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

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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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