The Coalition for Gas-Based Environmental Solutions

Comments from The Coalition for Gas-Based Environmental Solutions

Joel Bluestein - Director

January 12, 2000

The Coalition for Gas-Based Environmental Solutions is pleased to provide the following comments on the draft guidance on updating, output-based allowance allocations dated November 29, 1999. Our comments fall into four categories:

Technical substance - Overall, we find that the main technical substance is on target, substantially as agreed on by the work group.
Tone and policy presentation - The tone and policy presentation we find confusing and somewhat out of step with the current state of EPA rulemakings and statements on allocation.
Organization and structure of the document - We believe that the document needs to be reorganized to be useful to state officials. In its current form, it may be more confusing than helpful.
Other specific points - Are noted below.

Technical Substance

The main substance of the guidance seems to be very consistent with what has been discussed and agreed to by the work group including:

how to allocate allowances based on output
how to do deal with CHP
what kinds of data are required
the net vs gross issues

We can't really argue with those. Some specific comments and suggestions are offered below. The bulk of it is fine.

Tone and Policy Presentation

The tone and policy background of the guidance seem to be out of step with current EPA policy for several reasons. Some of this background has changed since the draft guidance was released, nevertheless, it must now be recognized and addressed.

First, EPA has now recognized the value of updating, output-based allocation and has committed to move to this approach in the Section 126 rule. Thus the EPA can now afford to be less neutral and more direct about the issue in this guidance. Although the EPA still cannot dictate the states' allocation approach under the SIP call, it can state that its own findings support output-based allocation. Moreover, this guidance need not be limited to allocation of NO_x allowances under the SIP call. Its procedures can and should be applied to other pollutants and other programs.

To the extent that the guidance does apply to the SIP call, the draft guidance has an inappropriate focus on the 2006 allocation. It assumes that states will do initial allocation based on input and that the output-based procedure is not feasible for use until 2006. This seems inappropriate for several reasons. First, the SIP call schedule is currently undefined. The first allocation period may not be until 2005 or 2006 anyway, so states may be able to go directly to the output-based approach. Moreover, several states (Massachusetts, Connecticut and New Jersey) have already developed updating, output-based SIPs for 2003. Thus there is no reason to assume or encourage a first round of allocations using input. The guidance should simply provide the methodology and let states apply it as soon as they see fit.

The exceedingly neutral tone of the document is confusing and off-putting. While it is clear that the EPA is trying not to be prescriptive, the document is at such pains not take a stand on any subject that becomes difficult to understand. The states at the December 10 meeting were clearly looking for guidance. The EPA can present the information in a neutral way, without going overboard and it will be much easier to understand and apply.

At the same time, since the EPA will be developing output-based allocation and monitoring procedures for the Section 126 trading rule, many of the policy, procedural and data collection issues raised in the guidance will be addressed and resolved by the EPA. Thus there is a near- to medium-term solution at hand on many issues for states who choose this path. For the output data issue in particular, the states have an immediate issue of developing data for an initial allocation. If the EPA develops output monitoring procedures within the next few years, the data for later allocations should be readily available. Since several states have already addressed this issue, EPA might do well to include the approaches used by those states for the initial allocation.

In summary, the guidance should:

State EPA's support for the updating, output approach.
Present output as a broader methodology
Present the guidance more directly and with less equivocation
Reference EPA's upcoming development of output-based allocation and monitoring procedures.

Organization and Structure

Although the basic technical information in the guidance is fine, it is difficult to follow the material and the organization is choppy and repetitive. There is some material that seems out of place in the guidance (such as Section I.A.). There are also inconsistencies in tone and presentation regarding what is required, what states must do, what sources must do, etc. Specific issues are addressed below. A suggested revised outline for the guidance is attached. It adds an introduction to provide some context, proceeds directly to the basic allocation issues, then addresses the specific implementation issues. Something like this will make it much easier for users to digest.

Specific Comments

The following specific comments reference the current draft.

