SEPA
United States
Environmental Protection
Agency
Office of Atmospheric Programs
Air and Radiation
(6202J)
EPA-430-K-00-004
April 2000
Climate Protection Division
CREATING AN ENERGY EFFICIENCY
AND RENEWABLE ENERGY
SET-ASIDE IN THE NOx BUDGET
TRADING PROGRAM:
Designing the Administrative and
Quantitative Elements
Draft Guidance
Volume 2 of 3
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PREFACE
This document is the second of three guidance documents that EPA is issuing to help
states take advantage of the air quality benefits of voluntary energy efficiency and renewable
energy actions. Adoption of energy efficiency and renewable energy in the residential,
commercial and industrial sectors can reduce emissions of criteria pollutants, including nitrogen
oxides or "NOx." Emissions reductions from these types of measures can be recognized in a
state's air quality attainment strategy through the use of an energy efficiency and renewable
energy set-aside program.
In September 1998 EPA promulgated a rule, commonly known as the NOx SIP Call, to
address regional transport of ground-level ozone, the main component of smog. Ground-level
ozone is transported by the wind, and tends to be a problem over broad regional areas,
particularly in the eastern United States. Emissions of NOx react in the atmosphere to form
compounds that contribute to the formation of ozone. These compounds, as well as ozone itself,
can travel hundreds of miles across state boundaries to affect public health in areas far from the
source of the emissions. Thus, cities with "clean" air, those that meet or attain the national air
quality standards for ozone, may be contributing to a downwind city's ozone problem because of
transport.
The Clean Air Act requires that a state implementation plan (SIP) contain provisions to
prevent a state's facilities or sources from contributing significantly to air pollution problems
"downwind," specifically in those areas that fail to meet the national air quality standards for
ozone. The NOx SIP Call requires eastern states to submit SIPs that address the regional
transport of ground-level ozone. By reducing emissions of NOx, the transport of ground-level
ozone across state boundaries can be reduced. The NOx SIP Call includes a model NOx
Budget Trading Program that allows states to achieve over 90% of the required emissions
reductions in a highly cost-effective way.
The NOx Budget Trading Program is one example of how EPA is working towards giving
states more tools and greater flexibility in meeting their air quality attainment goals. Another is
this effort by EPA to include the emissions reductions achieved through voluntary actions, such
as energy efficiency and renewable energy projects, in state implementation plans. This
important new effort will provide states with increased flexibility for meeting the National
Ambient Air Quality Standards.
Analyses show that this pollution prevention approach can improve local economies
through higher productivity and the creation of more jobs while increasing the gross state
product. A major study by the U.S. Department of Energy also shows that accelerated adoption
of the energy efficiency measures likely to be included in this effort is an essential, economically
sound means to reduce emissions of greenhouse gases while developing the US economy.
This guidance document is being issued in draft form to most effectively assist states in
designing the administrative and quantitative elements of an energy efficiency and renewable
energy set-aside. EPA is soliciting comments on this draft through July 2000. Comments
should be directed to Edgar Mercado orChloe Weil at the U.S. Environmental Protection
Agency, Ariel Rios Building 6202J, 1200 Pennsylvania Avenue NW, Washington, DC 20460.
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ACKNOWLEDGMENTS
The guidance documents Creating an Energy Efficiency and Renewable Energy Set-
Aside in the NOx Budget Trading Program: Establishing a Set-Aside, Creating an Energy
Efficiency and Renewable Enemy Set-Aside in the NOx Budget Trading Program: Designing the
Administrative and Quantitative Elements, and Creating an Energy Efficiency and Renewable
Energy Set-Aside in the A/Ox Budget Trading Program: Measuring and Verifying Electricity
Savings were developed through the efforts of a workgroup that EPA convened with state and
regional representatives. The group worked for over a year to research design elements and to
develop options for promoting energy efficiency and renewable energy actions in the context of
the NOx Budget Trading Program, as it was being developed by EPA. The workgroup also
tested the workability of the systems by applying the approaches outlined in this guidance using
data and information from real projects. The principal elements of all three guidance documents
were reviewed by the workgroup. ICF Consulting of Fairfax, Virginia, also assisted in this
endeavor, under EPA contract 68-W5-0068.
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TABLE OF CONTENTS
PREFACE /
ACKNOWLEDGEMENTS //'
LIST OF TABLES AND FIGURES Hi
LIST OF ACRONYMS iv
EXECUTIVE SUMMARY. v
1.0 INTRODUCTION 1
1.1 Purpose 1
1.2 How the Set-aside Guidance is Organized 2
1.3 Using this Guidance. 3
2.0 OVERVIEW OF THE ADMINISTRATIVE ELEMENTS OF THE SET-ASIDE 5
2.1 Initial Considerations 5
2.2 Why each Administrative Process is Important. 5
2.3 The Role of the State and the Role of the Applicant 6
3.0 DESIGNING THE APPLICATION PROCESS 8
3.1 Application Information 8
3.2 Determining Eligibility Criteria and Requirements 9
3.3 Other Eligibility Considerations 13
3.4 Choosing an Office to Review Applications 13
3.5 Application Processing Options 13
3.6 Deciding between the one-step and the two-step application process 15
4.0 TRANSLATING ENERGY SAVINGS INTO NOX ALLOWANCES 17
4.1 The relationship between energy use and A/Ox emissions 17
4.2 Quantifying the amount of electricity saved or displaced 17
4.3 Using a A/Ox emissions factor 18
4.4 Compensating for Business-As-Usual (BAU) Projects 19
4.5 Discounting for Measurement and Verification (MA/) Uncertainty 22
4.6 Determining a NOx Allowance Exchange Rate 23
4.7 Sample Calculation 23
5.0 RENEWING ALLOCATIONS WITHIN A MULTI-YEAR AWARD PERIOD 25
5.1 Why Energy Savings Might Decline Over Time 25
5.2 Using M/V to Determine Changes in Energy Savings 25
6.0 WHEN TO DISTRIBUTE SET-ASIDE ALLOWANCES 27
6.1 Same-Year Award Option 27
6.2 Seasonal Lag Option 28
7.0 PUTTING IT ALL TOGETHER: INTEGRATING THE ADMINISTRATIVE
PROCESSES 30
7.1 Review of Key Program Elements Discussed Thus Far 30
7.2 Sample Set-aside Program Design 31
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8.0 CREATING APPLICATION FORMS AND OTHER DOCUMENTATION,
TRACKING AND REPORTING MATERIALS 36
8.1 General Considerations 36
8.2 Documentation and Reporting Materials for a Two-Step Application Process 40
8.3 Documentation and Reporting Materials for a One-Step Application Process 43
8.4 The NATS Account 45
8.5 The Importance of Reporting Results 46
9.0 EXPLAINING THE PROGRAM TO APPLICANTS 47
9.1 Drafting a Procedures Manual 47
10.0 CONCLUSION: INTEGRATING MEASUREMENT AND VERIFICATION 49
10.1 Next Steps 49
10.2 EPA Contacts 49
APPENDIXES
APPENDIX A- SAMPLE NATS FORMS
APPENDIX B- SAMPLE PROCEDURES MANUAL
APPENDIX C- SAMPLE APPLICATION FORMS AND DOCUMENTATION MATERIALS
APPENDIX D- ADDITIONAL DOCUMENTATION AND REPORTING MATERIALS
APPENDIX E- ENERGY EFFICIENCY AND RENEWABLE ENERGY SET-ASIDE
WORKGROUP
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LIST OF TABLES
Table 1. Program Responsibilities and Actions
Table 2. Set-Aside Eligibility Criteria
Table 3. List of Potential Technologies to be Eligible for Set-Aside Allowances
Table 4. Rational for Energy Efficiency/Renewable Energy BAU Factor
Table 5. Energy Efficiency and Renewable Energy Set-Aside Program Elements
Table 6. Example State Set-Aside Programs
LIST OF FIGURES
Figure 1. Set-Aside Application Information
Figure 2. Combined Heat and Power
Figure 3. Sample Calculation of NOx Allowances
Figure 4. Same Year Time Line
Figure 5. Seasonal Lag Time Line
Figure 6. Flow Chart for a Two-Step NOx Application Process
Figure 7. Time Line for a Two-Step NOx Application Process
(Example Assumes Seasonal Lag Award)
Figure 8. Flow Chart for a One-Step NOx Application Process
Figure 9. Time Line for a One-Step NOx Application
(Example Assumes Same-Year Award Process)
in
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LIST OF ACRONYMS
AAR Authorized Account Representative
BAU Business as Usual
BSGP Building Standards and Guidelines Program
Btu British thermal unit
CAA Clean Air Act
CABO Council of American Building Officials
CCAP Climate Change Action Plan
CEM Continuous Emissions Monitors
CHP Combined Heat and Power
CO2 Carbon Dioxide
CVP Conservation Verification Protocol
DOE Department of Energy
DSM Demand Side Management
E2 Energy Efficiency
EE/RE Energy Efficiency and Renewables
ECU Electricity Generating Unit
EPA Environmental Protection Agency
ESCO Energy Service Companies
ESP Energy Service Provider
FEMP Federal Energy Management Program
IPM Integrated Planning Model
IPMVP International Performance Measurement and Verification Protocol
kWh kilowatt Hour
M&V Measurement and Verification
MEC Model Energy Code
mmBtuMillion Btu
MPCIRF Measurement Protocol for Commercial, Industrial and Residential Facilities
NAAQS National Ambient Air Quality Standards
NATS NOx Account Tracking System
NERC National Energy Regulatory Commission
NOx Nitrogen Oxides
NSR New Source Review
PD1 Program Design 1
PPA Pollution Prevention Act
PUC Public Utility Commission
SBC System Benefits Charge
SIP State Implementation Plan
SO2 Sulfur Dioxide
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EXECUTIVE SUM MARY
EPA is providing states with guidance on designing an energy efficiency and renewable
energy set-aside because a well-run set-aside program may lower the costs of compliance of a
state's NOx mitigation strategy, and because additional environmental benefits could accrue to
the state. By including an energy efficiency and renewable energy set-aside in a state's NOx
Budget Trading Program, states can play an active role in encouraging new investment in
energy efficiency and renewable energy. An energy efficiency and renewable energy set-aside
can accelerate the voluntary adoption of energy efficient and renewable energy technologies by
presenting an important opportunity for electricity end users including, energy service
companies (ESCOs), commercial businesses, building owners/operators, equipment
manufacturers, and federal, state and local government agencies.
The draft guidance Creating an Energy Efficiency and Renewable Energy Set-Aside
in the NOx Budget Trading Program: Designing the Administrative and Quantitative Elements
is the second of three documents that EPA is issuing to help states design and implement an
energy efficiency and renewable energy set-aside1 It is intended to assist states that have
reviewed the information and recommendations in the first guidance document, Creating an
Energy Efficiency and Renewable Energy Set-Aside in the NOx Budget Trading Program:
Establishing a Set-Aside, and have decided to include an energy efficiency and renewable
energy set-aside as part of their NOx mitigation strategy. In the first guidance document,
EPA explains the purpose and benefits of an energy efficiency and renewable energy
set-aside, and provides recommendations on the preliminary design elements a state must
consider in deciding whether or not to include such a set-aside, and how many allowances
the set-aside should contain. In this second guidance document, EPA addresses the
subsequent steps a state will need to take in building a set-aside program. The second
document explains how to design the set-aside's administrative and programmatic elements,
and the procedures for quantifying and awarding set-aside allowances. The third and final
EE/RE set-aside guidance, Creating an Energy Efficiency and Renewable Energy Set-Aside
in the NOx Budget Trading Program: Measuring and Verifying Electricity Savings, will outline
options for states to consider in measuring and verifying the energy savings/displacements
that occur from eligible set-aside projects. It is planned for release in Spring 2000.
In each of the guidance documents, EPA presents its recommendations for how to
address programmatic elements for an energy efficiency set-aside. However, the guidance
documents are not meant to be interpreted to require or mandate any of the provisions
discussed. Their primary purpose is to provide information that states may use in the design
of an optional set-aside program that will reward energy efficiency and renewable energy
actions in a way that supports and enhances the NOx Budget Trading Program. As such,
states have the flexibility to adopt the recommendations provided, to design a set-aside
program using design elements different from those recommended, or to decline the option of
including a set-aside in the NOx Budget Trading Program.
Overview of First Guidance Document
EPA's guidance documents address the key issues for states to consider in designing and
implementing an energy efficiency and renewable energy set-aside. Before states begin
1 EPA will also issue a short addendum to the 1st guidance to clarify how to include combined heat and
power projects (CHP) in an energy efficiency and renewable energy set-aside.
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planning the administration and quantification elements of the set-aside, EPA recommends that
states review the first guidance document, as well as the initial design framework that they have
already established. Decisions about the administration and quantification elements that a
state will include in its set-aside program should be made in the context of these earlier
decisions.
The first guidance document details the factors that a state should consider in
determining the size of the set-aside, what projects will be eligible, and length of time a project
must be in place to be eligible for an award. The key questions that the first guidance document
addresses include:
1. What types of projects are eligible for awards, and who would receive
allowances?
2. Can the pool size be used so that allowance awards to new projects are
maximized?
3. How should the pool be sized to include actions implemented before 2003?
4. How does pool size depend on the number of control periods the award will be
given for (length of award)?
5. How can states adjust their set-aside pools to handle over and under
subscription?
The following table summarizes the recommended approach for the design elements that EPA
provides in the first guidance document:
Program Design Element
Size of Set-Aside
Eligibility of Applicants and Projects
Focusing on "New" Projects
Credit for Early Actions
Length of Award
Over-Subscription
Under-Subscription
EPA's Recommendation
5-15 percent
Not more than one applicant for each project
should receive allowances- allowances
should be awarded to end user
Eligible projects meet the 7 project criteria
Pool large enough for "new" & BAU
Projects
Yes
3 years
First come, first served
Pro-rata reallocation
These program design elements may influence how a state chooses to design the
application and allocation processes, as well as documentation, tracking, and reporting
mechanisms, and other factors discussed in the second guidance document.
Designing Effective Administration and Quantification Program Elements
In the second guidance document, EPA addresses the various programmatic elements
that states will need to determine in choosing the best approach for administering their set-
aside. In particular, the second document focuses on how to design the set-aside application
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process; how to allocate set-aside allowances to eligible projects; how to translate energy
savings and displacements into emissions reductions; the timeframe for processing applications
and administering allocations; and the kinds of documentation and reporting that should be
required.
In the second document, EPA offers recommendations on the key administrative and
quantification program elements. States may adapt the recommended processes, or develop
different approaches to meet their own needs. When designing the administrative and
quantification framework for their set-aside, states should keep in mind how these procedures
will interact with other design elements.
EPA's Design Recommendations
EPA has recommended an approach for each design issue. The following table
summarizes EPA's overall recommendations:
Program Design Element
Application Process
Translating Energy Savings and
Displacements into Emissions Reductions
Accounting for BAU Uncertainty
Award Process
Timing
Documentation, tracking and reporting
EPA's Recommendation
"Two-step" process
Emissions factor
Compensation factor
"Seasonal Lag" option
Coordination between all processes
Establishment of appropriate NATS accounts,
Periodic and on-going documentation
Designing the application process
Each state has the flexibility to create its own application process for energy efficiency
and renewable energy set-aside allowances, and is responsible for reviewing allowance
applications submitted for prospective set-aside projects. An application process should provide
adequate data to allow states to accurately review and evaluate requests for allowances, and
should also be designed to not impede potential applicants. Additional issues to consider in
designing the application process are 1) how the timing of the application process affects the
market accessibility of the allowances, and 2) the length of time between the initiation of a
project and the timing of the allowance award.
In this guidance, EPA discusses two potential application processes, the one-step
option, and the two-step option. Under the one-step process, the set-aside applicant does not
obtain official approval until after implementing the program or project and demonstrating the
electricity savings. Under the two-step process, by contrast, the set-aside applicant pre-
qualifies for the set-aside allowances associated with the program or project, and obtains final
approval and allowance allocations after measuring and verifying the actual electricity savings.
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EPA recommends that states implement a two-step application process. Although the
two-step process entails an additional administrative burden by requiring both a pre-qualification
review and final review, EPA believes that two-step approach is more effective than the one-
step process because it gives states an early estimate of set-aside participation levels, and
consequently, greater certainty. Likewise, the two-step approach gives applicants more
certainty because they will know whether their project meets eligibility criteria earlier than under
the one-step approach, and they also will be able to ameliorate any problems should the state
require modifications to their initial application. Furthermore, the two-step process allows states
to plan for over or under-subscription, and to address unexpected developments.
