United Stales
Environmental Protection
Agency
Air and Radiation
(6204.1) .
EPA4JO-F-05-048
&EPA
The Opt-in Program
Overview for Combustion Sources
The Opt-in Program expands EPA's Acid Rain
Program to include additional sulfur dioxide (SO?)
emitting sources. Recognizing that there are
additional emission reduction opportunities in the
industrial sector. Congress established the Opt-in
Program under section 410 of the Clean Air Act
Amendments of 1990. The Opt-in Program allows
sources not required to participate in the Acid Rain
Program the opportunity to enter the program on a
voluntary basis, reduce their SO: emissions, and
receive their own acid rain allowances.
The participation of these additional sources
will reduce the cost of achieving the 10 million ton
reduction in SO? emissions mandated under the
Clean Air Act. As participating sources reduce
their SO, emissions at a relatively low cost, their
reductions ~ in the form of allowances ~ can be
transferred to electric utilities where emission
reductions are more expensive.-
The Opt-in Program offers a combustion source
a financial incentive to voluntarily reduce its 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 allowances exceeds the combined
cost of the emissions reduction and the cost of
participating in the Opt-in Program.
An opt-in source must comply with the same or
similar provisions as utility units affected under the
mandatory Acid Rain Program. These provisions
relate 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 must
hold enough., allowances to cover its annual SO,
emissions.
Who Can Opt In ?
All operating stationary combustion sources that
emit SO2 but are not otherwise required to meet the
mandatory SO, emissions limitations of Title IV are
eligible to opt into the Acid Rain Program.
Combustion sources are defined as fossil fuel-fired
boilers, turbines or internal combustion engines.
Examples of Eligible Combustion Sources
Existing Utility Units Serving Generators
Less than 25 Megawatts
Simple Combustion Turbines built before
November, 1990
i
Industrial Boilers
Non-affected Municipal Waste Combustors
Burning Some Amount of Fossil Fuel
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Examples of Ineligible Sources
Utility Units Affected under 40 CFR"§72.6
New Units Exempt under 40 CFR §72.7
Retired Units Exempt under 40 CFR §72.8
Mobile Sources
The Acid Rain Division has published a
guidance document to help sources determine
whether or not they are affected by the mandatory
utility program (see "Do the Acid Rain SO-,
Regulations Apply to You?" EPA 430-R-94-002).
How Does A Source Opt-in ?
In order to enter the Opt-in Program, a
combustion source must submit an opt-in permit
application and monitoring plan to its permitting
authority, receive an opt-in permit and install and
certify its emission monitors.
After receipt of a complete opt-in permit
application and after the monitoring plan is
determined to be sufficient1, the permitting
authorityj will issue a draft opt-in permit for the
source to review. The draft permit is then made
available for public comment arid eventually issued
or denied within 12 or 18 months of receipt of a
complete application - 12 months if the EPA is the
permitting authority or 18 months if the State is the
permitting authority. The opt-in source must renew
the opt-in permit before it expires, and, in most
cases, the permit will last for 5 years.
The opt-in permit application -must clearly
identify the combustion source and contain all of the
information needed to calculate the combustion
lource'b allowance allocation, including its fuel
input and emissions data as well as historic and
current emission limits.
The certification of monitoring systems for the
combustion source will follow the same procedures
and requirements as for affected units in the
mandatory utility program (see 40 CFR part 75 for
more specific requirements). However, there will t
be no provisional nor automatic certification of ..
monitoring systems for combustion sources. In
addition, an approved opt-in permit for an applying
combustion source will expire if the combustion
source fails to complete the certification of its
monitoring systems within 180 days after the
permit's approval.
EPA expects combustion sources to pursue the
resolution of the permitting process towards a final
opt-in permit and the certification of the combustion
source's monitors simultaneously. The renewal for
an opt-in permit must be requested at least 6 months
prior to the expiration of an existing opt-in permit,
if EPA is the permitting authority, and at least 18
months prior to the expiration of the existing opt-in
permit, if the State is the permitting authority. The
renewal, however, should be much more
straightforward than the initial opt-in permit
application,'because the allowance allocation, once
established, cannot be altered in the renewal.
How is the Number of Opt-in Allowances
Calculated?
Opt-in allowances are allocated upon entry into
the Opt-in Program. The number of allowances an
opt-in source receives is based on the product of its
average heat input for all fuel consumed during
1985 - 1987 (known as its "baseline") and the lesser
of three emissions rates: its 1985 actual emissions
rate, its 1985 allowable emissions rate3, and.its
allowable emissions rate at the time the combustion
source submits an opt-in permit application.4
If the source began operating after 1985, then
EPA will accept an "alternative baseline" which is
the average heat input for all fuel consumed during
the first three consecutive calendar years for which
the combustion source operated after December 31,
1985. The emissions rates used for the allowance-
calculation will be the actual and allowable
emissions rate for the first year of this three year
period as well as the combustion source's current
allowable SO2 emissions rate.
