&EPA
                  United
                 Air rad R*<£*tkn
                  Procflctioa Afeaqr
EPA
Man* 1993
Acid  Rain Program
Allowance     Allocations     and
Reserves
                    In order to reduce acid rain sin die United States and
                    Title IV of the Clean Air Act Amendments of 1990 established
                    the Acid Rain Program. ,Tfce program wfll cut sulfur dioxide
                    emissions, in  fratf and substantially  reduce nitrogen oxides
                    emissions from electric utility plants.  This fact sheet discusses
                    allowance allocations and reserve programs within the Acid Rain
                    Program and is one of a series containing information about the
                    program.  '      <"   ^;—-,-  ^ %/,-/..  ",-../.. "  *,^-.-;f- ,  "
  INTRODUCTION:
       The overall goal of the Acid Rain
  Program  is   to  achieve  significant
  environmental  benefits   through
  reductions in emissions of sulfur dioxide
  (SO2) and nitrogen  oxides (NO^), the
  primary causes of acid rain. To achieve
  this goal at the lowest cost  to society,
  the program  employs both  traditional
  and innovative, market-based approaches
  for controlling air pollution. In addition,
  the  program  encourages  energy
  efficiency and pollution prevention.

       Title IV of the Clean Air Act sets
  as  its primary goal the  reduction of
  annual SO2 emissions by lO.mfllkm tons
  below 1980 levels.  To achieve these
  reductions, the law requires a two-phase
  tightening of the restrictions placed on
  fossil fuePfired power plants.
                            Phase I begins in 1995 and affects
                       110 mostly coal-burning electric  utility
                       planits  located  in  21  eastern  and
                       midwestern  states.   Phase n,  which
                       begins in the year 2000, tightens the
                       annual  emissions limits  imposed on
                       these large,  higher emitting plants and
                       also sets restrictions on smaller, cleaner
                       planits fired by coal, ofl and gas. These
                       emission limits are implemented through
                       allocating "allowances".  Tfce  program
                       affects  existing  utility  units  with an
                       output  capacity  of  greater  than 25
                       megawatts and virtually all new utility
                       unitu              f

                            Tne Act also caDs for a 2 million-
                       ton reduction in NO, emissions by the
                       year 2000. A figffif5^*1* portion of the
                       reduction win be achieved by coal-fired
                       utility boilers that wfll be required to
                       meet new emissions standards based on

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                 NO. burner technology.
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   5||owa:ace	.trading	component" of  the
   Acui '^m"!|fo|ram allows utilities to
";^pjopt	tfie most	cost-effective strategy to
   reduce SO2 emissions  at units in their
   syste'msl""'  The Acid  Rain  Program
 .  operating permit outlines  the specific
   program "retirements and compliance
"""'^ions'chbsen by each source: Affected
-;v; !^tieV'als5rw^             to install
   system!	tiSlat1""1 continuousry   monitor
            of Sp2> NOjp and  other related
            , '"in  'order"to track"progress,
   ,..isu|| '' Compliance, ' and   provide
'	•	•	•	gfgf|g|py	fo^fljjiTtrading "cbmponent cf
   tjbg  program.	'"•"   In"" any	year  ""that
^^j'^iipliance	is " not  achfeved, excess
*S"l^^^^Si	""geialties ""will  apply,  and
^j^i^'l^^^^elS&ieF will/have'"" "-aftowances
"	'""	J	^ggjg|	rmrnJM&ateity "  from   their
     gSSIils'	Sjfni^	Submit a  plan to EPA
     ^"'''''speciies'"'1'	""how	the	excess '  SO2
             _u|i
             "'Smissiois	will Hie"	offset
                   '' '
                   J!jAn' allowance authorizes  a unit
                            "  I, industrial  source to '
                                        following a
                   year "II ...... tie ..... end' ...... of each year, the
                 tliSt hold an amount of allowances .....
                                                   ""
             ......          .....    ......  ......
             :j| ..... ""'jeast .......... ejgul ........ to ......... S
             "I'p ......... a ..... 'uiul'thmf emits 5,000 tons of SO2
             must hold It least 5,000 allowances that
             ?iffT- ....... i ...... ............ ....... |.r..r.. ...... ' ...... .mi ........ ji.isiMMi .......... Mini ........ n ............................ ........ ' ....................................... /< ........................... < •
              are	usable m
                        	,;(!„