Translating energy savings and displacements into emissions reductions
Only the electricity savings and displacements that occur during the summer ozone
season are relevant for determining NOx allowances. An appropriate NOx emission factor,
along with other important variables, should be considered in translating energy savings or
displacements into NOx emissions allowances. EPA recommends that states use a NOx rate of
0.0015 Ibs/kWh. This rate assumes that there is a single SIP Call region-wide NOx emissions
factor. A single rate creates a unified awarding system for implementing energy efficiency and
renewable energy projects throughout the region. In addition, in the guidance EPA also
provides information and recommendations for other variables to include in the calculation.
In translating project results into NOx allowances, states may compensate for the
chance that a project would have occurred independent of the set-aside, or has already been
accounted for in the NOx SIP Call baseline electricity generation forecasts. In this guidance,
EPA refers to these types of projects that would have happened anyway as "business-as-usual"
(BAU). States can discount against this possibility, and focus allowance awards towards
"better than BAU" projects by using a BAU compensation factor. For example, when quantifying
the number of allowances to award a project, a compensation factor would net out an amount of
BAU energy efficiency and renewable energy, on a per project basis. As such, the amount of
allowances reflects the probability that the claimed amount is BAU activity.
EPA has developed a sample compensation factor based on the ratio between total
potential for savings and displacement versus BAU activity. EPA recommends using a BAU
compensation factor of 0.75.
Determining when to distribute set-aside allowances to qualified applicants
Each state is responsible for determining when in the annual programmatic cycle to
distribute set-aside allowances to qualified applicants and for what allowance year. For
example, a state can utilize the energy savings from one ozone control period to determine the
allowance allocations for that allowance year, or can use the savings to determine allocations
for the following year. In this guidance EPA details two different timing options: the "seasonal
lag" option and the "same year allocation" option.
There are several considerations that should be thought out in determining when and for
what year the allowance awards will be distributed. Because energy savings must be
demonstrated before projects receive allowances for their associated NOx reductions, a final
determination of the number of allowances to allocate a project can only be made
retrospectively, ie at the end of the applicable ozone control period (after September 30). Thus,
an energy efficiency set-aside program participant could receive allowances in October of the
same year that the reductions took place, at the earliest. At the same time, participants may
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want to trade their allowances to other entities within the NOx Budget Trading Program. If
program participants receive allowances for that same year, they would thus only have until the
end of December to participate in trading, which may not be an adequate period of time. If by
contrast, they received allowance for the next allocation year, they would have a much longer
period of time to trade allowances, and states would also have more time to evaluate and
determine the final allocations. As such, EPA recommends that states receive allowances for
the following ozone season, as detailed in the seasonal lag option.
Under the seasonal lag option, a project would have to be implemented and in operation
for a full ozone season before the state allocates it an award, and are not available for trading
until the second ozone season. After measuring and verifying the results of the first ozone
season, the project sponsor would then be allocated allowances to be available for trading at
the beginning of the second ozone control period that the project is in place. Under the "same
year allocation" option, by contrast, allocations are provided for the same year the project is
established in the second case. The allocations would be available for trading only for the fall
months of the same year the applicant has applied to the program.
The "seasonal lag" option is EPA's recommended approach because it provides greater
certainty for the state and program applicants. An exact calculation of program participation and
allowance allocations before the applicable year. The seasonal lag option also allows states
more time for review and approval of applications, and the actual trading period can be spread
out over a longer period of time. Likewise, potential allowance buyers will have an
understanding of the number of allowances available on the market via the set-aside- and will
be able to more effectively incorporate these allowances into their compliance plans. If the
entire set-aside process is to be completed in one year, the monitoring, review, issuance and
trading processes would all have to be undertaken in October and November, which puts a
greater administrative burden on the state and could limit market accessibility to the set-aside
allowances.
Timing is a critical component of the set-aside, and integrating the application, allocation
and trading processes is necessary to most effectively provide incentives for implementation of
energy efficiency and renewable energy projects, and to provide the greatest certainty for both
the state and the applicant.
EPA recommends that states initiate a program design based on a 3-year length of
award, a seasonal lag allocation period, and a two-step application process. EPA believes that
this particular combination of options will allow for the application and award processes to flow
most easily, and extends the time frame for approving awards and trading allowances. This
combination also allows participants to market their allowances earlier than otherwise, and thus,
they are able to reap the financial reward from trading allowances earlier and over a longer
period of time. States would also have a better sense of the number of allowances to distribute
to applicants. And, in the event that the pool is under subscribed, a state will be able to
distribute the un-awarded allowances to core sources, on an annual basis, until more projects
come online and the pool is fully subscribed. A state will also know in advance if the pool is
likely to be oversubscribed and will be able to plan accordingly.
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Documentation, tracking and reporting
Documentation, tracking and reporting mechanisms include the development of
appropriate NOx Allowance Tracking System (NATS) accounts, and development of additional
forms and reports for administrative purposes to be determined by the state. This guidance
document provides an overview of what is required when establishing a NATS account, as well
as the other mechanisms that EPA believes are necessary for executing a well-run set-aside.
The procedures for reporting allowances under the set-aside are the same as those
established by EPA under the NOx Budget Trading Program. The state must open a general
account in EPA's NOx Allowance Tracking System (NATS) to hold the allowances for the entire
set-aside, and an applicant for allowances must also establish a general NATS account. The
allowances will be directly transferred from the state into the project sponsor's account. EPA
recommends that the state designate a state energy official, air official, or public utility
commission official to be an Authorized Account Representative (AAR) to manage the set-aside
allowances.
EPA recommends that most of the necessary set-aside documentation be included in
the initial application that a program or project sponsor submits for an award. However,
additional pieces of information will need to be exchanged after the initial application is
submitted between the state and the project sponsor, and before the project sponsor is awarded
credits. A state should provide documentation to the project sponsor when a proposal has been
reviewed and deemed acceptable, and if the project is not deemed acceptable, a state should
document and provide recommendations for the modifications necessary to make the project
eligible for allowances. A project sponsor should provide documentation alerting the state when
the project is to be initiated, and also provide periodic updates to the state on the project's
progress. Finally, the state should document the project results when they have been
measured and translated into NOx emissions. EPA has provided example documentation forms
in this guidance that states may opt to use or adapt for their set-aside programs.
Measurement and Verification
To measure and verify electricity savings for the purpose of the energy efficiency and
renewable energy set-aside, it is important to follow a consistent set of standards and methods.
High quality measurement and verification procedures will help provide assurance that claimed
electricity reductions are real. One key element for providing such assurance is to compensate
for any uncertainty associated with the project results that may stem from the measurement and
verification process. In this guidance, EPA discusses how a measurement and verification
discount factor can be included in a state's formula for quantifying electricity savings to account
for this uncertainty.
Furthermore, the third guidance document, Creating an Energy Efficiency and
Renewable Energy Set-Aside in the NOx Budget Trading Program : Measuring and Verifying
Electricity Savings, will provide more explicit recommendations and assistance on measurement
and verification. The third guidance document will discuss the characteristics of energy
efficiency and renewable energy projects that may cause uncertainty in measurement and
verification, and will provides an overview of the mechanisms available to limit and/or account
for this uncertainty. In particular, the third guidance document will assess the specific protocols
available for varied types of energy efficiency and renewable energy projects, and will discuss
how states can adapt available methods of measurement and verification in designing their own
measurement and verification requirements.
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1.0 INTRODUCTION
1.1 PURPOSE
In both the Pollution Prevention Act (PPA) of 1990 and the Clean Air Act (CAA) of 1990,
EPA recognizes the significant role that energy efficiency and renewable energy resources play
in reducing pollution and achieving the nation's environmental goals. The 1990 PPA facilitates
the adoption of specific energy management techniques by businesses, including increasing
efficiency in energy use, substituting environmentally benign fuels, and using design
approaches that reduce energy demand. Likewise, the 1990 CAA encourages policies that
support energy conservation and renewable energy resources, as illustrated in the Acid Rain
Title. In addition, the 1990 CAA enlists greater use of market-based controls and incentives to
promote energy efficient technologies and practices, which has resulted in the development of
EPAs and the Department of Energy's successful Energy Star voluntary programs.
Through these voluntary programs EPA has demonstrated that energy efficiency and
renewable energy resources can be effective means for reducing environmental pollution while
increasing economic benefits. Likewise, many economic studies have recognized that energy
efficiency and renewable energy investments provide broad societal benefits, both economic
and environmental, and can result in permanent reductions of fossil-fuel use, a primary cause of
pollution emissions. And, as greater penetration of energy efficient products and renewable
energy resources occurs through a number of other programs and policies, the air pollution
reduction impact associated with these actions is becoming significant. However, air pollution
emission reductions from energy efficiency and renewable energy have not traditionally been
established in air quality attainment processes. State and local governments have requested
that EPA provide additional tools and greater flexibility in determining how they will be able to
meet their air quality attainment goals, including some provision for recognizing energy
efficiency and renewable energy-related air quality benefits in their air planning processes. In
light of these developments, EPA has drafted this guidance document to help states build
energy efficiency and renewable energy actions in their programs for mitigating the transport of
NOx emissions across state boundaries. In particular, this document is intended to provide
assistance to states that would like to recognize and incorporate energy efficiency and
renewable energy actions into the emissions trading system that may be available in the SIP
Call region, as part of the NOx Budget Trading Program.
This guidance will help states design a functional system in which a portion of their NOx
budget within the NOx Budget Trading Program is set aside for projects that displace electricity
generation via energy efficiency and renewable energy technologies. This guidance provides
EPAs current thinking on the important program elements to include when designing a set-
aside, and is consistent with three key goals: (1) to reduce the total economic cost of meeting
the proposed NOx cap; (2) to promote energy efficiency by accelerating the adoption of energy
efficient practices and technologies; and (3) to reduce future CO2 -related liabilities by
recognizing the positive impacts of energy efficiency and renewable energy on carbon
emissions. An effectively administered energy efficiency set-aside can be a key component of a
cost-effective strategy for reducing NOx pollution, preventing ozone formation, and mitigating
the transport of NOx emissions across state boundaries.
EPA believes that an effective set-aside will encourage actions that increase the use of
energy efficient technologies and renewable energy; and focuses on projects that would not
occur without a set-aside. In EPAs opinion, great potential exists for new energy efficiency and
renewable energy-based projects, in addition to those actions already happening, which for
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purposes of this guidance are referred to as "business-as-usual" (BAU) activity. This guidance
explains how to design a set-aside that targets new actions rather than BAU projects.
In addition, EPA believes that a set-aside must maintain the integrity and requirements
of the NOx budget. As such, the allowances that are allocated to energy efficiency and
renewable energy projects must be provided for from within a state's NOx budget. The buying
and trading of these allowances should not result in the exceedance of the budget in the SIP
Call region, in accordance with the set-aside provisions established in the NOx Budget Trading
Program Rule. This set-aside guidance will help states create a program that is consistent with
all of these principles.
This guidance assumes that the reader is familiar with the details of the NOx Budget
Trading Program as outlined in EPA Final Rule, 40 CFR Parts 51, 72, 75, and 96 Finding of
Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment
Group Region for Purposes of Reducing Regional Transport of Ozone. EPA had intended to
provide ample flexibility in designing a set-aside approach, consistent with the final rule. As
indicated in the final rule, the set-aside can only reward energy efficiency and renewable actions
that affect stationary sources in the NOx SIP Call region, and does not include actions in
transportation or other mobile sources.
1.2 HOW THE SET-ASIDE GUIDANCE IS ORGANIZED
EPA has organized the set-aside guidance into three separate documents. This is the
second of the three documents. The first set-aside guidance document, Creating an Energy
Efficiency and Renewable Energy Set-Aside in the NOx Budget Trading Program : Establishing
a Set-Aside, focuses on the elements necessary for a state to consider in determining whether
or not it will do a set-aside. It includes a discussion on what types of projects are eligible for set-
aside allowances, and how to decide upon an accurately sized set-aside pool. These are the
critical elements that must be determined in order to include the appropriate information related
to the set-aside that must be submitted in a state's SIP submission.
This is the second set-aside guidance document, Creating an Energy Efficiency and
Renewable Energy Set-Aside in the NOx Budget Trading Program : Designing the
Administrative and Quantitative Elements. It focuses on the key design elements that are
necessary for quantifying and allocating allowances under a set-aside. In particular, the second
guidance document discusses how to design the set-aside application process, how to allocate
set-aside allowances to eligible projects, how to translate energy savings and displacements
into emissions reductions, how to direct allowance awards towards "new" projects above BAU,
the timeframe for processing applications and administering allocations, and the kinds of
documentation and reporting that will be needed. These design elements a state can determine
after their initial SIP submission, but should be decided upon before the set-aside begins.
The third set-aside guidance document, Creating an Energy Efficiency and Renewable
Energy Set-Aside in the NOx Budget Trading Program : Measuring and Verifying Electricity
Savings, discusses how to create a framework for measuring and verifying energy savings from
projects that the state has approved for set-aside allowances. The measurement and
verification guidance document will provide an overview of the protocols that are currently
available for measuring and verifying energy savings, such as the International Performance
Measurement and Verification Protocol, EPA's Conservation Verification Protocol, and the New
Jersey Measurement Protocol for Commercial and Industrial Facilities. EPA will discuss how
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states could apply these protocols to their set-aside, given the variety of energy efficiency and
renewable energy projects most likely to be submitted for allowances in the state.
All three guidance documents have been developed through the efforts of a workgroup
that EPA convened with state and regional representatives. This group worked for over a year
to research design elements and to develop options for promoting energy efficiency and
renewable energy actions in the context of the NOx Budget Trading Program, as it was being
developed by EPA. The workgroup also tested the workability of the systems by applying the
approaches outlined in the guidance using data and information from real projects. The
principal elements of this guidance were reviewed both by the workgroup.
Although this document represents draft guidance for the purpose of designing an
energy efficiency and renewable energy set-aside as part of the NOx Budget Trading Program, once
finalized, it may be revised periodically to reflect lessons learned through the state implementation
of the guidance. In addition, where provisions are not specifically addressed in the efficiency
set-aside language, design elements from the overall cap and trade program may apply.
1.3 USING THIS GUIDANCE
This guidance document is divided into eleven chapters which explain the key issues to
be considered in creating the administrative and quantitative elements of a set-aside, such as
the steps for states to take in designing the allocation and administration processes of the set-
aside. The information discussed in each section is as follows:
Chapter 2, entitled Overview of the Administration Elements for a Set-Aside, discusses
the necessary program elements for administering a set-aside, and explains why each is
important. It focuses on what states need to take into consideration when determining
their overall approach for administering the set-aside, outlines the tasks and actions
necessary for administering the set-aside, as well as the information that the state would
need to exchange with project sponsors/applicants to do so.
Chapter 3, entitled Designing the Application for Set-Aside Allowances, outlines the
various issues to be considered when designing the set-aside application. It specifically
details the information that should be included in the application, and how to choose
which office at the state will process and evaluate applications. Furthermore, the
chapter discusses how to create application evaluation criteria at the same time that the
application process is developed, so that all qualified applicants and projects meet
uniform eligibility requirements. In addition, the chapter details two timing options for
processing applications, which are based upon the time and resources required for each
step of the application review process.
Chapter 4, entitled Translating Energy Savings into NOx allowances, outlines how to
convert energy saved into emissions reductions. The chapter discusses how to create a
NOx Allowance Calculation formula to quantify the number of NOx allowances a project
will receive, once the associated energy savings have been measured and verified. The
chapter begins with an explanation of the relationship between energy use and NOx
emissions, then discusses how to use a NOx Emissions Factor to determine the rate at
which NOx is displaced, per the amount of energy saved. In addition, the chapter
discusses how a state may choose to account for potential uncertainty in measuring and
verifying a project's energy savings and displacements, and how a state can
compensate for business-as-usual activities as part of its allocation process. At the end
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of the chapter, a sample allowance calculation is provided, given each of the previous
considerations.
Chapters, entitled Renewing Allocations within a Multi-year Award Period, discusses
how to adjust a project's allowance allocation given potential changes in energy savings
over a multi-year allowance award. Because energy savings may not necessarily stay
the same during the project's life-span, this chapter outlines why energy savings might
decline overtime, and how to accommodate for such changes when allocating
allowances in subsequent award years.
