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 ' Printed on paper that contains at least 50% recycled fiber ------- ------- 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. ------- ------- 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. ------- ------- |