United Stales
                                Environmental Protection
       Air and Radiation
       (6204.1)  .
                                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,
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
      Industrial Boilers

      Non-affected Municipal Waste Combustors
      Burning Some Amount of Fossil Fuel

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

    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.

Calculation of 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

  (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

  (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

             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
  Qjpt-m   x
' average utittztition^
i      baseline      I

\\ 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

  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

   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.

            Transferred to Each Replacement Unit
                               Thermal Energy  \   allowable SO, emissions rate
              Allowances  _ \ Efficiency Constant t

 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

    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.


/ ,

   ^ 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
       The equations presented iğ  this doearnent
generally  reflect the calculations contained ift the
opt-in regulation  for combsstioti sonsees
part 74).
regulation for more
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