Chapters, entitled When to Distribute Set-aside Allowances, discusses how to consider
the timing for the application, allocation and trading processes in determining when in
the annual programmatic cycle to award allowances to the applicant. As such, this
chapter includes two timing options for awarding awards, given the amount of time the
state believes will be adequate to properly administer the set-aside and to allow for
allowance trading.
Chapter?, entitled Putting it All Together: Integrating the Administrative Processes,
addresses all of the design options discussed so far, by including a sample program
design based on EPA's recommended approach for each of the administrative
processes discussed in the first and second guidance documents.
Chapter 8, entitled Creating Application Forms and Other Documentation, Tracking and
Reporting Materials, builds upon the discussion of the application process detailed in
Chapter 3. This includes a description of general considerations in designing application
forms, as well as an overview of the types of forms and materials necessary for both a
one-step and a two-step application process. In addition, this chapter explains how to
set up appropriate accounts in EPA's NOx allowance tracking system (NATS).
Chapter 9, entitled Explaining the Program to Applicants, discusses how to convey the
necessary steps for applying to the program to set-aside applicants, once the state has
determined each of the program elements discussed in this guidance thus far, as well
any additional program requirements. This includes how to create communication tools,
such as a procedures manual on the general program requirements, or other
instructions, to distribute along with the application.
Chapter 10, entitled Conclusion: Integrating Measurement and Verification, wraps up the
key elements of this guidance document, and provides an overview of the final
considerations in developing an energy efficiency and renewable energy set-aside which
will be discussed in the third guidance document.
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2.0 OVERVIEW OF THE ADMINISTRATIVE ELEMENTS OF THE SET-ASIDE
This guidance document addresses the critical programmatic elements for administering
a set-aside, including designing the application forms and other documentation and reporting
materials, and how to review applications from project applicants, verify energy savings,
translating energy savings into emissions reductions, and finally, awarding allowances to project
applicants. This section details the overarching considerations for states to bear in mind when
designing these processes, including why EPA believes an effectively adminstered set-aside is
important.
2.1 Initial considerations
The first step that a state should take in designing the administrative processes is to
estimate the total time and resources that they will have available for administering the set-
aside. This will allow the state to plan accordingly when determining each administrative
program element. Likewise, the state should also determine what agency will be administering
the set-aside. A state can choose either an energy or air quality office, or officials from both to
administer the set-aside. In addition, the state should designate an Authorized Account
Representative (AAR) to the NOx Allowance Tracking System (NATS) to manage the set-aside
allowances as soon as possible.
EPA also recommends that the state become familiar with the types of projects in their
state that will be applying for set-aside allowances. This will give the state a sense of the
timeframe necessary for a potential project sponsor to fully implement an energy efficiency
project, given the variety of projects most likely to be initiated. When determining the timeframe
for allocating and awarding allowances, it is important to have a realistic estimate of the
necessary timeframe for a project sponsor to implement a new project from start to finish, in
addition to the timeframe required for project sponsors to apply for an award.
2.2 Why each administrative process is important
By setting aside a pool of allowances for energy efficiency and renewable energy
projects from within a state's NOx budget, state air officials are in a position to catalyze greater
implementation of these technologies. As discussed in EPAs first guidance document, a set-
aside can be a key element of a low-cost pollution NOx reduction strategy. Furthermore, an
energy efficiency and renewable energy set-aside will help these actions gain leverage as viable
and cost-effective pollution reduction measures, and as alternatives to traditional post-
combustion NOx controls. The most effective energy efficiency and renewable energy set-aside
programs will be ones that encourage new adoption of these types of investments. At the same
time, EPA believes that only a properly designed and operated set-aside will be effective in
catalyzing new investments and in maximizing the associated environmental and economic
benefits for the state. Likewise, a poorly designed and operated set-aside may ultimately limit
this potential.
In general, a set-aside should be administered in a timely and efficient manner, and
should be able to adapt quickly should any unexpected shortfalls arise. If either the application
or allocation processes are long, unreliable, or otherwise unclear, the state runs the risk of
hindering potential projects. In designing their set-aside program, the state should feel
confident that when the set-aside is in operation emissions reductions are real and accurately
measured.
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2.3 The Role of the State and the Role of the Applicant
It is EPA's opinion that each state should have the opportunity to design a set-aside that
is suited to their particular needs and interests, and that each state should have full autonomy in
administering the program. As such, whether or not states decide to adapt the recommended
program elements outlined in this guidance, there are several basic tasks that each state will
undertake in administering the set-aside. Once the set-aside is underway, the state's role in
administering the set-aside is making sure that the allowances are accurately distributed to
qualified projects. Thus, based upon the programmatic requirements they design, each state
will independently review the allowance applications from prospective applicants, notify
applicants when applications have been received and processed, determine allowances
awards, and distribute the allowances to program participants.
The state is not obligated to directly monitor or visit each of the projects submitted for
allowance awards, to determine that information submitted is accurate. However, applicants
should be responsible to the state for submitting any required forms or materials to the state as
requested, and in a timely manner, and should sign an application agreement to confirm that
they will do so. EPA recommends that the state establish program requirements and a
protocol for project applicants to follow in monitoring and verifying emissions reductions. As
such, the state should be able to adequately process the applicant's submittals, evaluate the
methodology used by the project applicant in quantifying their project's energy savings, and all
other all documentation and reporting materials. In addition, EPA recommends that state's
develop a procedures manual to explain program requirements to applicants, as well as
additional assistance and oversight to those applying for allowances to help the set-aside flow
as smoothly as possible.
Given these responsibilities, EPA believes that a successful set-aside requires a
sufficient understanding of the timeframe and resources required to do so up front. At the
same time, EPA is confident that with adequate planning states will be able to design effective
programs that can be operated with administrative ease. The subsequent chapters of this
guidance outline the specific administrative and quantitative processes associated with a set-
aside program, so that each state can determine what will be the most effective program
elements. To assist in this effort, in Table 2 on the next page, EPA has listed the general
responsibilities and steps necessary for the state to administer the set-aside, and for those who
will be applying for allowances as part of the set-aside program.
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Table 1: Program Responsibilities and Actions
State
• Entering into an Application Agreement
with the applicant.
• Reviewing all project applications.
• Overseeing program implementation,
quality assurance, and budgeting.
• Reviewing participant M & V plans for
determining energy savings.
• Providing oversight of all M & V activities.
• Establishing a general NOx Allowance
Tracking System (NATS) account and
representative.
• Transferring allowances in the NOx
Allowance Tracking System to
approved/demonstrated applicants .
• Conducting inspections to verify validity of
all approved applications, (optional)
Applicant
• Committing to an energy efficiency project
at its facility.
• Developing adequate project
documentation.
• Completing project installation.
• Entering into an Application Agreement
with the applicant.
• Submitting required application materials
and forms in accordance with program
procedures and deadlines.
• Performing M & V activities according to
established guidelines and documenting
claimed energy savings.
• Establishing a NOx Allowance Tracking
System account.
• Providing access to its facilities both before
and after project completion to allow
inspections and verify energy savings
performance, (optional)
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3.0 DESIGNING THE AP PLICATION PROCESS
The first step in designing the programmatic framework for administering an energy
efficiency set-aside is to design the application process. This includes deciding upon the types
of information to request from applicants to adequately process and review each applicant's
request for set-aside allowances, choosing who will review applications, and determining what
types of actions qualify for set-aside allowances. In addition, the state should decide upon
application deadlines, and when the state will review and evaluate the applications.
In this chapter, EPA provides an overview of the type of information to request in the
application, as well as how to create program requirements for eligibility to the program. EPA
includes a table of potential actions that could qualify for energy efficiency actions and sample
hypothetical projects that could be similar to those applying for allowances in the set-aside
program. In addition, EPA details two application processing options, based on when in the
annual programmatic cycle the state will request and review the applications.
3.1 Application Information
Each state can determine what information to include or request in the application for
their particular set-aside. An application for energy efficiency and renewable energy set-aside
allowances should provide adequate information for the state to evaluate and process each
applicant's request. To accurately assess projects submitted for allowances, EPA recommends
that, at a minimum, the application include the following items:
Figure 1. Set-Aside Application Information
Entity/organization applying for the allowances;
Contact name, address, and phone number;
Description of activity and/or project undertaken creating potential
allowances, including implementation year and expected lifetime;
Electricity savings or generation (kWh) and supporting calculations;
Explanation of monitoring and verification method;
Historical data on baseline energy usage. Data for three ozone seasons
is recommended;
Verification that all information submitted is accurate and reliable.
Furthermore, the application should provide the state with the necessary information to
confirm upon receipt of a completed application that no other entity is claiming allowances for
the same project. In addition, the applicant's submittal should demonstrate as well as that the
project meets eligibility criteria (to be determined by the state), and some explanation of the
applicant's baseline energy usage and projected energy savings, and how energy savings will
be measured and verified.
In Chapter 8, EPA provides a detailed discussion on how to design application forms
based on the information outlined in Figure 1. Sample application forms are attached in
Appendix C. This discussion may be of assistance to states when designing the framework for
processing applications. EPA also recommends that states require applicants to submit an
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application agreement as part of the application, to verify that all information provided in the
application is accurate. A sample application agreement is also included in Appendix C.
3.2 Determining Eligibility Criteria and Requirements
EPA believes that a successful set-aside program will be designed to allow a maximum
number of energy efficiency and renewable energy project sponsors participate. As such, a
variety of types of projects and actions should be eligible for allowances, including standard
measures such as lighting, HVAC, and motors retrofits, and certain custom measures. It is up
to each state to determine what will qualify as a standard measure. Likewise, less common
measures could be reviewed on a case-by-case basis, such as industrial process upgrades and
new construction. At the same time, it is important to establish eligibility criteria so that all
projects applying for allowances meet the same standards, to provide parity between all
applicants regardless of the type of measure they have implemented. When deciding upon the
information to request in the application, EPA recommends that states also consider
establishing uniform eligibility requirements. This way, the information requested in the
application forms will reflect these eligibility criteria, which will aid applicants in the submittal
process, as well as the state in reviewing them.
In EPAs first guidance document, Establishing an Energy Efficiency and Renewable
Energy Set-Aside2 EPA provided general recommendations for determining the types of energy
efficiency actions and entities that should qualify for set-aside allowances. In that document,
EPA stated that while it is up to each state to determine who and what types of projects qualify
for allowances, it is important that the set-aside provides allowances only for reductions/
displacements of electricity use. As such, in that guidance, EPA recommended that states
follow seven major criteria that projects must meet in order to be eligible to be awarded with
energy efficiency and renewable energy set-aside allowances, as detailed in Table 2:
Table 2. Set-Aside Eligibility Criteria
In order to be eligible for allowances, the project or action must:
Reduces/displaces electricity load from core source EGUs in the SIP Call region
Is not required by Federal government regulation
Is not/will not be used to generate compliance or permitting allowances
otherwise in the SIP
Is in operation in the year(s) for which it will receive allowances
Reduces/displaces energy during the summer ozone season
Is measured and verified in accordance with methods outlined in this guidance; and
Translates into not less than one (1) ton of NOx allowances, or can be aggregated with
other projects into one-ton increments of NOx allowances.
2. Creating an Energy Efficiency and Renewable Energy Set-Aside in the NOx Budget Trading Program.
Establishing a Set-Aside. Pages 20-22
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EPA believes that these project criteria are necessary for the development of an
effective energy efficiency and renewable energy set-aside within the context of the NOx Budget
Trading Program, and are important for maintaining the integrity of the NOx budget. Beyond
these guidelines, EPA recommends that states develop a list of more specific qualifications and
actions, and distribute the list as part of a procedures manual or with other application materials.
This will give applicants an idea about whether their project will be eligible for allowances up
front. For purposes of this guidance, EPA has culled a list of technologies that could potentially
qualify for set-aside allowances, though it is up to each state to make the final determination of
the actions that qualify. EPAs list is based on the eligible actions from several existing standard
performance contracting programs, and is included in Table 4. The list of actions are separated
into three categories based on actions involving:
1. Lighting technologies
2. Heating, ventilation, and air conditioning (HVAC) and refrigeration
3. Motors and other technologies
In addition, EPA also includes a list of technologies that are not recommended for consideration
in a set-aside.
Combined Heat and Power
Recent developments have generated renewed interest among both
government and private sector companies in combined heat and power
(CHP) systems, or cogeneration, as new technologies have greatly
expanded the range of cost effective CHP applications. EPA includes
CHP in its definition of eligible efficiency projects that states can choose
to include in their NOx set-aside programs.
CHP achieves improved energy conversion efficiencies by using on-site
fuel input to simultaneously produce electricity and thermal energy
(heat). Heat output that would otherwise be lost in electricity generation
is captured and is used for industrial processes such as the paper,
chemical, oil and food industries, or district heating applications.
Compared to typical industrial boilers and electricity generating facilities,
which convert 30% to 40% of the fuel to useful energy, combined heat
and power plants can achieve efficiencies of 60% to 80%.
The emissions benefits of CHP, as an efficiency technology for
electricity generation, are substantial, but depend very much on each
site's energy needs and fuel choice decisions.
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Table 4: List of Potential Eligible Technologies for Set-Aside Allowances
Lighting Technologies
• Lighting efficiency projects
• Daylighting
• Lighting controls projects
HVAC and Refrigeration Technologies
• Chiller replacement projects
• Air cooling and refrigeration compressor
Replacement projects
• Air cooling and refrigeration compressor
Replacement projects
• Packaged cooling unit replacement projects
• Variable air volume conversion projects
• Air side economizer projects
• Water side economizer projects
• Comfort cooling air handler motor efficiency
upgrades
• Air handler variable speed drive installations
• Heating and cooling related savings from
energy management systems
• Cooling tower motor efficiency upgrades
• Cooling tower motor variable speed drive
installations
• Constant speed ventilation
• Evaporative cooling and pre-cooling
• Exterior and interior window shading in air
• Special window glazing and glazing treatments
in air conditioned buildings
• Hot-spot ventilation in air conditioned buildings
(such as attic vents and fans)
• Heat transfer (including heat pumps) to heat
Sinks, such as ground source cooling in air
Conditioned buildings
• Projects that upgrade the efficiency or controls
of heating equipment
• Refrigerated case door projects
Motors/Other Energy Efficient Technologies
• Variable speed drive installations on industrial
fans and pumps
• Industrial process applications
• Projects improving building hot water efficiency
• Cogeneration or Combined Heat and Power
(CHP) projects
Technologies not recommended for eligibility under
the NOx SIP Call EE set-aside program
• Actions with a measurable lifespan of less than 3 years
• Measures that do not meet federal and state minimum
standards
• Actions that save energy because of operational
changes
• Load shifting technologies
• Measures that do not reduce electrical consumption
• Fuel switching projects
• Measures that are removable without the use of tools
In general, when applying for allowances in the set-aside program, the applicant would
need to describe pre- and post-installation energy savings for the relevant summer ozone
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season (May 1-September 30), detail the lighting and/or other equipment that was upgraded,
and the associated energy savings for each. Furthermore, it may be helpful to states to know
the source of the energy savings. Energy savings could be a result of the replacement of
equipment with more efficient (or properly sized) equipment that provides the same level of
service or the same output, or, by utilizing measures that eliminate unnecessary operating hours
or other variable end-use requirements.
Furthermore, projects being submitted for allowances may include several types of
energy efficiency or renewable energy actions. As such, it may be important for states to be
able to piece out each of the different measures that make up the project that is being submitted
for allowances, first for determining the project's eligibility, and once a project has been
approved, to determine its energy savings. To help states begin thinking about each of these
considerations, EPA is providing the following brief case studies, derived from actual energy
efficiency retrofits and upgrades, to illustrate realistic projects that may be similar to those that
would likely be submitted for allowances.
• Office lighting retrofit
A financial institution with locations throughout the state of Maryland initiates lighting
retrofits at a total of 2.5 million square feet of retail branches, administrative office buildings, and
data centers. They replace 4500 176-wattage lighting fixtures with energy efficient lighting that
use only 70 watts to deliver the same light output. In addition, they install several thousand
energy efficient T8s and electronic ballasts. To maximize these savings, they also installed
lighting occupancy sensors which are programmed to power down during non-use periods. In
total, they save 2.8 million kWh per ozone season.