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Calculation of Opt-in Allowances
Annual
Opt-in.
Allowances
= [baseline] x the lesser of
; the 1985 actual SO2 emissions rate
the 1985 allowable SO2 emissions rate
the current allowable. $&z emissions rate
Are there Restrictions on Opt-in Allowances?
There are restrictions on opt-in allowances that
do not apply to allowances allocated to affected
units under the mandatory utility, program. They
are:
(1) only opt-in allowances dated for the current or
previous years can be transferred to other accounts
in the Allowance Tracking System5.
(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".
(3) opt-in allowances must be surrendered to the
EPA if the opt-in source experiences reduced
utilization relative to its baseline. The number of
allowances surrendered will be proportional to the
reduction in the opt-in source's historic operations
(i.e.. its baseline). The only exception to the
surrender of allowances for reduced utilization is
known as the thermal energy exception.
Why is EPA Concerned with Reductions in
Utilization?
Because participation in the opt-in program is
voluntary and does not include all sources, the
statute recognized that shifts in utilization from opt-
in sources to sources not participating in the
program would free up allowances without reducing
emissions. EPA, in accordance with section 410(f)
of the Act, will deduct allowances from an opt-in
source when it shuts down or reduces utilization.
For most years, utilization is calculated as the
three year rolling average of heat input for the opt-
in source. An opt-in source is considered to have
reduced its utilization if its average utilization is
below its baseline (i.e., its average historic fuel
input). If an opt-in source has reduced its
utilization, EPA will deduct allowances from the
opt-in source as described in the equation below.
EPA will consider documented claims of demand
side efficiency improvements7 as well as
improvements in the efficiency of electricity or
steam production at the opt-in source when
determining reduced utilization. EPA will give
credit and not deduct allowances for any portion of
the opt-in source's reduced utilization provided by
efficiency improvements.
Allowances Deducted for Reduced Utilization
Allowances deducted
for reduced utilization
Annual
Qjpt-m x
Allowances
' average utittztition^
i baseline I
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\\ hat ib the Thermal Energv Exception? j
Title IV allows for the transfer of allowances
ihat otherwise must te deducted to account for
reduced utilization or shutdown, but the transfer
may only be made to a unit that is replacing the
thermal energy previously supplied by the opt-in
source. Thermal energy is the thermal output or
steam produced by a combustion source that is used
directly as part of a manufacturing process, but not
used to produce electricity. A replacement unit
must be an affected unit under the Acid Rain
Program and prove that it actually replaces the opt-
in source's thermal energy.
A Thermal Energy Plan
In order for an opt-in source to transfer
allowances to a replacement unit under the thermal
energy exception.'the opt-in source must submit a
thermal energy plan and amend its opt-in permit
accordingly.
A thermal energy plan is entered into jointly by
the opt-in source and its replacement units. The
plan estimates the amount of thermal energy
replaced and requires additional information on the
operations of both the opt-in source and its
replacement units while governed by the plan.
A thermal energy plan has a fixed duration and
must be renewed. The term of the plan extends
over full calendar years, so interested opt-in sources
and replacement units could have a plan last as
many as five years, it" the opt-in permit is on a
calendar year basis, or three years, if the opt-in
permit begins on a date other than January 1.
Allowances Transferred Under a Thermal Energy
Plan
The number of allowances transferred from the
opt-in source to the replacement unit is calculated
using the equation on the next page.
The allowance transfer from the opt-in source to
the replacement unit will take place annually. Such
transfer will follow EPA's deduction of allowances
to offset emissions for the previous compliance year
.and before any other allowance transfers are
recorded in the Allowance Tracking System for that
year. Since the number of allowances that will be
transferred each year is contained in the approved
thermal energy plan, the opt-in source and each
replacement unit will know exactly how many
allowances will be transferred.
At the end of each year, EPA will adjust this
allowance transfer to reflect the actual thermal
energy replaced. In the event that the amount of
replacement is altered by an opt-in source's
confirmation report, a report submitted after
allowance reconciliation that documents efficiency
improvements, the EPA will make adjustments in
the following manner: EPA will consider the
number of allowances transferred to replacement
units fixed after the reconciliation process has
ended. The Agency will rely on the opt-in source
to surrender any additional allowances needed to
make the accounting consistent with both the
confirmed efficiency estimates and the number of
opt-in allowances available for transfer.
