PDF (5 pp. 167 KB)