• Commercial building envelope retrofit
A retailer completes a variety of energy efficient retrofits at a number of different store
locations. They install lighting upgrades at 170 stores, including installation of compact
fluorescent lighting. In addition, they initiate full building envelope upgrades at 40 stores, such
as energy management systems, energy efficient HVAC and windows, and LED exit signs. In
particular, at most of these stores, they downsized their cooling systems from the original (and
oversized) systems by installing smaller pumps and installing low-e glass windows to cut down
on their heating and cooling load. In total, the retailer saves 4 million kWh per ozone season.
• New residential construction
A developer of energy-efficient homes constructs several subdivisions of homes. The
homes, all of which have the same basic floor plan, meet the national model energy code for
insulation and equipment. For 80% of the homes, the developer upgrades the windows, seals
and insulates the ducts, seals the homes against infiltration of outside air, improves the water
heater efficiency, and installs programmable thermostats. The result is approximately 30%
savings from those of a typical house meeting the model energy code. For the remaining 20%
of homes constructed, in addition to these upgrades, the developer decides to strive for an even
higher level of efficiency. In these homes, the developer installs a high-efficiency gas furnace
and water heater, energy efficient lighting (T8s, compact fluorescents, photocell/motion
detectors on outside lighting) and energy efficient appliances (including Energy Star
refrigerators, horizontal-axis washers, and smart-logic dishwashers). Altogether, the developer
builds 4500 homes, and saves 1.4 million kWh of energy per summer ozone season relative to
standard efficiency.
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• Industrial Plant Retrofit
An industrial plant, which employs 400 people, manufacturers $18 million worth of linear
position and pressure transducers each year. Electricity powers the majority of the process
related equipment, air conditioning, and lighting. Natural gas is used for space heating and hot
water, about 10% of total energy use. The plant owner initiates energy efficiency retrofits that
include replacing five chillers with a single unit sized to match the system load, replacing lamps
and ballasts, installing reflectors in fluorescent fixtures, reducing the lighting operating hours for
unoccupied areas. In addition, the company used a time clock controller to reduce the
operating hours of hot water circulation pumps, insulating hot water lines, replacing 14 motors
with high-efficiency replacements, and repairing leaks in the compressed air line. In total, the
plant saves approximately 2.4 million KWh per year.
3.3 Other eligibility considerations
EPA also recommends establishing timing criteria, such that for a given year, all
applicants are submitting set-aside allowance applications for the same ozone control period.
Thus all projects must have demonstrated electricity savings during that season. For example, if
two hypothetical projects are submitting applications at the same time, one should not have the
option of receiving allowances for the previous ozone control period and the other project for the
next ozone control period. While the two projects could have been initiated in different years,
EPA recommends that both projects receive allowances for the same period.
Likewise, if a state chooses to make projects initiated before the set-aside program is
established eligible for allowances, it is important that there is parity between applicants seeking
credit for these "early" projects and all other applicants applying at the same time. Furthermore,
EPA recommends that all projects should be in place and in operation for the current year that
allowances are being issued, regardless of when the project was initially implemented. As such,
if the project was in place before the set-aside program is established, but is no longer
operational, it would be eligible to receive allowances.
3.4 Choosing an office to review applications
Each state must decide which of its offices will be responsible for reviewing applications.
EPA recommends that state (and/or local) air and energy offices work together to evaluate and
process the applications, each office performing the tasks relating to its area of expertise. The
state energy office is often the best resource for reviewing and determining electricity savings,
while the state air office might be the better choice for determining the allowances associated
with the project's electricity savings. The offices responsible for certifying the allowances must
coordinate with EPA to ensure that allowance awards are included in the NOx Allowance
Tracking System (NATS). For additional guidance on how to set up NATS accounts, please see
Section 8.4.
3.5 Application processing options
In deciding upon the information the state is going to request from set-aside applicants in
the application, and who will be reviewing applications, the state should also determine when,
and how, it will choose to review and approve applications. Although the final number of
allowances that a project will receive can only be determined after the project has been
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operational for a full ozone control period, and after energy savings have been measured and
verified, states can choose to review applications before the ozone season has ended. This
allows the state to inform applicants that they will be receiving allowances before the final
number of allowances to be allocated to the project is actually known. Depending on its
priorities and resources, a state may prefer to conduct an initial review before the completion of
the ozone control period (the final calculation of allowances would be determined in a second
review later). Or, state may prefer to evaluate the entire application all at once, at the end of
the ozone control period for which project applicants are applying for allowances. This
preference will determine whether the state will administer a "one-step" or a "two-step"
application process approach.
If a state chooses to administer a one-step approach, set-aside applicants would not
obtain official approval and allowance allocations until a/ferthey have implemented the project.
But if the state choose to administer a two-step application process, by contrast, applications
would be reviewed prior to the ozone control period. The applicant would be notified that they
qualify for set-aside allowances before they conclusion of the ozone control period for which
they are applying for allowances, although they would not be granted final approval and
allowances until after verifying the actual electricity savings.
The one-step approach is designed so that the state only needs to review the
applications once. Under the two-step approach, the state reviews the applications twice. The
two-step approach would give applicants and the state a sense of what projects will receive
allowances for their project earlier than the first option. While the one-step option requires less
administrative resources and time to review the applications being submitted for set-aside
allowances, it also reduces the level of certainty for both the state and project applicants.
Detailed flow-charts outlining the one-step and the two-step processes are included in Chapter
8, as well as a discussion of the application forms and reporting materials required for both.
When designing an application process framework, EPA also recommends that states
keep in mind how the administrative responsibilities associated with the application process will
interact with the amount of time and resources required for administering the other components
of the set-aside program, including those discussed later in this guidance. In particular, when
choosing between a one-step and a two-step application process, states should consider how
each of these options could be combined with the allowance award timing options presented in
Chapter 6, the "same-year" and the "seasonal lag" allocation option.
The one-step application process
Under the one-step process, applications are reviewed after projects have been in
place for a complete ozone control period. A set-aside applicant is granted official
approval for obtaining allowances after the project is implemented for the entire
summer ozone season, and electricity savings are demonstrated. As such, the set-
aside applicant would not know if their project qualifies for allowances before
initiating the project.
The two-step application process
Under the two-step process, applicants would notify the state of their intention to
claim set-aside allowances. At this time, the applicant would provide a basic
description of the project, a projection of the expected savings, and how the savings
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will be measured and verified. The project may or may not be implemented at the
time this initial application is submitted.
Following receipt of this initial notification from the applicant, the state would review the
application to ensure that the applicant meets eligibility criteria and program requirements. Once
the state informs the applicant that the project has been approved, the applicant would initiate
the project (if it is not already in operation), and would submit information to the state that
confirms that the project is in place. The state could then estimate the expected emissions
reductions associated with the project, and would notify the applicant that the application meets
eligibility requirements. In addition, the state could "reserve" allowances for the project, based
on the estimated energy savings in the initial application and notify the applicant of the expected
amount. The number of allowances that an applicant would receive would not be final until after
the ozone control period, contingent upon demonstrated summer energy savings results,
submitted to the state at the end of those months.
At the end of the ozone season, the second-step actions begin: the applicant reports
their measured and verified energy savings to the state. After the state has received this
information, the state would evaluate their results to ensure accuracy, and then issues the
allowances to the project applicant.
3.6 Deciding between the one-step and the two-step application process
The primary difference between the one-step process and the two-step process is the
level of confidence that each poses for the state and the applicant applying for awards. A state
may want to have an accurate estimate of the number of projects qualifying and applying for
awards as soon as possible. Likewise, it might be important to applicants to know beforehand
that they will in fact be receiving allowances for projects they are submitting applications for.
Under both process options, the state reviews the project application to certify that it meets
eligibility criteria. If the criteria are met, the State awards the applicant allowances for the
appropriate ozone season. If the criteria are not met, the state denies the application and does
not award any allowances to the project. Depending on the time in the annual programmatic
cycle that the state issues their allowance awards, applicants whose projects have been
rejected may be able to correct deficiencies and resubmit the application for the same year, or
for the next allocation period. EPA recommends the two-step application process because it
reduces the potential uncertainties associated with a one-step process. Under the two-step
application process, the applicant has the opportunity to correct any deficiencies with the project
before losing out on the allowances, should the project not meet approval criteria.
The one step process provides less or no certainty for applicants that they will receive
the expected amount of allowances for projects pursued. As a result, applicants may not be
able to depend upon revenues from the potential sale of allowances before proceeding with the
energy efficiency or renewable energy project. Of course, a project applicant could reduce
uncertainties by initiating discussions with the state prior to the project to learn more about the
eligibility criteria, to familiarize the state with the activity/project, and to begin obtaining unofficial
approval for the allowances. However, a state may not have the time or resources to provide
this kind of unofficial guidance, and establishing a more structured approach may be more
realistic.
Likewise, there are some drawbacks to the two-step process, namely, those that are
associated with the additional administrative requirements necessary for administrating a two-
step process. In particular, because the pre-approval and final review are conducted at different
15
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times, there is a possibility that each step could be conducted by a different person or team.
This could slow down the review process, as it would take additional time for the new person or
team to learn about the project before they could conduct the final verification. This risk is
minimized in the one-step application process, since the entire review is conducted at one time.
Likewise, one review cycle would also reduce the paperwork for both the state and the
applicant. Nonetheless, because of the greater certainty that the two-step process provides to
both the state and the applicant, EPA believes that the benefits of the two-step process
outweigh these potential disadvantages.
16
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4.0 TRANSLATING ENERGY SAVINGS INTO NOx ALLOWANCES
This chapter of the guidance discusses how to quantify electricity savings and then
translate electricity savings into an associated number of NOx allowances. The chapter begins
with an overview of the relationship between energy savings and emissions reductions and then
explains how to determine a project's relevant energy savings by separating out the pertinent
energy savings from those that may have occurred at other times of the year.
Next, EPA outlines how to establish a methodology, or formula, for converting energy
savings into an associated number of NOx allowances, once an accurate estimate of the energy
savings for the relevant ozone control period has been quantified. The amount of energy
savings, plus an emissions factor, are the fundamental components of a NOx allocation formula.
EPA discusses how to formulate an emissions factor, which can be used to calculate the rate at
which emissions are reduced, per Btu of energy saved. In addition, EPA shows how
measurement and verification imprecision and business as usual projects can be also be
compensated for in the NOx allowance allocation formula. Finally, the chapter illustrates how to
put each of these factors together by providing a hypothetical calculation.
4.1 The relationship between energy use and NOx emissions
There are two pieces of information that are necessary to calculate the amount of NOx
associated with a certain amount of electricity saved or displaced. First, the amount of
electricity saved or generation displaced during the summer ozone season must be quantified.
Second, a NOx emissions factor, which is the rate at which NOx is emitted per the type of fuel
used to generate the electricity saved or displaced, must be determined. The product of these
two values is the foundation for a state's formula for converting energy savings into allowances.
The formula for converting energy savings into allowances is the focus of Chapter 5 of this
guidance. In addition, Chapter 5 will illustrate how to best determine the amount of electricity
saved/displaced, by adding additional factors to this initial formula.
4.2 Quantifying the amount of electricity saved or displaced
Because the period of compliance for sources in the NOx Budget Trading Program is the
summer ozone season, only the electricity savings and displacements that occur during the
summer ozone season (May 1 through September 30) are relevant for the purposes of
determining NOx allowances. Thus, electricity savings that occur outside the ozone season, i.e.
between October 1 and April 30, are not counted toward the achievement of the NOx emissions
cap. Therefore, states and EPA should not grant allowances for energy savings occurring
outside the summer ozone season. It should be noted however, that although only ozone
season reductions count towards allowances, many energy efficiency and renewable energy
projects continue to provide benefits such as emissions reductions, cost savings, and job growth
throughout the entire year.
There are two options to identify eligible electricity savings and displacements during the
ozone season: (1) use information specific to the summer ozone season, or (2) pro-rate annual
savings or displacement amounts. Regardless of which option a state uses, it should establish
a pre-activity baseline, preferably based on similarly measured data from the previous three
years.
17
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The first method, tracking summer ozone season specific information, usually involves
obtaining monthly data from the May 1 through September 30 time frame that may be available
for programs and projects that are in place and appropriately measured or metered. When such
data is available, EPA highly recommends that states require it as the basis for calculating NOx
allowances. The second method, converting annual savings and displacement amounts into
summer ozone season savings, may be used when summer-specific monthly information is not
available. In such cases, estimated annual savings may be apportioned into an estimate of the
energy savings during the summer ozone season. However, this method is less preferable
because there is a greater possibility that the calculated savings or displacement may not be as
accurate for the summer ozone season as the first method.
The second method, calculating summer ozone emissions reductions from annual
energy savings and displacements, requires developing a formula that will separate out the
amount of the energy savings or displacements that occur during the summer ozone season.
For activities which have consistent annual savings, one common method is to take five-twelfths
(amount which correlates to the five months of the summer ozone season divided by the twelve
month in the year) of the annual energy savings or displacements. Calculating summer ozone
season emissions reductions from energy savings due to energy efficient computer equipment
in a commercial business operation is one example where applying the five-twelfths factor is
appropriate.
There are other examples, however, where applying the five-twelfth factor is not an
appropriate means for stipulating summer emissions reductions from annual energy savings
data. This is the case when energy savings or displacements do not occur on a consistent
basis throughout the year, such as when they occur exclusively during the summer ozone
season, or only partially or not at all during the summer ozone season. Likewise, the timing and
amount of energy savings and displacements can also vary by climate zone. For example, an
energy efficient air conditioner will result in energy savings which mainly occur during the
summer ozone season. Therefore, most of the energy saved by these types of projects would
be eligible for allowances. Taking five-twelfths of the annual amount of energy used for air
conditioning would most likely underestimate the actual amount of energy savings and emission
reductions which can be attributed to an energy efficiency air conditioner during the summer
ozone season. Conversely, improvements in heating efficiency will have no effect on energy
use during the ozone season. Therefore such projects should not be granted set-aside
allowances. As a general rule, states should consider the effects of seasonality on the energy
savings and displacements claimed by applicants, and factor this into their calculations of
summer ozone season savings and displacements.
4.3 Using a NOx emissions factor
As discussed in section 5.1, a NOx emissions factor can be used to convert energy
savings into emissions reductions. There are two options that states can consider in creating an
appropriate NOx emissions factor: use of either a single region-wide factor, or use of multiple
factors for sub-regions within each state. EPA recommends that states use a single SIP Call
region-wide NOx emissions rate of 0.0015 Ibs/kWh.
The first option bases the single NOx rate on a typical average system heat rate of
10,000 btu/kWh and the NOx emissions limit of 0.15 Ibs/mmBtu that was set out in the SIP Call
rule for reducing regional transport of ozone. A single, region-wide rate has the advantage of
being simple to administer since it creates a uniform system for rewarding energy efficiency and
renewable projects across the SIP Call region. Using one rate also replicates the SIP Call-wide
18
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rate that the electricity grid needs to attain under the projected demand. However, it may over or
understate emission reductions for particular states since it does not fully capture the variations
in local NOx emission rates.
The second option would establish marginal NOx rates for North American Electric
Reliability Council (NERC) sub-regions, within the SIP Call region. This results in a set of 13
NOx rates (expressed in Ibs. NOx/kWh), one for each sub-region, more closely approximating
state-specific NOx emissions rates. It is a more technically accurate measure than the first
option. By using a dynamic dispatch model, such as the Integrated Planning Model (IPM), to
develop these factors, this method can more closely approximate state-by-state differences by
more accurately capturing the generation mix, imports, and exports occurring across different
NERC sub-regions.
The second method also more closely tracks the marginal NOx rate of units being
Abacked offfe than the first method, due to lower load demand created by energy efficiency and
renewable energy measures. However, there is a possibility that load reductions in some NERC
sub-regions (e.g., a net electricity exporting area) may not result in a reduction in generation in
that specific sub-region, but in the net importing sub-region, making energy efficiency actions in
exporting areas uncreditable. Furthermore, states may find the second option to be more
cumbersome to implement compared to the first option, because of the range of different NOx
rates. This is particularly true for a state with multiple sub-regions.
4.4 Compensating for Business-As-Usual (BAD) Projects
The goal of the energy efficiency and renewable energy set-aside is to reward real
savings or displacements. As such, there are two areas that can provide imprecision in
determining the number of allowances associated with a program or project, business-as-usual
(BAU) potential and measurement and verification uncertainty (MA/). Both should be
considered when deciding the number of NOx allowances to award to a program or project.