Page	Comment
3, 2nd paragaraph	inappropriate focus on 2006
3, 3rd paragraph	reference new NSPS, stationary engines (gm/hp-hr)
4, 2nd pragraph	reference work group activities
9, Section I.A.	This section does not belong in the guidance, definitely not as the first section. Several of these are non-issues, some are highly complex policy issues for further consideration by EPA and the work group. Most are not relevant to the core guidance.
10, Section B	The short answer is that this guidance covers the core sources and possibly other (non-combustion) electric generators. Any other type of source requires more work, but is also outside the SIP call context. The issue about producing electricity "not through a generator" is irrelevant. The only thing that might change the electricity measurement protocols would be if the electricity were DC instead of AC. Any source that is generating 25 MW or greater is unlikely to be delivering DC power. One of the good things about the output approach is that you don't have to worry about the generating equipment, all we care about is what is produced and delivered.
14, Data sources	Need to include EIA 860b for non-utilities as a data source. Need to discuss what EPA plans to do for Section 126 data gathering. The question/answer format seems disingenuous - "Is it important that data be consistent?" "How many staff members do you have?" "How much time do you have?" It would be better just to make the point: There are ways to ensure consistency. It will take time and staff. What will the EPA do to help address these issues?
25, Net vs gross	Delete the words "reflects all inputs going into the process" from the definition. The discussion of the policy reasons for chosing net vs gross should be before the diagrams. Again, drop the Q/A approach and simply explain the options and the implications.
26, Allocation to generating systems	This should not be a big complication. There are basically two issues: For combustion units where a generator is associated with more than one combustor: allowances can be allocated between the combustion units based on heat input or some other relevant parameter, or simpler and equally effective, allowances can be allocated to any one combustion unit and the operator will reallocate as needed. The states and operators at the December 10 meeting seemed to think this would be fine. For non-combustion units, a new entry will have to be made. It can be by generator or plant. Obviously there is no combustion unit (or emission monitor) so it is just a new tracking entity.
31, Boiler efficiency	80% is a typical new boiler design efficiency. Actual average efficiency is typically lower. Depending on the allocation procedure, this actual value might not matter (due to ratcheting) but it could affect EGU/non-EGU weighting and just for future applications we might want to adjust this downwards to a more realistic level consistent with actual operation.
36	Adjusted Allocation Total incorrect
47, Measurement	3rd paragraph - gross generation might also be compiled from multiple measurement points.
47, Last paragraph	net could also be calculated by subtracting internal usage from gross.
48, Schedules here and on page 49 are not consistent.	The whole discussion also neglects the option of starting with available data collected from sources and transitioning to data measured according to new protocols. The list of output information to be kept on site seems questionable. The minimum requirement is for total electric and/or thermal output for the season - either net or gross as specified for the program. The need to track net and gross, heat of vaporization, steam conditions, etc needs to be established. The need for hourly measurement also needs to be justified. Some of these may be appropriate and consistent with other monitoring requirements, but this should be discussed rather than simply asserted.
51	Agree that measurement adequate for commercial sales should be adequate for allocation.

We have not reviewed the regulatory language in great detail, since we believe that it should reflect these broader comments. We will attempt to do so, however, and submit additional comments as necessary. We hope these comments are useful. Please do not hesitate to call if you have questions or if we can be of additional assistance. This guidance represents significant progress in the implementation of output-based regulation and we look forward to its completion.

Sincerely,
Joel Bluestein, P.E.
Director

Suggested Revised Outline for Updating Output Allocation Guidance Document

Foreward - Who is this guidance for? What is the purpose of this guidance? - Include EPA finding of value for output-based allocation. EPA plans to develop output-based allocation program and related output monitoring rules.

I. Background

Allowance allocations are a critical part of allowance trading programs. They have been done in a variety of ways, most often based on heat input. Several parties have suggested that allocation based on output (thermal or electric) has environmental benefits. EPA has analyzed this and found some support. EPA has committed to develop an output-based allocation approach for the Section 126 trading rule. (EPA has also promulgated the output-based NSPS.) Several states have developed output-based allocation programs for the SIP and EPA encourages other states to do the same. Many of these principles can be applied to other pollutants and other programs. Review contents of the document.

II. Basics of Output-Based Allocation (existing section II)

III. Applicability - What sources does this guidance address? (rewritten existing section I.B.)

Primarily the core sources in the SIP call trading program - EGUs, industrial steam generators. Programs that address other source categories may need to address other output measures. This has been done for stationary engines (gm/hp-hr), cement kilns (lb NO_x/ton of klinker) and other industrial sources.

IV. Mechanics of Allocation - To what units do we allocate? (rewritten existing section I.F.)

Existing allowance tracking system is based on combustion units for purposes of allocating and tracking allowances and ensuring compliance. Where there is not a 1:1 match between generators and combustors, there is a need to figure out how to allocate the allowances. EPA recommends not adding new tracking system entities for generators. Rather:

the allowances can either be allocated from the generator to the associated combustors based on some relevant parameter such as heat input, or
all of the allowances can be allocated to any one of the associated combustors and the operator will be responsible (as always) for ensuring that they are transferred as need to comply.

If non-combustion generators are included in the program, the allocation entries for these units will correspond to generators rather than combustion units, but since we will be adding new entries anyway, there will be no conflict.

It would be feasible to allocate only at the facility level, but this would require a change in the tracking system and is not necessary, though it could be considered if there were a future major restructuring of the tracking system.

VI. Net vs Gross - (existing section I.E. - streamlined)

VII. Data Sources - (existing section I.D.)

VIII. Additional Requirements (existing section III)

IX. What Other Provisions May Need to be Changed? (existing section I.C.)

X. How Do I Learn More? (existing section IV)

Existing section I.A. - deleted.