                    Allowances are fuDy marketable
                              oH, traded, or banked
              |or'iw«"'ni"'"futiire years.
illli illlli       •  i^tiil^         	iiiiiililK             	iH»W^
    , , [[[ , ...................... ,,, ................ ,  j   i,  <       ,    .,.
   group, or individual holding allowances
   has an  account in  EPA's  Allowance
  '''' .......       ........ Parties" must "
   notify EPA to have transfers recorded in
   the ATS accounts, but it: is not necessary
   to  record all transfers with EPA until
   such time that the allowances are to be
   used  to meet a unit's SO2 emissions
   limitation requirement
   HOW   ARE   ALLOWANCES
   ALLOCATED?
   PHASE f
   Phase I allowance allocations are listed
   in Table A  of the  Clean  Air  Act
   Amendments  of 1990.    Additional
   allowance  allocations  are made  for
   various units, including affected units in
   Illinois, Indiana, and  Ohio, which are
   allocated a proportional share of 200,000
   additional  allowances each year  from
   1995 to 1999. Table 1 (finalized January
   11,  1993)  implements the  Phase   I
   allocations.
   PHASE n
          There   are   three   different
   categories  of   allowances:      basic
   allowances, bonus  allowances, and  the
   allowances that affect unite in certain
   mid-Western States.

          To calculate the_ allowances for
   Phase n, which begins in the year 2000,
   EPA uses the National Allowance Data
   Base, which contains historical data on
   almos  all utility units.

          Tables 2 through 4 of the  rule
    allocate  allowances  to  eligible  units.
    Allowances wffl be allocated to accounts
n i n I n 1 1 n i '/; :'i iiii ' , kii iiiiiiiiJiP .,
      '   >
                         ' affected	unit,	corporation,
                          1"	Sf	i!-sc	
i' > i Ai\A :|;> -1 :,,ff i: ', • ^ Wh 7, \ \ *! 'i > :i ^ylk ; ! 1 1 Jiiiii i: »i;;:: ' # i?i '' ' 'ViiiiiT !:i , i i 'a < YI,,; '!' ,: ' i ?i :\\ < i ;i »!'; • s

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r
            BASIC ALLOWANCES
                  Phase   II   basic  allowance
            allocations  are  generally  based  on
            historic emissions rates and utilization.
            During Phase II, the Act places a cap 011
            the number of these allowances issued to
            units each year at 8.90 million.  This
            effectively caps  emissions and ensures
            that the mandated emissions reductions
            will be maintained over time.

            BONUS ALLOWANCES
                  In   addition   to  the   basic
            allowances,  bonus allowances will be
            allocated to units in states with overall
            utility emissions rates at or below 0.8
            Ibs/mmBtu, and several other groups of
            units.  These allocations are made only
            for the years 2000 through 2009 and are
            limited to 530,000 allowances annually.

            MID-WESTERN ALLOWANCES
                  Finally, a  third type of allowance
            category affects Phase I units in certain
            mid-Western  States.     The  total
            allocation to all these units  is 50,000
            annually.  This category  of allowances
            and  the "basic"  allowances  discussed
            -above are called "permanent" allowances
            because   both   types   continue   in
            perpetuity.
            WHAT   ARE   THE   ALLOWANCE
            RESERVES?
                  The rule  also provides for the
            creation  of  four , different  allowance
            reserves.   The  reserves are pools of
            allowances that are taken from affected
            units, or created and  redistribute I to
            units that qualify for a particular reserve
            program.    The Phase  I  Extension
            Reserve  makes  available 3.5 million
            allowances to eligible  Phase I  units
which install reduction technologies with
high  SO2  removal  efficiencies;  the
Conservation  and Renewable Energy
Reserve contains 300,000 allowances for
units achieving SO2 emissions reductions
through   demand-side  energy
conservation measures  or renewable
energy generation; a Special Allowance
Reserve provides 250,000 allowances for
the annual auction and  sales  program.
Finally,   approximately   500,000
allowances are reserved for qualifying
Clean Coal  Technology  re-powered
units.
WILL   EPA   REVISE  THE.
ALLOCATIONS?
      The Act requires that EPA revise
the promulgated Phase II allocations by
June  1, 1998 to account for the actual
number  of allowances that  must  be
allocated  for repowering  projects  in
Phase II (under §409), as well as for new
utility units  coming  on-line   after
fLaalization  of  these regulations,  but
before 1996.