Using a BAU Compensation Factor
To accurately translate energy changes into NOx emissions, it is important to account for
the possibility that energy efficiency allowances might be awarded to BAU energy
improvements, that is, projects that would have occurred even in the absence of an energy
efficiency/renewable energy set-aside program. To maximize both the economic and
environmental benefits of the set-aside, reductions in energy use and NOx emissions that arise
as a result of BAU activities should not be awarded allowances. This concept was initially
discussed in the first guidance document. In that document, EPA suggested that one way to
ensure that only better-than-BAU reductions are awarded is by applying a compensation factor
to the amount of electricity saved or displaced. The following paragraphs explain the rationale
for, and how to develop, a BAU compensation factor. This factor can be included in a state's
formula for determining the number of NOx allowances to award to a program or project.
The compensation factor EPA has developed is the ratio between:
(1) amount of savings assumed to be in the baseline or BAU activity (£BAU)
to the total potential savings from energy efficiency, renewable energy, CHP and
other actions (ET); and
(2) total potential savings from energy efficiency, renewable energy, CHP and other
actions (ET).
19
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The following is the equation for the compensation factor:
Compensation factor = (ET - EBAu) / (ET)
The compensation factor is then multiplied by the total amount of electricity savings and/or
displacement that the applicant specifies in the application for NOx set-aside allowances. In
other words, the amount of allowance given is reduced to the extent that the claimed amount is
a BAU activity. Thus the larger the potential relative to any BAU improvement included in the
baseline, the smaller the discount. For example, if the total potential is 100 KWh and the BAU
amount is 10KWh, the compensation factor is 0.9, or (100-10)/100. So if a project being
claimed by an applicant produces electricity savings that equal 20 tons of NOx allowances, the
claimant may only receive 18 tons (0.9 factor applied to 20 tons). Thus, two out of the 20 tons
or 10%, on average, may have been BAU according to this compensation factor.
Table 2 on the following page provides a range of potential BAU compensation factors.
Table 2 contains estimates of the expected energy efficiency and renewable energy actions
associated with existing federal programs. These actions have already been accounted for in
the SIP Call baseline, and for purposes of the set-aside are included in EPAs estimate of BAU
energy efficiency since they are a result of other programs rather than the NOx SIP Call Energy
Efficiency set-aside. Thus, in Table 2, EPA pieces out baseline energy efficiency/renewable
energy, as compared to the potential for new energy efficiency and renewable energy actions to
determine the BAU factor. Table 2 includes electricity demand and energy efficiency/renewable
energy potential as estimated in three different studies: DOE=s Five Lab Study3, Energy
Innovations4, and America=s Energy Choices5.
3. U.S. DOE, AScenarios of U.S. Carbon Reductions: Potential Impacts of Energy-Efficient and Low Carbon
Technologies by 2010 andBeyond,@ Washington, D.C., 1997. Conducted by five U.S. DOE laboratories,
the study is referred to as the "Five Lab Study.®
4. Alliance to Save Energy, American Council for an Energy Efficient Economy, Natural Resources Defense
Council, Tellus Institute, and Union of Concerned Scientists, REnergy Innovations: A Prosperous Path to a
Clean Environment,® Washington, D.C., 1997.
5. American Council for an Energy Efficient Economy, Alliance to Save Energy, Natural Resources Defense
Council, and Union of Concerned Scientists, RAmerica's Energy Choices: Investing in a Strong Economy
and a Clean Environment: MainReport,@ Washington, D.C., 1991.
20
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Table 2. Rational for Energy Efficiency/Renewable Energy BAD Factor
Scenario of
energy trends
and EE/RE
potential
Five Lab Study
(100%
implementation
rate scenario,
including
cogeneration &
RE potential)
Energy
Innovations
("Innovation
path" scenario)
America=s
Energy
Choices
("environmental
scenario"
including
renewables)
Potential
reduction in
energy
consumption
from EE/RE
fas a % of total
projected energy
demand forecast)
2003
14%
17%
21%
2010
26%
26%
34%
Expected future EE/RE
electricity savings
accounted for in SIP
Call demand forecasts
(% baseline forecasts
reduced to reflect
demand reductions
associated with existing
federal programs) 6
2003
4.5%
4.5%
4.5%
2010
4.8%
4.8%
4.8%
Potential energy
consumption
reductions from
EE/RE minus that
already recognized
in SIP Call demand
forecasts
(SIP Call
reductions/total
potential)
2003
32%
26%
21%
2010
18%
18%
14%
Associated
BAD factor
(Range for 2003-
201 Oof total
EE/RE potential
minus already
accounted for
EE/RE actions)
.Q8-.82
J4-.82
.79-.S6
Using these estimates, EPA has determined that an appropriate BAU compensation
factor falls into the range of 0.68 to 0.86, or the inverse of the largest and smallest amounts of
BAU energy efficiency and renewable energy calculated from these studies. For simplification,
EPA recommends using a BAU factor of 0.75, which should reasonably compensate for the
amount of energy efficiency and renewable energy included in the SIP Call baseline. It is up to
each individual state to decide whether or not the program or project under consideration should
be subject to a compensation factor, and the level of compensation that should be made. EPA
is providing the 0.75 factor as a guideline. States may use that factor, develop a different factor
based on their own estimates of total potential, or omit the use of a factor. Although this
guidance does not discuss other methods for accounting for BAU activities than using a BAU
6. Climate Change Action Plan (CCAP) energy demand reductions associated with existing federal programs as
detailed in "Analyzing Electric Power Generation Under the CAA", July 1996
21
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compensation factor, states may opt to develop their own methods to compensate for BAU
projects as they see fit.
4.5 Discounting for Measurement and Verification (MA/) Uncertainty
Measurement and verification is the confirmation that energy efficiency and renewable
energy actions are producing the energy savings or displacement that set-aside applicants
claim within their applications for allowances. Because efficiency and renewable energy
programs and projects are not uniform, differences among them mean that these actions are
often measured and verified with varying accuracy and levels of rigor. In addition, variation
among the available MA/ protocols and how programs and projects elect to use them can lead
to uncertainty in the precision with which energy efficiency and renewable energy actions are
measured and verified. Furthermore, building and equipment use patterns may not be constant
from year to year or season to season, which also introduces variability and some uncertainty.
Establishing a thorough measurement and verification mechanism as part of the programmatic
framework for administering the set-aside is important for establishing a common basis for
estimating the reductions in emissions associated with energy efficiency gains, and for ensuring
that there is parity between every project that will receive allowances.
For example, using metering or submetering of equipment to demonstrate the pre- and
post-retrofit energy use eliminates most or all of the uncertainty about how much that equipment
is used during the time period in question. However, using stipulated measurement, where the
performance metric of the new equipment is multiplied by the assumed or historical use of that
equipment is inherently less accurate. A hotter summer than usual, higher or lower building
occupancy levels, or other variables may have a significant effect on the amount of savings or
displacement that is actually realized.
Using an MA/ Discount Factor
Based on an extensive review of existing MA/ practices and protocols by the EE/RE Set-
Aside Workgroup, EPA believes that applicants should have choices with regard to the
measurement approach they can use to measure electricity reductions from their projects. As
such, EPA recommends that when determining the number of allowances to award a project,
states give applicants allowances for their electricity reductions based on the certainty of results
associated with the MA/ method that the applicant chooses.
States that are particularly concerned with the accuracy with which projects are measured
and verified may want to consider using a discounting mechanism to adjust projected energy
savings and displacements to account for measurement and verification imprecision, and
uncertainty associated with variation in building and equipment use patterns. A discounting
factor can be included, like a compensation factor, as part of the state's formula for translating
electricity savings into allowances. Thus, a more accurate MA/ approach is rewarded with a
higher level of credit (or lower level of discounting).
States have flexibility in choosing their own MA/ approach, and may also develop their
own discounting methods, or develop alternative mechanisms. As such, states can adapt any
methodologies outlined in a number of available protocols, such as EPA's Conservation
Verification Protocol (CVP), DOE's International Performance Measurement and Verification
Protocol (IPMVP), and New Jersey's Measurement Protocol for Commercial, Industrial and
Residential Facilities (MPCIRF) or developing a more specific (or more general) approach of
22
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their own. EPA believes, however, that developing discount factors to account for MA/
uncertainty, based on the pertinent information presented in these established protocols, may
prove to be the easiest strategy for states to undertake.
A detailed explanation of the key considerations for designing MA/ requirements will be
discussed in the 3rd guidance document, Creating an Enemy Efficiency and Renewable Enemy
Set-Aside in the NOx Budget Trading Program : Measuring and Verifying Electricity Savings. In
addition, the 3rd document will provide an assessment of the available protocols and how
program-specific and measure-specific methods contained in these protocols can be adapted
for the purpose of an energy efficiency and renewable energy set-aside in the NOx Budget
Trading Program.
4.6 Determining a NOx Allowance Exchange Rate
Within their formula for translating energy savings/displacements into allowances, states
may choose to utilize an "exchange rate" to weigh energy efficiency reductions at greater or less
than the value of other NOx emissions reduction mechanisms. As such, states can elect to
award more than one allowance per ton of emissions reduced if the state aims to provide
greater incentive for energy efficiency and renewable energy, versus other controls.
EPA recommends that a "one to one" exchange rate be used, such that 1 ton of NOx
emissions avoided is equal to allowances associated with 1 ton of NOx emissions. However,
states may decide to use an exchange rate that is higher or lower than 1.0 in order to provide
greater or lesser incentive. It is up to each state to determine whether or not to include some
type of exchange rate, other than the 1 to 1 rate that EPA recommends, as part of its NOx
allowance calculation formula.
4.7 Sample Calculation
Once the state determines the variables it will include in its NOx allowance calculation
formula, the appropriate number of allowances to be awarded to a program or project can be
determined. At a minimum, the conversion calculation must include the amount of energy saved
and a NOx emissions factor. In the sample calculation provided in this section, allowances are
a function of the:
(1) energy reduction/displacement from the energy efficiency or renewable project,
(2) NOx Emission Factor,
(3) BAU compensation factor,
(4) M/V discount factor, and,
(5) A/Ox allowance exchange rate.
These are the variables that EPA recommends be included in a state=s NOx allowance
calculation formula. The formula consists of the product of these factors. As such, the
calculation formula for these variables would be:
Total Award = (Energy Saved) * (NOx Emission Factor) * (BAU Compensation Factor) *
(MA/ Discount Factor) * (NOx Allowance Exchange Rate)
Because fractions of allowances are not allowed to be awarded under the SIP Call rule, the
number of allowances awarded are rounded to the nearest whole numbers. An example
calculation using the above formula is included in Figure 2.
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Figure 2. Sample Calculation of NOx Allowances
Energy Saved = 2.1 million KWh per ozone season
NOx Emission Factor = System Heat Rate (btu/KWh) * NOX Emissions Rate (Ibs/btu)
= 10,000 btu/KWh *1.5 Ibs/mmBtu
= 0.0015lbs./KWh.
BAU Compensation Factor = 0.75
MA/ Discount Factor =1:1
Exchange Rate =1:1
Avoided NOx = (2.1 million Kwh) * (0.0015 Ibs/Kwh) * (0.75) * (1) * (1)
= 2,362.5 Ibs per ozone season
= 1.18 tons of NOx emissions per ozone season
= 1.0 NOx allowance
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5.0 RENEWING ALLOCAT IONS WITHIN A MULTI-YEAR AWARD PERIOD
While energy efficiency and renewable energy projects generally have long lifetimes,
and provide benefits over a span of years, changes can occur. Once allowances are awarded,
states should set up a system by which they will verify and renew the allocations within the
lifetime of the award. Therefore, if allowances are awarded for a project for multiple years, it is
recommended that states require recipients of set-aside allowances to demonstrate that the
project is still in place, and operating, during the subsequent ozone seasons for which they are
receiving allowances. If energy savings have declined over the life of the project, the allowances
associated with the project should be reduced by an appropriate amount.
One method to account for changes in energy savings over time is to require awardees
to submit a brief certification statement annually. The certification statement would include an
update of monitoring and verification information, and an explanation of any changes that have
occurred since the last time the project's energy savings were measured and verified. For an
example of a certification form, see Appendix D.
5.1 Why Energy Savings Might Decline Over Time
Energy savings may decline because of changes in energy use. When an end user puts
in more lighting, or increases the amount of time that their heating is in use, they may reduce
the energy savings the energy efficiency improvement has achieved. In this case, it may be
appropriate to take the reduction in energy savings into account in that and subsequent awards.
In other situations, for example in an industrial plant, usage may have increased as a
natural part of its production cycle. In this latter case, states should take into consideration
whether the efficiency program or project has resulted in improved energy intensity, and decide
on how to deal with the variation in light of that fact. Even though energy use has increased, it
has done so as a result of increased production, which is usually the result of increased
demand. It may not be appropriate to penalize a claimant for an apparent decrease in energy
savings when, in reality, the efficiency or renewables improvement actually reduced the amount
of energy that would have been used for the same amount of production prior to implementing
the improvement.
5.2 Using M/V to Determine Changes in Energy Savings
How a state chooses to design its methods to measure and verify energy savings, and
chooses to use factors to discount uncertainty in the MA/ process, can influence the level of
involvement required in renewing allowance awards. For example, if a particular project's
savings were stipulated with a high MA/ discount factor, a state may elect to only require a
simple demonstration that the program/project is still in place and operational for each
subsequent year it is to receive allowances. This is because a large discount factor can
sufficiently account for declining savings over a short time period (3-6 years).
In the case of a program or project which originally used a MA/ protocol with more
certainty, and thus a low discount factor, it may be necessary to obtain periodic verification
reports. Although the MA/ uncertainty for this situation is not as high as if measurement was
stipulated, because no discount factor is employed, the subsequent verification reports might
25
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not factor in the likelihood of declining benefits adequately enough, and states may want to
require more substantive monitoring and reporting.
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6.0 WHEN TO DISTRIBUTE SET-ASIDE ALLOWANCES
Each state is responsible for determining when in the annual programmatic cycle to
distribute set-aside allowances to qualified applicants, and for what allowance year. For
example, a state can utilize the energy savings from one ozone control period to determine the
allowance allocations for that allowance year, or can use the savings to determine those for the
following year. As such, in this chapter, EPA details two different timing options: the "seasonal
lag" option and the "same year allocation" option.
There are several considerations that should be thought out in determining which
timing option to utilize. Because energy savings must be demonstrated before projects should
receive allowances for their associated NOx reductions, an energy efficiency set-aside program
participant could receive the allowances in October of the same year, at the earliest. If program
participants receive allowances for that same year, as illustrated in the "same year" option, they
would thus only have until the end of December to participate in trading, which may not be an
adequate period of time to do so. If by contrast, they received allowance for the next allocation
year, as described in the "seasonal lag" approach, they would have a much longer period of
time to do so, and states would also have more time to evaluate and determine the final
allocations.
Important issues to consider include: how the timing of the allocation award could affect
the market accessibility of the allowances, and how the length of time between the initial
investment in the electricity savings project and the allowance award can influence the value of
the set-aside allowance. In this section, these issues are discussed with respect to both the
seasonal lag option and the same year award option.
In addition, EPA recommends that decisions about when to award allowances should be
made keeping in mind the time requirements for the processes discussed in the previous
sections, including the amount of time required to adequately review and process applications,
and translate electricity savings into allowances.
6.1 Same-Year Award Option
Under the same year award option, an applicant would receive allowances for emissions
reductions achieved during the current year's ozone season. The allowances would be
awarded immediately following the ozone season, once electricity savings are demonstrated
and the associated emissions reductions determined. For example, based on performance
during the 2008 ozone season, awards for 2008 would be made for projects implemented and in
operation during the 2008 ozone season. Allowances awarded in this fashion would be
transferred in the fall of 2008 to the project applicant, and would be available for trading
between the end of the ozone season and when core sources must illustrate that they are in
compliance with their NOx budget (December 1).
27
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R1
Project
IS
implemented
and
in operation
i
Yr1
season
begins
i
EndofYM
season.