When a thermal energy plan is terminated, the
allowance transfer for the current year would be
reversed, essentially restoring the opt-in source's
original allocation for the current year. Future year
opt-in source allowances would remain unchanged.
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Transferred to Each Replacement Unit
Thermal Energy \ allowable SO, emissions rate
Allowances _ \ Efficiency Constant t
transferred
Renewal of a Thermal Energy Plan
A thermal energy plan will, in most
circumstances, be renewed along with the renewal
of the opt-in permit. At other times, the renewal of
the plan will be considered a revision of the opt-in
permit and will follow the procedures established
for all Acid Rain permit revisions. One important
aspect of renewing a thermal energy plan is the
possible change in the allowable emissions rates at
the replacement units. The Agency will rely on the
current allowable rate in effect at the time of
renewal for the allowance transfer under the thermal
energy plan.
Opt-in Participation of a Retiring Source Under
the Thermal Energy Exception
A retiring source may enter the Opt-in Program
and participate in a thermal energy plan, but must
be operating at the time it submits its opt-in permit
application. Operating is defined for this purpose
as having documented fuel consumption for more
than 876 hours in the 6 months immediately
preceding application (i.e., operating at 20 percent
capacity factor or greater). EPA places this
requirement on retiring combustion sources, to
prevent sources shut down long ago from claiming
allowances and increasing overall emissions.
Retiring combustion sources seeking to become
opt-in sources can receive an exemption from the
Opt-in Program's monitoring requirements,
consistent with §75.67. The designated
representative of such a source must petition the
Administrator for such an exemption.
Withdrawal from the Opt-in Program
An opt-in source can withdraw from the
program provided it meets certain conditions:
(1) the opt-in source must submit its annual
compliance certification report by January 30 of the
first calendar year in which the withdrawal is to be
effective (rather than March 1);
(2) the opt-in source must immediately provide
additional allowances if'it has excess emissions;
(3) the opt-in source must surrender all
allowances allocated to it for the year in which the
withdrawal is to take effect and for all years
thereafter.
If the opt-in source does not meet these
conditions to withdraw, the opt-in source shall
remain in the Opt-in Program and remain subject to
all requirements of the program.
Withdrawal will take effect on January 1. For
opt-in sources that withdraw from the program,
they cannot reapply to opt in until the year before
the original opt-in permit needed to be renewed.
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Noteb
/ ,
4,
6,
3,
^ womtonnv plan is sufficient if the plan appears to contain information demonstrating that ail emissions are monitored and
n-,H,m-d m accordance with 40 CFR pan 75. A determination of sufficiency shall not be construed as the approval or
disapproval of the combustion source's monitoring systems.
Tin- tvnn -permuting authority" is used to designate the entity responsible for issuing and administering permits. Initially,
:lu- E/M IA the permitting authority. As states, and in some^ases. local air pollution control agencies are authorized to issue
,H'i'ititt\ tinder Titles IV and V, they would become the permitting authority.
in Movable emissions rate is the most stringent federally enforceable limitaf -ifor SO: (in Ib/mmBtu) applicable to the
*<ğinhu.\tmn source for a \>i\-en year.
If at rne time of application, a new lower emissions limit is finalized but not yet in effect for the applying opt-in source, EPA
* )// mnsitler this new limit (known as "the current promulgated SO, emissions rate") and will adjust the combustion source s
<;///£/> annual auctions from a special allowance reserve and from offers of allowances from private holders. There are
MIM n/;o of auctions: (I) a spot-allowance auction, in which allowances are sold that can be used in that same year for
ce purposes, and ,2) an advance auction for the sale of allowances that will become usable in the future.
Demand side efficiency improvements include demand side measures that improve the efficiency of electricity or steam
consumption. Qualified demand side measures applicable to the calculation of utilization for opt-in sources are listed .Ğ
Appendix A. Section I of 40 CFR part 73.
In this equation , the Efficiency Constant = 0. 80 for coSenerators and 0. 85 for boilers and represents typical fuel utilization
at modern facilities.
For More Information
If you would like to receive more
information on the Opt-in Program,
permit application form or the fofis fer a fisennal
energy plan, please call the Acid Rain Hotline at
202-233-9620.
The equations presented iğ this doearnent
generally reflect the calculations contained ift the
opt-in regulation for combsstioti sonsees
part 74).
regulation for more
The
Rain Program can be found ift 46;CPR pasts 72
(Permits), 73 (Allowances), 74 Cİf&4B!K 7S
(Monitoring), 76 (NOJ, 77 (Excess: Emissions),
and 78 (Appeals).
AC ID ^RAIM
PROGRAM
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