      Section 409 provides additional
allowances and an  extension of the
Phase n deadline for compliance with
emission limitation requirements as an
incentive^ for higher-emitting coal plants
to  meet  their  emission  limitations
tlirough the  installation of clean coal
.technology.  Because,, some of -these
'allowances must be  taken from other
Phase n units' bask allowances in order
to maintain a cap on SO2 emissions, it
was necessary for EPA to estimate the
number of repowering allowances. The
level  of .repowering  win be known by
1998  and the allocations win be revised
at that time.

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                  tfnits
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receive '  additional
••I	i
                      r3uSonT"r'accomph'shed  in
                    j~"|ojji|j|eji implementation of the
                          :.m	'Onry_a few Phase I and
 l|i;;	cTrn:;:::; PJaase II uti^ty'1'stems' ''will fee eligible
 TJE£.	V):::PI::	"';for	:'"tSese''	""early	reliiuctiah  credits.
 ''* • '  i'11!  '.;    iBfii''"I"; trif*i'» 'WiiilBlii!'11	ME	f	ti	•	 .- 	-,
   SJ^SS'.^^Ejigible Phase I units receive allowances
iijj^ i^^^    |f Ibr voluntary emissions reductions made
t:^;^'F;f:!'	-Irfer enactment and before January 1,
,ii	L;	,,i	,	i	'!!:  1^95.   El^bie" Phase  II units receive"
•i'](in        .  i in iiiiiiiiiiiiii 11 nn iiiH^^^ 11 iiiiiiiiiii i	i	_..	_	
            allowances tor voluntary SO2 emissions
11 "     i1 I ' !'     "I'll!11!1 !' I1,    i.  'I ,lv"i|l  ' IWilJ lfl" "! '',",. '!:;„  ^ 	      * "
tter.	F	'	i""':;"	'reductions  made between  January  i,
i:^	I	::	b::	ir-  1995, and' January 1, 2000.
                                         DIESEL
                  •• _i_Vffm" "P-*^-" M. Aw^^^^*^*—**-* •
s	.in	i	«	!	f	'	'	"	.:	HP	'iiTle	Set	^gateS	a	pfogfain	that
 . LI :  'i'1.!  i:   . 	 Bl   .  i"11,1'	tsHiii '.iiifst1 I.M.II . • i.  ••&	•-.•  •    .
 ':	>•	-	.T-	s	"^•"'allows small diesel fuel, refineries to be
                                to; help defray the
                                T	witi	the	lew	
                   M  SnisiiiiS1:1:'""
                  of  com
 	''"	l	!	!	"*'	'	iSulifunzatipn "standarWfpr	diesel fuel.
                                    allocated only
                                      desulfurized
                                       sr 1, 1993,
                                     year's' diesel
            	er_x._.  	        prograjn   is
            ia^ped^lt a total'of 35,000 allowances
tS~'^	I:;?:;,, ' afjniially." ' '^Eacl individual refinery is
""	:	:":	:	"' ^elgible'  "for"1  ib  more	"than   1^00
           '^allowances.	'  '"" '.
       ,.
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       IS AFFECTED BY AC3D RAIN
 PROGRAM REQUIREMENTS?
       For units or facilities that are not
 sure whether they are affected by the
 Acid Rain Program Requirements, EPA
 has added  a procedure by which these
 units may request a determination from
 the  Agency.  The  request  will  be
 submitted  in writing to the Director,
 Acid Rain Division and include relevant
 facts.    The  Administrator  (or  her
 delegate) will provide a written response
 which   will  be   binding  upon   the
 permitting   authority.     If  the  unit
 disagrees  with  the   Administrator's
 decision, the unit may appeal through
"'	EPA's t  Acid   Rain	Administrative	
 Appeals procedures.
 FOR MORE INFORMATION
       Write to:

       U.S. EPA
       Acid Rain Division (6204J)
       401 M Street SW
       Washington, DC 20460

       "If you would like to receive other
 fact sheets  on the Acid Rain Program,
 call the Acid fcain Hotline at 617-674-
 7377 or  the  EPA Public Lnfqnnation
 Center (PIC) at 202-260-2080.
                                         |l	!
                I.IUII II IIIIIII  III

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