Project
results
measured
&verified
X
^
State
awards
project
EERE
allowances -
available for
trading
/
Core
soirees
comply
with
budgets
I
r
YF
*2
Jan
Feb
Mar
Ma/
Jin
JJ
Afl
Oct
Ncv
Dec
Jan
Figure 3. Same Year Award Time Line
The major advantage of this option is that the allowance awards are made based on the
energy saved/displaced during the same ozone season for which the allowances will be traded
and used. However, there are several significant disadvantages to this approach. States would
only have a short time period to process applications to award the allowances (e.g., mid-
October through mid-November), requiring that all of the work necessary for allocating the
allowances to be conducted in a short period of time. In addition, the same-year allocation
option could limit the potential marketability of the allowances. Core sources most likely will
have decided upon how they are going to come into compliance if they their emissions exceed
allowable levels prior to the ozone season, making it potentially difficult for the recipient of set-
aside allowances to sell them at the end of the season. While a few core sources may need
allowances after the ozone season to meet their allocation requirements, giving awardees the
ability to trade their allowances over a greater period of time would be beneficial.
6.2 Seasonal Lag Option
Under the season lag option, an eligible applicant puts a project in place and
demonstrates the electricity savings/displacement for at least one summer ozone season before
the project would qualify for an award. Once electricity savings are verified and associated
emissions reduction are determined, the applicant would then be awarded allowances prior to
the next ozone season (e.g., based on demonstrated savings during the 2007 ozone season the
applicant would be awarded allowances for the 2008 ozone season. This award would occur in
early 2008).
The award is based on the energy savings that occurred during the previous ozone
season, rather than those that occur during the ozone season in which the allowance will be
traded and used. As such, the applicant would have to have the project in place for an entire
year before receiving the initial award for the program or project and to trade the allowances.
28
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;
Project
is
implemented
and
in operation
1 r
fr N
lay Jun
Ju
An
EndofYM
ozone
season.
Project
results
measured
& verified
1
3 Ssp Oc
State
awards
project
EE.RE
allowances -
available for
trading
\
•t
Nov
r
Af
Yr2
ozone
season
begins
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Figure 4. Seasonal Lag Time Line
However, EPA believes that the seasonal lag system has many advantages. It provides
greater certainty for the state and program applicants, by quantifying an exact calculation of
program participation and allowance allocations before the applicable year. The seasonal lag
option also allows states more time for review and approval of applications, and the actual
trading period can be spread out over a longer period of time. In addition, although the applicant
would have to wait longer to receive its initial award under the seasonal lag option than under
the same year option, the applicant would ultimately have a longer time period to conduct
trading after allowances are awarded. Likewise, potential allowance buyers will have an
understanding of the number of allowances available on the market via the set-aside- and will
be able to more effectively incorporate these allowances into their compliance plans. If the
entire set-aside process is to be completed in one year, the monitoring, review, issuance and
trading processes would all have to be undertaken in October and November, which puts a
great administrative burden on the state and can limit market accessibility to the set-aside
allowances.
Under the seasonal lag option, the project sponsor could receive their allowances
several months prior to the second ozone season, and would thus have a known asset available
to be traded before the beginning of the summer, which is when core sources would most likely
be purchasing these allowances. In addition, under this option, core sources would have greater
certainty as to the number of allowances available for them to purchase resulting from the set
aside, and can more effectively incorporate these allowances into their compliance plans.
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7.0 PUTTING IT ALL TOGETHER: INTEGRATING THE ADMINISTRATIVE PROCESSES
In creating a complete framework for administering a set-aside, it is important to
consider how each of the application, allocation, and award processes will affect the entire
program administration. The amount of time required to administer certain processes can limit
the amount of time available to administer other aspects of the set-aside, and will depend on
each state's particular priorities and resources.
For example, once a state has determined the amount of time necessary for reviewing and
processing applications, subsequent processes may be affected. It might not be realistic for
some state agencies to be able to process applications and allocate allowances all in one year,
because of the associated administrative burden and quick turn-around required to do so. This
would be the case if a state decided to utilize the same-year allocation option and a one-step
application process. In this situation, the seasonal-lag option would be more practical, because
the administrative processes would be spread out over two years.
Given these concerns, EPA's recommendation is that states administer a two-step
application process, and award allowances under the seasonal lag approach. With this
particular programmatic framework, the application process would flow relatively easily and
would not be compressed into a short approval time frame, thus reducing potential timing
pressures that could otherwise be posed on both the states and applicants. In addition, this
design would allow participants to market their allowances and reap the financial reward more
effectively. States would also have a better sense of the number of allowances to distribute to
applicants.
While the two-step seasonal lag approach represents EPA's suggested program design,
in finalizing an approach for administering their set-aside, EPA also recommends that states
revisit their early decisions (those discussed in the first guidance document) to create a fully
integrated program design. To assist states in this endeavor, EPA provides a review of all of
the program elements discussed thus far, and includes a sample program design and time-line
that encompasses all of EPA's recommended program elements discussed in both the 1st and
2nd guidance documents.
7.1 REVIEW OF KEY PROGRAM ELEMENTS DISCUSSED THUS FAR
This guidance document covers how a state would flesh out the administration of the
program, after the initial program elements have been determined. The first guidance document
discusses the first steps that the state would take in deciding to set aside allowances for energy
efficiency and renewable energy. In the first guidance EPA details how to determine the
number of allowances that would be set aside for energy efficiency projects. EPA specifically
addresses how the set-aside allowance pool size can be adjusted to maximize subscription, and
likewise, how subscription will be affected by the number of ozone seasons a project would be
eligible for, and whether or not projects initiated before the start of the set-aside qualify for
allowances. The following table lists each of the program elements discussed in both guidance
documents thus far:
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Table 4 : Energy Efficiency and Renewable Energy Set-Aside Program Elements
1st Guidance Document
1 ) The size of the set-side
2) How to handle over-subscription
3) How to handle under-subscription
4) If the state chooses to give credit for early
actions
5) The length of award , or, the maximum
number of ozone seasons for which an
applicant will receive allowances
2nd Guidance Document
1) Determining applicant and program
eligibility
2) Choosing between either the one-step or
two-step application process
3) Using a NOx emissions exchange rate
4) Developing factors to use in the NOx
allowance calculation formula
5) Distributing awards under either the same-
year or the seasonal-lag approach
7.2 SAMPLE SET-ASIDE PROGRAM DESIGN
Because the administrative processes can be influenced by the program elements
design decisions discussed in the first guidance document, EPA is presenting a sample
program design based on EPA's recommended options proposed in both this guidance as well
as EPA's initial guidance on designing a set-aside. EPA believes that this design provides the
most incentive for implementing energy efficiency/renewable energy projects and the most
certainty for both the State and the applicant. The sample program design (PD1) is outlined in
Table 3. Subsequently, EPA discusses why this is the recommended approach. Again, states
are welcome to adapt the approach detailed in the sample program design, or develop an
alternate scheme.
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Table 5. Example State Set-Aside Program
Guidance
1
Guidance
2
Program Element
Size of Set-Aside
Over-Subscription
Under-Subscription
Credit for Early Actions
Length of Award
Applicant/Program Eligibility
Application Process
A/Ox Emissions Rate
A/Ox Allowance Calculation
Timing of Award
Recommended Program Design
(PD1)
1 0 Percent
First Come First Served
Distribute or Auction un-awarded
allowances to core-sources
Yes
3 Years
Uniform timing criteria, parity
between applicants
2 step
.0015lbs/kWh
Formula based upon NOx
emissions rate plus additional
factors to be determined by each
state
Seasonal Lag
Size of Set-Aside
In Program Design 1 (PD1), the size of pool is set at 10% of the overall
allowance pool. In PD1, the larger size of the pool emphasizes the great role that efficiency can
play in meeting the cap, and the potential that efficiency/renewable energy activity could play in
lowering the cost of compliance with the cap. PD1's large pool size also lessens concern about
business-as-usual programs and projects being awarded with set-aside allowances, since the
pool provides more room for incremental improvements.
Over Subscription
How a state treats the potential for over-subscription, and under-subscription, of the set-
aside pool could have significant impacts on the value of an energy efficiency/renewable energy
allowance. PD1 treats over-subscription on a first-come-first-served basis, which preserves the
value of the set-aside allowance. A pro-rata allocation of allowances, by contrast, would ensure
that all qualified projects will receive some reward, but depending on the extent to which the
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pool is over-subscribed, would reduce the per-unit-of-emissions-saved benefit associated with
energy efficiency/renewable energy activity.
How a state addresses over-subscription could also effect the certainty that qualifying
actions will receive awards. Although PD1 could potentially deny allowances to those
applicants who apply after the pool is fully subscribed, they could reapply for full credit the
subsequent year, which is better than under the pro-rata allication, in which they would be
guaranteed allowances, but would receive a reduced number. Furthermore, because there is a
three year allowance stream in PD1, if the project applicant has to wait a year before receiving
allowances for their project, they would be still be entitled for three years of allowances. If, by
contrast, a state decided upon a one-year allowance stream, all applicants, regardless of
whether they had obtained allowances this year, would have to reapply in subsequent years,
and thus would not have a definitive estimate of how many allowances they would receive in
future years.
In addition, EPA believes that over-subscription can be compensated for in the size of
the set-aside pool. Over-subscription is more likely to occur when the pool size is small. Thus,
PD1 's larger pool size mitigates the potential for over-subscription. Lastly, the two-step
application process in PD1 gives states the ability to adjust the pool size should a greater
number of applicants apply for awards than expected.
Under Subscription
If less energy efficiency and renewable energy projects are submitted to the state for
allowances and the set-aside pool is not fully subscribed, PD1's system of reallocation of
unclaimed allowances to core sources maintains the integrity of the set-aside. As such, by
reallocating (or auctioning) unclaimed allowances to core sources on an annual basis, PD1
does not increase core sources' compliance costs, and preserves the value of those projects
which have received set-aside allowances.
Credit for Early Actions
PDVs provision for recognizing energy efficiency and renewable energy actions that are
initiated prior to the implementation of the NOx Budget Trading Program can increase the
likelihood that a state's set-aside pool will be fully subscribed in the first year of the set-aside. In
addition, giving credit for early actions allows the state to better gauge future energy
efficiency/renewable energy activity. PD1's provision for including credit for early action is
facilitated by its relatively large set-aside pool size.
Not giving credit for early actions might limit the potential for greater implementation of
energy efficiency and renewable energy actions. Furthermore, this could create a disincentive
to potential project sponsors who are considering undertaking, or will initiate, energy efficient or
renewable energy projects in the three years prior to when the NOx Budget Trading Program
goes into effect.
Length of Award
PD1's three-year award length accounts for the long-term benefits produced by most
energy efficiency/renewable energy measures, and maximizes the financial value of the set-
aside allowance by allowing project sponsors to more effectively market their allowances and
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reap the financial reward over a longer period of time. At the same time, it is important to not
limit new projects access to the set-aside pool. As such, the large size of the set-aside in PD1
reduces over-subscription pressure on the pool that could arise due to the three-year award
period. Furthermore, a one year allowance period does not guarantee rewards commensurate
with the multi-year energy and emissions savings associated with most energy
efficiency/renewable energy activity.
Application Process
Although the two-step application process in PD1 increases the amount of administrative
work for both the applicant and the review agency, it provides a number of significant benefits.
These benefits include: a longer planning time frame, greater certainty for the applicant that they
will or will not be receiving allowances, and earlier certainty for the state of the total set-aside
participation level. This gives the state, and project applicants, the ability to address
shortcomings in project measurement plans, and over- and under-subscription planning.
The one-step application process requires less administrative burden since applications
are processed all at once. However, it also poses multiple disadvantages, and administering
the one-step process in conjunction with a same-year allocation process, as discussed earlier in
this chapter, because of the potentially burdensome level of activity for both applicants and
review agency(ies) in the immediate post-ozone season period. In addition, the trading period
would be quite short as the earliest date ozone season results could be provided to the state is
September 30th, leaving two months for the review of claims, awarding of allowances, and
allowance trading.
Applicant/Project Eligibility
EPA believes that a successful set-aside program will be designed to allow a maximum
number of energy efficiency and renewable energy project sponsors participate. As such, a
variety of types of projects and actions should be eligible for allowances, including standard
measures such as lighting, HVAC, and motors retrofits, and certain custom measures. It is up
to each state to determine what will qualify for their particular set-aside.
At the same time, EPA believes that providing parity between applicants is critical, such
that similar applicants be judged by the same, uniform, criteria. In addition, EPA also
recommends that states establish timing criteria, such that for a given year, all applicants are
submitting set-aside allowance applications for the same ozone control period.
Timing of Award
The Same-Year option compresses the time in which the allowance award and trading
process must take place, awarding electricity reductions in the ozone period in which they occur
while the Seasonal Lag scenario, as recommended by EPA in PD1 awards electricity reductions
in arrears. EPA believes that the seasonal lag option is advantageous because it provides more
certainty for the state as to how many allowances will be awarded, and applicants have greater
certainty of the number of allowances their projects will receive.
The seasonal lag also allows for review and approval of applications to be spread out
over a longer period of time, instead of compressing the review, issuance and trading processes
into the October through November 30 time frame. The seasonal lag may also be more
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compatible with a two-step process because it provides states and applicants with more time to
meet the additional work (and certainty) associated with the two-step application process.
Conclusions on Options PD1
With the particular combination of options in PD1, EPA believes that each administrative
process would flow relatively easily and within a reasonable time frame. Because of the two-
step seasonal lag allocation, states would have a better understanding of the number of
allowances to distribute to applicants, and applicants would have a good sense of the number of
allowances they are to receive. A state would also know in advance if the pool is likely to be
oversubscribed, and would be able to plan accordingly. In the event that the pool is under-
subscribed, a state would be able to lend the un-awarded allowances to core sources, on an
annual basis, until more projects come on line and the pool is fully subscribed. By crediting
early actions, a state will gain experience in advance of the first year the cap and trade system,
and will know sooner if any adjustments should be made to the program.
Depending on the particular circumstances of each state, EPA believes that alternative
program elements can be adapted as part of an adequate set-aside program. However, the
state should be careful to not limit the full potential of the set-aside in doing so.
7.3 Flowcharts and Timelines
The following flow charts (Figures 3 and 5) and time lines (Figures 4 and 6) are designed
to illustrate the relationship between design elements, applicant and state actions, and overall
program administration.
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8.0 CREATING APPLICATION FORMS AND OTHER DOCUMENTATION, TRACKING
AND REPORTING MATERIALS
Designing appropriate forms and other documentation, tracking and reporting materials
is a key part of the administration of the energy efficiency and renewable energy set-aside.
These materials will be used by the state in determining whether applicants and their associated
projects qualify for set-aside allowances, and for determining how many allowances to award to
qualified applicants. There are four types of materials that EPA discusses in this chapter:
Materials to help the state determine that the project and applicant meets eligibility
requirements, and to establish how energy savings will be measured (the Initial Project
Application)
• Materials to illustrate how energy savings/displacements for the applicable ozone control
season were measured and verified (cannot be submitted before the completion of the
ozone control season)
• Materials required by EPA, to transfer allowances to qualified applicants after energy
savings/displacements are quantified (in the Initial Project Application or in a subsequent
submittal)
• Optional materials that may assist states in reviewing and approving applications, and in
determining the number of allowances to allocate an applicant (to be determined by each
state)
The chapter begins with an overview of each of the programmatic tasks associated with
the one-step and the two-step application and review processes, and the related forms and
documentation materials. The chapter then provides an overview of each of the related forms
and documentation materials for the two-step and then the one-step processes. For both
processes, forms for determining program and applicant eligibility, for determining the number of
allowances to award to a project, and the use of additional materials are discussed. Last, the
chapter discusses how to establish appropriate tracking mechanisms, as required under the
NOx SIP Call, that are necessary for transferring allowances to qualified applicants. In
particular, EPA explains how to establish NOx Allowance Tracking System (NATS) accounts. In
designing these program elements, states may find it helpful to refer back to the discussion on
designing the application process in Chapter 3.
8.1 General Considerations
Whether the state chooses to administer a one-step or a two-step application process
greatly influences the amount of forms and materials associated with a set-aside program.
Under a one-step process, the applicant would submit the final measured and verified energy
savings results for the relevant summer season at the same time as the initial request for
allowances, since the entire application is reviewed at once. Under a two-step process, by
contrast, because additional application materials will be reviewed in a subsequent review, it is
not necessary to require the full submittal at once and a greater range of materials can be
processed.
An overview of the application forms and other materials is shown in the following two
flow-charts. The first flow-chart is for the two-step application process, and the second flow-
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chart is for the one-step application process. Note that both flow-charts are not affected by a
state's decision to administer either a seasonal lag or a same-year allocation process.
