United States
Environmental Protection
Agency
EPA430-F-95-032
March 1995
Air and Radiation Acid Rain Division (6204J)
The Opt-In
Reducing the Cost
of Acid Rain Control
through Voluntary
Participation
For More Information
If you would like to receive more information on the Opt-
in Program or other aspects of the Acid Rain Program,
please call the Acid Rain Hotline at 202-233-9620 or the
EPA Public Information Center [P1Q at 202-260-2080.
The regulations implementing the Acid Rain Program can
be found in 40 CFR parts 72 [Permits], 73 [Allowances],
74 [Opt-in], 75 [Monitoring], 76 [NOX], 77 [Excess
Emissions], and 78 [Appeals],
ACID
PROGRAM
Recycled/Recyclable
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rn order to reduce odd rain in the
United States and Canada, Tit/e IV of
the aeon Air Act Amendments of 1990
established the Acid Rain Program. Tne
Acid Rain Program includes an important
provision, the Opt-in Program, which allows
sources not required to participate (that is,
non-affected sources) the opportunity to
enter the Acid Rain Program and receive
allowances. This document provides an
overview of the Opt-in Program as
promulgated in 40 CFR part 74.
Background on the Add Rain Program
The overall goal of the Acid Rain Program is to reduce
emissions of sulfur dioxide C$O2] and nitrogen oxides
[NOJ, the primary causes of add rain. Title IV of the
Act sets as its primary goal the reduction of annual
SOZ emissions by 10 million tons below 1980 levels.
To achieve these reductions, the law requires a two-
phase tightening of the restrictions placed on fossil
fuel-fired power plants. Phase I begins in 1995 and
affects 110 mostly coal burning electric utility plants
located in 21 eastern and midwestern states. Phase II,
which begins in the year 2000, tightens the annual
emissions limit imposed on these plants and also sets
restrictions on smaller, cleaner plants fired by coal,
oil, and gas, as well as most new plants.
To minimize the cost of reaching this 10 million ton
reduction, the program employs an innovative,
market-based SO2 allowance trading system. An
emissions cap for all affected units of 8.95 million
tons is set and through allowance trading, utilities
regulated-under the program decide the most cost-
effective strategy to reduce SO2 emissions at units in
their systems. At the end of each year, utility units
are required to hold enough allowances to offset their
annual emissions (an allowance is an authorization to
emit one ton of SO2],
Are opt-in allowances different from
allowances allocated to utility units?
Yes. There are three important restrictions on opt-in
.allowances that do not apply to allowances allocated
to utility units under the mandatory program:
[1] Only opt-in allowances dated for the current or
previous years can be transferred to other accounts ir
the Allowance Tracking, System (EPA's automated
;system used to record allowance transfers];
[2] Only opt-in allowances for past years may be
offered for sale in the spot auction, and no opt-in
.allowances may be offered for sale in the advance
auction; and
.[3] An opt-in source may not transfer or bank allow-
ances that result from a reduction in its utilization. If ai
opt-in source reduces its utilization or shuts down, EP/
will require the source to surrender allowances in
proportion to the reduction in plant operations.
Are there any exceptions to the surrender o.
aliowances for reduced utilization?
Yes, one. The statute allows for the transfer of
allowances created by reduced utilization or shutdown
only to a unit that is replacing the thermal energy
previously supplied by the opt-in source -- the ...:'•-....'.
thermal energy exception. A "replacement unit" must
be affected under the Acid Rain Program and prove
that it is the unit replacing the thermal energy previ-
ously produced by the opt-in source.
Can a source decide to withdraw from the
program after it has opted in?
Yes. Opt-in sources may withdraw from the program,
provided that they meet certain conditions. Sources
seeking to withdraw must verify compliance with the
acid rain requirements for the remaining period of
participation and must return to EPA all allowances
allocated to the source for years following the time of
Withdrawal. Withdrawal will be accomplished through
a permit revision to the source's federal air operating
permit.
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What is the purpose of the Opt-in Program?
The Opt-in Program is voluntary and designed to reduce
the costs of achieving the annual 10 million ton reduction
of SO2 emissions. The opt-in regulation allocates allow-
ances to eligible combustion sources and places restric-
tions on the use of opt-in allowances. Such restrictions
ensure that total SO2 emissions do not increase as a result
of the program.
The overall cost of SO2 control will be lowered as participat-
ing sources reduce their SO2 emissions and sell their unused
allowances to affected utility units that have higher costs of
control.
Why opt in?
The opt-in program offers sources a financial incentive to
voluntarily reduce their SO2 emissions. By reducing
emissions below its allowance allocation/ an opt-in source
will create unused allowances, which it can sell in the SO2
allowance market. Opting in will be profitable if the
revenue from selling allowances exceeds the combined
cost of the emissions reduction and the costs of partici-
pating in the Opt-in Program.
What is required of opt-in participants?
A combustion source that successfully opts in arid be-
comes an opt-in source receives its own allocation of
allowances. These allowances are based on the combustion
source's historic heat input and its historic and current
SO2 emission rates.
Consistent with the requirements for utilities in the manda-
tory Acid Rain Program/ opt-in sources must comply with
the same or similar provisions relating to allowance trading,
permitting, excess emissions/ monitoring, end-of-year
compliance, and enforcement. Most basic to the program is
the requirement that each year the opt-in source hold -
enough allowances to cover its annual SO2 emissions.
There are also unique requirements for opt-in sources as
compared to affected utility units. In certain circum-
stances, alternative baselines may be granted/ allowances
deducted for reduced utilization, or allowance transfers
restricted under the thermal energy exception.
Who is eligible to opt in ?
Almost iall stationary sources that emit SO2 but are
not otherwise required to meet the mandatory SO2
emissions limitations of Title IV- that is, are not
"affected units"-- are eligible to opt into the Acid
Rain Program.
EPA has categorized potential sources into two
groups:'combustion and process sources. Combus-
tion sources are boilers, turbines or internal combus-
tion engines and are technologically very similar to
utility units. Examples of combustion sources include
industrial boilers producing steam and/or electricity
or small utility units not included in the mandatory
program.
Process sources are all other types of sources that
emit SO2 through some manufacturing process. Metal
smelters and natural gas producers are examples of
potential process sources. As of this date, EPA has
focused on combustion sources. Rules pertaining to
process sources will follow later.
Will the Opt-in Program increase SO2
emissions?
No. Although additional allowances are being allo-
cated above the annual 8.95 million ton cap set for
affected utility units, they are^being allocated for
emissions from existing sources and do not authorize
new emissions. Through trading, emissions will shift
between the utility and industrial sectors, but total
emissions do not increase.
The opt-in regulation protects against emission
increases. For example, one provision takes away
allocated allowances when the opt-in source reduces
its utilization, shuts down or withdraws from the
program.' _ _
In addition/ Congress instructed EPA to undertake
periodic inventories of industrial emissions and gave
the Agency the-authority to cap industrial emissions
of SO2 at an annual level of 5.6 million tons.
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