The flow-charts detail each of the tasks associated with the application and review
processes, and the required forms or documentation materials required to undertake each task.
The flow-charts are separated into three phases, before, during or after the applicable ozone
control period:
• Phase 1: Project planning/application period, before May 1
• Phase 2: During the ozone control period, between May 1-September 30
• Phase 3: After the ozone control period, after October 1
The primary difference between the two is that all actions and submittals under the one-
step process take place after the ozone control period. Consequently, there are ten tasks
associated with the two-step process, and four associated with the one-step. As a result, the
one-step requires less forms to be exchanged between the state and the applicant than the two-
step.
In Figures 5 and 6, "the Administrator" refers to the individual or office(s) at the state that
is administering the set-aside.
Figure 5. Flow Chart for a Two-Step NOx Application Process
Phase 1: Pre-ozone control period
Task 1: Applicant
Initial Project Application (IPA)
Notifies the Administrator that the applicant will be requesting allowances from
the pool of allowances set aside for energy efficiency and renewable energy
actions. Lists:
• Project Type (lighting, HVAC, motors, etc.)
• M&V methodology and plan
• Estimated energy savings and associated number of allowances
Task 2: State
Notification of Approval of IPA
(NAD
Notifies the applicant that the Administrator has reviewed the IPA:
• Projects/Applicant meets eligibility criteria
• Applicant's proposed M&V methodology and estimated energy savings
Task 3s Applicant
Submits modifications to IPA
(if needed)
Makes changes to the IPA as necessary, based on the Administrator's comments.
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Task 4: Applicant
Notification of Intent to Proceed
(NIP)
Notifies the administrator that the project will be undertaken and when work will
begin, if not in place May 1.
Task 5: State
Reservation of NOx Allowances
Notifies applicant that a conditional 3 year allowance stream has been reserved
for the applicant.
• Exact amount to be finalized after the particular ozone control period, and
energy savings are measured and verified
Phase 2: During the ozone control period
Task 6: Applicant
NATS account application
Applies to Authorized Account Representative for a NATS general account.
Task 7; Applicant
Notice of Project Status (optional)
Informs the Administrator as to any project changes that may alter the amount of
allowances awarded to the project.
Phase 3: After the ozone control period
Task 8s Applicant
Notice of Ozone Control Period
Results
Measures ozone season energy savings and reports savings to the Administrator.
• Explains how results have been measured and verified
• Translates energy savings into NOx emissions reductions
Task 9: State
Notice of Allowance Crediting
Reviews claimed ozone season results and methodology to determine final
approval.
• Notifies EPA to issue NOx allowances to applicant's NATS account for the
relevant ozone season.
• Notifies the applicant that the allowances have been credited to the
applicant's NATS account.
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Task 10: Applicant
Claiming Subsequent Year Savings
Applicant submits OCP after ozone season results for the subsequent year(s)
have been measured and verified.
Figure 6. Flow Chart for a One-Step NOx Application Process
Phase 1: Pre-ozone control period
NO ACTION
Phase 2: During the ozone control period
NO ACTION
Phase 3: After the ozone control period
Task 1: Applicant
Submittal of Initial Project
Application (IPA)
Notice of Ozone Control Period
Results (OCP)
Notifies the Administrator that the applicant will be requesting allowances from
the pool of allowances set aside for energy efficiency and renewable energy
actions. Lists:
• Project Type (lighting, HVAC, motors, etc.)
• M&V methodology and plan
• Estimated energy savings and associated number of allowances
Applicant measures ozone season energy savings and reports savings to the
Administrator.
• Explains how results have been measured and verified
• Translates energy savings into NOx emissions reductions
Task 2: State
Notification of Approval of IPA
(NAI)
Notice of Allowance Crediting
(NAC)
Administrator reviews the IPA regarding:
• Projects/Applicant meets eligibility criteria
• Applicant's proposed M&V methodology and estimated energy savings
The Administrator reviews claimed ozone season results and methodology.
• Notifies EPA to issue NOx allowances to applicant's NATS account for the
relevant ozone season.
• Notifies the applicant that the allowances have been credited to the
applicant's NATS account.
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Task 3: Applicant
NATS account application
Applies to Authorized Account Representative for a NATS general account.
(note: state may want to require proof that an applicant has established a NATS
account as part of task 1, or later, as shown here, after the project has been
approved)
Task 4: Applicant
Claiming Subsequent Year Savings
Submits OCP for year 2, and a year later for year 3, after ozone season results for
the subsequent year(s) have been measured and verified.
8.2 Documentation and Reporting Materials for a Two-Step Application Process
As discussed in Chapter 3, the two-step application process allows states and applicants
to determine whether projects will receive allowances under the set-aside program before the
completion of the relevant ozone control period. When the initial application is submitted and
approved, an estimated number of allowances are set-aside for the applicant. Then, the final
determination of how many allowances a project will receive is made at the end of the ozone
control period, when the associated energy savings can be measured and verified. Under the
one-step process, by contrast, the full application is reviewed at once, at the end of the ozone
control period. The number of allowances a project will receive is determined at the same time
that the state determines if the project meets eligibility criteria.
As such, under the two-step, the information that is necessary for determining if a project
will qualify for allowances should be included in the initial application that a program/project
sponsor submits for an award. After the state approves the initial application, the applicant then
submits several additional pieces of information about the project to the state, which determines
the specific number of allowances the project will receive or alerts the state to any changes
made to the information submitted in the original application.
The following are potential documentation and reporting materials, based on those required for
each task in the two-step flow-chart in section 8.1:
Phase 1: Pre-Ozone Control Period
Taskl
• Intial Project Application (IPA)
The first step an applicant should take in applying for an award would be
to submit an Initial Project Application to the appropriate state official.
The IPA notifies the state of the applicant's interest in earning allowances
from the set-aside. The IPA should contain, at a minimum, all basic
information outlined in Chapter 3 of this guidance and a brief program
description of the project that the applicant is submitting for allowances.
Appendix C-1 is sample IPA that states may use or adapt for this
purpose.
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• Application Agreement
An Application Agreement should be submitted in tandem with the I PA.
In the Application Agreement the applicant certifies that all information
submitted is correct and accurate. Appendix C-2 is sample Application
Agreement that states may use or adapt for this purpose.
Task 2
• Notification of Approval of IPA (NAI) / Notification of Modifications
Required (NMR)
The state official who receives the IPA should review and evaluate it,
then notify the applicant as to whether the proposal is acceptable and will
receive set-aside allowances, or that it is unacceptable as proposed. If
the project is not approved, the state should indicate any modifications
that could make the project eligible for set-aside allowances. A
notification of project acceptance and/or modifications required should
outline the important review elements by which the state evaluated the
project, and should provide the applicant suggestions to improve any
potential problems. Appendix C-3 is a sample of this type of notification
form.
Task3
• Resubmittal of Initial Project Application
After a modified IPA is resubmitted, the state would review the
modifications and determine if the project is not acceptable, or if it is still
unacceptable.
Task 4
• Notice of Intent to Proceed
The Notice of Intent to Proceed informs the state official when the project
will be undertaken and when work will begin. This is particularly
important in the case where the project will be initiated after May 1, the
beginning of the ozone control season. Appendix C-4 is a sample notice
of intent to proceed.
TaskS
• Notification of Reservation of Allowances
A Notification of Reservation of Allowances can be included in the
Notification of Approval of IPA in task 3, or separately, after the applicant
has indicated in the Notice of Intent to Proceed that the applicant will go
forward with the project. The state may want to notify the applicant at this
point rather than early if the initial project application did not meet criteria,
and was resubmitted by the applicant. Appendix C-5 is a sample notice
of Reservation of Allowances.
Phase 2: During the Ozone Control Period
TaskS
• NATS Account Application
Section 8.4 discusses the purpose of the NATS and how to establish a
NATS account. After receiving approval from the state official, the
applicant will need to establish a general account in the NATS. If the state
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official evaluating the previous application materials is different from the
state official serving as the Authorized Account Representative (AAR) for
the set-aside, the evaluating state official may want to receive a copy of
the forms the applicant submits to the AAR, and vice versa. The form
used for this purpose is the General Account Information Form that is
referred to in section 8.4, and contained in Appendix A
Task?
• Notice of Project Status
States may find it helpful to be kept informed on the progress of projects
that are being considered for allowance awards, throughout the ozone
control season for which the applicant is applying for set-aside
allowances. A Notice of Project Status can be used to gather additional
information concerning the status of programs/projects, and ultimately the
resulting savings, and can be used to periodically inform the state as to
any project changes that may alter the energy savings associated with
the project.
The information provided by this notice can be important because the
date and proportions of operation may affect the amount of allowances
awarded if the project is not fully operational by the beginning or at any
subsequent portion of the ozone control period. Appendix D-1 is an
example of this notice.
Phase 3: After the Ozone Control Period
TaskS
• Notice of Ozone Control Period Results (OCP)
A notice of ozone control period results is submitted by the applicant
to report program/project results to the state for each control period that it
is eligible for an award. The applicant uses this form to explain how
results have been measured and verified. States may want to have
applicants translate energy savings or displacements into NOx emissions
reductions for the applicable ozone control period in this form. On the
other hand, states may opt to have applicants only report electricity
savings in this form, and may choose to translate the savings into
emissions reductions themselves. Appendix C-6 and its supplements
provide sample notices of ozone control period results.
Task 9
• Notice of Allowance Crediting
Once the state has reviewed the notice of ozone control period results,
they can then determine the appropriate number of allowances to request
the AAR transfer from the state's general account holding all set-aside
allowances to the applicant's general account. If the information
submitted is adequate for the state to make this determination, the state
should then inform the applicant when the award has been credited to the
applicant's general account. A notice of allowance crediting can be used
to inform the applicant that the award has been made and the length of
time that award will be available, pending confirmation of subsequent
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year's results. Appendix C-7 is an example notice of allowance
crediting.
Notice of Insufficient Submission/Resubmission of Ozone Control
Period Results
If in its evaluation a state finds the information or claimed savings are
not acceptable, the state must notify the applicant that no award will be
made based on the reported savings. In addition, the state should
identify the deficiencies in the applicants claim, and offer the applicant an
opportunity to resubmit the claim. Appendix C-8 is an example of a
notice of insufficient submission, which can be used to apprise the
applicant of the state=s findings. Appendix C-9 is an example of a
resubmission of ozone control period results.
Task 10
Claiming Subsequent Year Savings
The applicant submits a Notice of Ozone Control Period Results at the
end of each subsequent ozone season of the performance period.
8.3 Documentation and Reporting Materials for a One-Step Application Process
Under the one-step process, by contrast to the two-step application process, the full
application is reviewed at once, at the end of the ozone control period. The number of
allowances a project will receive is determined at the same time that the state determines if the
project meets eligibility criteria. As discussed in Chapter 3, an applicant could initiate a project
and not know that they do not meet eligibility criteria until after the relevant ozone control period
is completely over, without an opportunity to submit modifications to the project so that it can be
approved. All actions are initiated in phase 3:
Taskl
• Initial Project Application (IPA)
The first step an applicant should take in applying for an award would be
to submit an Initial Project Application to the appropriate state official.
The IPA notifies the state of the applicant's interest in earning allowances
from the set-aside. The IPA should contain, at a minimum, all basic
information outlined in Chapter 3 of this guidance and a brief program
description of the project that the applicant is submitting for allowances.
Appendix C-1 is sample IPA that states may use or adapt for this
purpose.
• Application Agreement
An Application Agreement should be submitted in tandem with the IPA.
In the Application Agreement the applicant certifies that all information
submitted is correct and accurate. Appendix C-2 is a sample Application
Agreement that states may use or adapt for this purpose.
• Notice of Ozone Control Period Results (OCP)
A notice of ozone control period results is submitted by the applicant
to report program/project results to the state for each control period that it
is eligible for an award. The applicant uses this form to explain how
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results have been measured and verified. States may want to have
applicants translate energy savings or displacements into NOx emissions
reductions for the applicable ozone control period in this form. On the
other hand, states may opt to have applicants only report electricity
savings in this form, and may choose to translate the savings into
emissions reductions themselves. Appendix C-6 and its supplements
provide sample notices of ozone control period results.
Task 2
• Notification of Approval of IPA (NAI) / Notification of Modifications
Required (NMR)
The state official who receives the IPA should review and evaluate it,
then notify the applicant as to whether the proposal is acceptable and will
receive set-aside allowances, or that it is unacceptable as proposed. If
the project is not approved, the state should indicate any modifications
that could make the project eligible for set-aside allowances. A
notification of project acceptance and/or modifications required should
outline the important review elements by which the state evaluated the
project, and should provide the applicant suggestions to improve any
potential problems. Appendix C-3 is a sample of this type of notification
form.
• Notice of Allowance Crediting
Once the state has reviewed the notice of ozone control period results,
they can then determine the appropriate number of allowances to request
the AAR transfer from the state's general account holding all set-aside
allowances to the applicant's general account. If the information
submitted is adequate for the state to make this determination, the state
should then inform the applicant when the award has been credited to the
applicant's general account. A notice of allowance crediting can be used
to inform the applicant that the award has been made and the length of
time that award will be available, pending confirmation of subsequent
year's results. Appendix C-7 is an example notice of allowance
crediting.
Task3
• NATS Account Application
The state can require proof that an applicant has established a NATS
account as part of Task 1, or separately, after the project has been
approved. If the state official evaluating the previous application materials
is different from the state official serving as the Authorized Account
Representative (AAR) for the set-aside, the evaluating state official may
want to receive a copy of the forms the applicant submits to the AAR, and
vice versa. The form used for this purpose is the General Account
Information Form that is referred to in section 8.4, and is contained in
Appendix A
Task 4
• Claiming Subsequent Year Savings
The applicant submits a Notice of Ozone Control Period Results at the
end of each subsequent ozone season of the performance period.
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8.4 The NATS Account
To be able to distribute energy efficiency and renewable energy projects allowances to
qualified applicants, the state must open a general account in the NATS to hold all of the energy
efficiency and renewable energy set-aside allowances. An applicant for energy efficiency and
renewable energy set-aside allowances is also responsible for establishing a general account in
the NATS with EPA, in order to be able to transfer allowances as the result of trading. The
applicant need not open the account until it is notified of the allowance award.
Establishing General Accounts in the NOX Allowance Trading System
The procedures for opening a general account are those established by EPA in the NOx
Budget Trading Program. The state first opens a general account to hold the allowances for the
entire energy efficiency and renewable energy set-aside. To do so, the state must supply EPA
with information related to who will be administering the set-aside allowance pool, including
establishing a NOx Authorized Account Representative (AAR) for the state. EPA recommends
that a state energy official, state air official, or state public utility commission official be named
as the NOx AAR to manage the energy efficiency and renewable energy set-aside allowances.
The state should also propose an alternate NOx AAR. These two individuals would be the only
people authorized to request changes to the set-aside account in the NOx Budget Trading
Program. To establish both the general account for the set-aside and its NOx AAR, the state
would submitting a completed General Account Information form (Appendix A-1) to EPA.
Once the NOx AAR is established, applicants can apply for an individual general
account in the NATS. The applicant also does this by submitting a completed General Account
Information form (Appendix A-1) to the NOx AAR, rather than to EPA. The information the
applicant would submit includes the name of the appropriate NOx AAR and alternate, the
applicant's phone, fax, e-mail, mailing address, and the names of the person(s) who will have
an ownership interest in the allowances held in the applicant's account.
As each set-aside allowance application is approved, the state must coordinate with
EPA to ensure that set-aside allowances are transferred from the state's general account to the
applicant's general account. Again, the transfer is handled under the normal allowance transfer
procedures established by EPA in the NOx Budget Trading Program.
Transferring Allowances in the NATS
Once an applicant's allocation of set-aside allowances has been transferred from
the state's general account to the applicant's general account, the applicant may request to
transfers the allowances to another entity's account, if they are so inclined. To do so, they
would submit a request to transfer the allowances to the NOx AAR for the energy efficiency and
renewable energy set-aside using EPA's Allowance Transfer form (Appendix A-2).
To complete the Allowance Transfer form, the transferor (the accountholder whose
account the allowances are to be transferred from) must state: (1) their account information,
including the name of the NOx AAR, their account's ID number, address, phone number and
fax, and (2) the same account information about the transferee (to whom the allowances are
being transferred). Also, all of the allowances to be transferred must be listed by serial number,
either singly or in series.
45
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The NOx AAR for the energy efficiency and renewable energy set-aside must certify the
transfer by signing the Allowance Transfer form. The completed and signed Allowance Transfer
form is then sent to EPA. NOx allowance transfers will be recorded within 5 business days of
receipt, as long as all the information has been correctly submitted, and the transfer is submitted
by the appropriate NOx allowance transfer deadline, as specified in § 96.61 of the SIP Call rule.
8.5 The Importance of Reporting Results
The processes and examples described in the preceding sections and illustrated in the
Appendix are merely options provided by EPA to assist states in planning for and administrating
the energy efficiency and renewable energy set-aside. States may adapt these or create other
processes and forms to meet their own needs. However, it is critical that states device a
reporting system in which the state can be confident that the results are real and quantifiable.
Likewise, it should be emphasized that documentation and reporting of results achieved from
set-aside projects will be increasingly important, particularly as the role of energy efficiency and
renewable energy in air quality attainment evolves to include multiple pollution prevention
benefits.
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9.0 EXPLAINING THE PROGRAM TO APPLICANTS
After the state has agreed upon the administrative and quantitative elements of the set-
aside, the state should design a comprehensive plan for communicating to applicants how the
program will operate and be administered. As such, EPA recommends that states develop a
procedures manual, and additional fact-sheets and other materials as needed, to explain the
steps that an applicant will need to take when applying for allowances from the energy efficiency
set-aside.
The key subjects that the state may want to discuss in the procedures manual include:
an explanation of the information that the state will be requesting from applicants, how
applicants should properly submit the requested information, and the purpose of each item that
the state is requesting. States may also want to include as part of the procedures manual,
program eligibility requirements and other criteria that the state will base their approval/review
process on.
States are not required to develop a procedures manual, but may find it helpful to
applicants to do so. In this chapter, EPA discusses how to develop a procedures manual, and
provides a sample manual in Appendix B that states may adapt or draw inspiration from when
deciding how to explain their particular set-aside's program requirements to applicants. For
purposes of this guidance, EPA has broken down the sample procedures manual into two parts,
based upon a hypothetical set-aside program. The first part is titled General Instructions and
Program Requirements, and part 2 is titled Measurement and Verification (M & V) Guidelines.
Part 1 provides a description of the program, the eligibility requirements for participants and
energy efficiency actions, for receiving allowances, and general requirements. Part 1 also
details the required application materials and the procedures involved in reviewing them. Part 2
provides guidelines for applicants to follow when conducting M & V activities. Part 2 will be
included in EPA's 3rd Guidance Document.
EPA's sample procedures manual is modeled on materials from existing energy
efficiency crediting programs, including the NYSERDA Energy Smart Standard Performance
Contract Program7 and the California Large Non-Residential Standard Performance Contract
Program8.
EPA recommends that states provide applicants with a copy of the procedures manual
when distributing the required forms to interested applicants. Again, states are not obligated to
develop a procedures manual, and can develop materials as they see fit.
9.1 Drafting a Procedures Manual
The purpose of the procedures manual is to explain each of the program steps to
applicants, and should detail each of the state's responsibilities in administering the set-aside
and the applicant's responsibilities in the submitting required materials to the state. The state's
role as the set-aside program administrator is to review and approve project applications in a
7 NYSERDA Energy Smart Standard Performance Contract Program Procedures Manual. Available at:
http://www.nyserda.org/499pon.html
8 California Large Non-residential Standard Performance Contract Program Procedures Manual. Available at:
http://www.pge. com/spc/nonres/forms. html
47
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timely manner, following a standard methodology. Likewise, applicants and the projects they
submit should meet minimum eligibility criteria, comply with all program rules and procedures,
submit standard forms and supplemental documentation describing their projects, and enter into
an applicant agreement with the state. Recommended types of information to discuss in the
procedures manual include:
• General Program Description: The purpose and objective of the set-aside. General
requirements of the program, such as timing.
• Applicant Eligibility. Entities that the program is open to, such as who can apply for
allowances from a given energy efficiency action.
• Project Eligibility: The types of energy efficiency actions that are qualify for the set-aside.
States may want to list pre-approved measures, actions not eligible under the
program,as well as how to submit an application for measures that are eligible but not
pre-approved.
• Allowance Eligibility: The one-ton NOx emissions reduction minimum. How to quantify
emissions reductions from energy savings.
• Program Procedures: Outlines the three phases of the program and the associated
procedures, 1) project planning/installation/application submittal, 2) project measurement
and verification, after the measure has been installed and in operation during the
applicable ozone control period, and 3) Receiving allowances for an approved action.
• Additional Program Information: Where to direct questions, comments, etc.
States may also want to update their procedures manual yearly, to reflect any programmatic
modifications, and timing requirements that may change on a yearly basis.
48
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10.0 CONCLUSION: INTEGRATING MEASUREMENT AND VERIFICATION
In developing a NOx transport mitigation strategy that provides maximum economic and
societal benefits, states can take advantage of the existing potential for energy efficiency and
renewable energy. By including an energy efficiency and renewable energy set-aside as part of
a state's NOx Budget Trading Program, states can achieve reductions in NOx emissions, while
benefiting consumers and local economies. In issuing this guidance document, Guidance on
Designing the Administrative and Quantitative of an Energy Efficiency and Renewable Energy
Set-Aside in the NOx Budget Trading Program, EPA hopes to assist states in developing set-
aside programs that maximize this potential.
10.1 Next Steps
Once a state has created a framework for processing applications and awarding
allowances, the next step will be to address how to verify that the resultant electricity savings
from energy efficiency and renewable energy projects are real, and accurately measured. EPA
will issue its recommendations on develop appropriate measurement and verification standards
and mechanisms in the third guidance document, Creating an Energy Efficiency and Renewable
Energy Set-Aside in the NOx Budget Trading Program : Measuring and Verifying Electricity
Savings.
The third guidance document will discuss the characteristics of energy efficiency and
renewable energy projects that may cause uncertainty in measuring electricity savings, and
provides an overview of the mechanisms available to limit and/or account for this uncertainty. In
addition, the third guidance document will assess the specific protocols available for varied
types of energy efficiency and renewable energy projects, and will discuss how states may want
to handle the uncertainty associated with available methods of measurement and verification.
10.2 EPA Contacts
Questions or comments about this document, or requests for additional assistance on
designing an energy efficiency and renewable energy set-aside program, should be forwarded
to the attention of:
Edgar Mercado or Chloe Weil
U.S. Environmental Protection Agency
Office of Atmospheric Programs (6202J)
Arial Rios Building
1200 Pennsylvania Avenue NW
Washington, DC 20460
49
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Appendix A- Sample NATS Forms
There are two sample NATS forms included in Appendix A. They are copies of the actual forms
developed and administered by EPA's Clean Air Markets Division. States and applicants are
required to use these forms.
The first form, Appendix A-1, is titled General Account Information, and is used to establish an
account within NATS. An applicant must establish an account after their application for set-
aside allowances is approved. The applicant would submit the completed form to their
Authorized Account Representative.
The second form, Appendix A-2, is titled Allowance Transfer Form. This form is used to transfer
allowances from one account to another, such as from the state to the applicant, or from the set-
aside allowance awardee's account to a third party's account.
Both forms can also be downloaded from EPA's webpage:
• http://vwvw.epa.gov/acidrain/forms/account.pdf
•
50
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Acid Rain Program
Instructions for Allowance Account
Information Form (40 CFR 73.30 - 73.38)
The Acid Rain Program regulations require any person, company, or organization wishing to open a general
Allowance Tracking System (ATS) account for the purpose of holding and transferring allowances to submit a
completed Allowance Account Information form or provide the requested information in a similar format. You also
may use this form to change the information previously submitted for a general account, such as the identity of
the authorized account representative. In such cases, enter your allowance account identification number in the
space provided at the top of the form. Affected units will automatically receive a unit account in the ATS, and
should use the Certificate of Representation form to make any changes to unit account information.
Type or complete the form in black ink. If you need
more space, photocopy the pertinent page. When
you have completed the form, indicate the page
order and total number of pages (e.g., 7 of 4, 2 of
4, etc.) in the spaces provided in the upper right
hand corner of each page.
Remember, under 40 CFR 73.33 you must notify all
persons who have an ownership interest with
respect to the allowances held in an account of all
Acid Rain Program submissions. EPA will accept
subsequent submissions from the Authorized
Account Representative (AAR) or, if one is
designated, from the Alternate AAR.
If you need assistance, call the Acid Rain Hotline at
202-564-9620.
STEP 2 The owners may choose an alternate to act
in lieu of the Authorized Account
Representative.
STEP 3 EPA will use the address you enter here for
all official correspondence concerning this
account.
STEP 4 Identify all parties with an ownership
interest in the allowances held in this
account. All of these parties must be
subject to a binding agreement authorizing
the representation of the account by the
authorized account representative, and, if
applicable, the alternate authorized account
representative, identified in Steps 1 and 2.
If you (the authorized account
representative) are the only person with an
ownership interest in the allowances held
in the account, list your name here.
STEP 6 Both the authorized account representative
and the alternate (if any) must sign and
date the certifications. If you are revising
account information, only one signature is
needed.
Submission Instructions
Submit this form to the following address:
U.S. ENVIRONMENTAL PROTECTION AGENCY
ACID RAIN PROGRAM (6204J)
ATTN: ALLOWANCE TRACKING SYSTEM
1200 PENNSYLVANIA AVENUE, NW
WASHINGTON, DC 20460
Paperwork Burden Estimate
The burden on the public for collecting and reporting of
information under this request is estimated at 30 hours per
response. Send comments regarding this collection of
information, including suggestions for reducing the burden,
to: Chief, Information Policy Branch (PM-223), U.S.
Environmental Protection Agency, 401 M Street, SW,
Washington, D.C. 20460; and to: Paperwork Reduction
Project (OMB#2060-0258), Office of Information and
Regulatory Affairs, Office of Management and Budget,
Washington, D.C. 20503. Do not send this form to these
addresses; see the submission instructions above.
-------
&ER&
United States
Environmental Protection Agency
Acid Rain Program
OMB No. 2060-0258
Allowance Account Information
General Accounts Only
For more information, see instructions and refer to 40 CFR 73.31.
This submission is:
New (to open a new general account)
Revised (to revise information on an existing general account)
Page
of
If you are opening a new allowance account, complete all steps in this form. If you are an authorized
account representative (AAR) for another account in the allowance tracking system (ATS), please write in
your AAR ID#. If this is a revised submission, enter your ATS account # and AAR ID# and complete only
those steps covering the information you wish to change. You must complete Step 6 to authorize the
change of information. Only the authorized account representative or alternate authorized account
representative can authorize the change.
Allowance Tracking System Account #
Authorized Account Representative ID#
STEP 1
Enter requested information
for the authorized account
representative
Name
Firm (Optional)
Phone Number
Fax Number
STEP 2 (Optional)
Enter requested information
for the alternate authorized
account representative
Name
Firm (Optional)
Phone Number
Fax Number
STEP 3
Enter the mailing address
for the account
Address
STEP 4
Enter the names of all
parties (persons or
companies) subject to the
binding agreement
authorizing your
representation of the
account
Name
Name
Name
EPA Form 7610-5 (1-93)
-------
Name
ATS Account # (from page 1)
Allowance Account - Page 3
Page | | of | |
STEP 5 (Optional)
Respond to the questions
by marking all appropriate
boxes (EPA will use this
information for program
evaluation purposes only)
Is the authorized account representative employed by an allowance brokerage firm?
| Yes (if yes, please mark all boxes that apply)
Q This account will be used to transfer allowances between clients
Q This account will be used to hold alllowances for investment purposes
| This account will be used for
other purposes (please specify) )))))•
What types of business are represented by the owner(s) of allowances in this account? (Mark all boxes
that apply)
Q Utility
| | Non-Utility Generators of Electricity
| | Fuel Supplier
Coal Oil
Gas Other
Pollution Control Equipment
Public Interest Group
Consumer _
Environmental
Other))))))))))))))))))))))))))))))))))))).
Other
STEP 6
Read the certifications and
sign and date. (Only one
signature is needed if the
form is being used to revise
account information)
I certify that I was selected under the terms of an agreement that is binding on all persons who have an
ownership interest with respect to allowances held in the Allowance Tracking System account. I certify that I
have all necessary authority to carry out my duties and responsibilities on behalf of the persons with an
ownership interest and that they shall be fully bound by my actions, inactions, or submissions under 40 CFR
Part 73. I am authorized to make this submission on behalf of the persons with an ownership interest for
whom this submission is made.
I certify under penalty of law that I have personally examined, and am familiar with, the statements and
information submitted in this document and all its attachments. Based on my inquiry of those individuals with
primary responsibility for obtaining the information, I certify that the statements and information are to the
best of my knowledge and belief true, accurate, and complete. I am aware that there are significant penalties
for submitting false statements and information or omitting material information, including the possibility of
fine or imprisonment for violations.
Signature (Authorized Account Representative)
Signature (Alternate Authorized Account Representative, if any)
Date
Date
EPA Form 7610-5 (1-93)
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Submission Mail to the following address:
Information
U.S. Environmental Protection Agency
Acid Rain Program (6204J)
Attention: Allowance Tracking System
1200 Pennsylvania Avenue, NW
Washington, D.C. 20460
EPA Form 7610-5 (1-93)
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Acid Rain Program
Instructions for Allowance
Transfer Form (40 CFR 73.50 - 73.53)
The Acid Rain Program regulations allow for the transfer of SO2 emissions allowances between Allowance Tracking
System (ATS) accounts, including transfers of allowances between contemporaneous future year subaccounts and
between compliance subaccounts and current year subaccounts. You may transfer a portion of your allowance
allocation or the entire allocation in perpetuity from a unit account to another account in the ATS. Upon receipt of a
complete Allowance Transfer form, EPA will move the allowances from the transferor's account to the transferee's
account.
Type or complete the form in black ink. If you need more
space, photocopy the pertinent page. When you have
completed the form, indicate the page order and total
number of pages (e.g.. 1 of 4, 2 of 4, etc.) in the spaces
provided in the upper right hand corner of each page.
Remember, under 40 CFR 72.21 and 73.33, you must
notify the persons you represent in this transaction, either
the owners or operators of the affected source and units,
or persons with an ownership interest with respect to the
allowances held, of all Acid Rain Program submissions.
EPA will accept Acid Rain Program submissions from
either the authorized account representative (AAR) or
the alternate AAR. (For unit accounts, the designated
representative (DR) is the AAR and the alternate DR is
the alternate AAR.)
If you need assistance, call the Acid Rain Hotline at (617)
674-7377.
STEP 4 If you are transferring allowances in perpetuity,
note that the range of serial numbers for a
unit's allocation is different beginning in the
year 2000 because of the addition of Phase 2
units to the program, and again beginning in
the year 2010, when certain set-aside and
bonus allowance programs are terminated.
You therefore must specify exactly which
allowances are to be transferred for years 1995
through 1999, for years 2000 through 2009
and then for years 2010 and beyond.
STEP 5 EPA will not transfer allowances unless the
allowances are in the transferor's account at
the time EPA processes this request.
List by serial number the allowances to be
transferred. You may specify a series of
allowances having a common use date by
entering the serial number of the first allowance
in the series in "Start Number" and entering the
serial number of the last allowance in the series
in "End Number." Separate series or series
having a different use date must be entered on
different lines.
• Enter the Start Number and End Number in the
appropriate columns; EPA recommends that you
select a start number or end number that
represents the start or the end of a pre-existing
series in the transferor's account, so that series of
allowances are not segregated unnecessarily, as
would occur if you chose an intermediate start or
end number.
• Enter the number of allowances to be transferred
in the "Total" column.
• Verify the accuracy of your entries by computing
one of the following simple equations reflecting the
equivalent relationships:
Start Number = End Number Total + 1
or
End Number = Start Number + Total 1
Submission Instructions
If you are transferring allowances for purposes of
compliance with SO2 emission reduction requirements for
a given year, EPA must receive this form no later than the
Allowance Transfer Deadline (midnight of January 30 of
the next year.) Send to the following address:
U.S. ENVIRONMENTAL PROTECTION AGENCY
ACID RAIN PROGRAM (6204J)
ATTN: ALLOWANCE TRACKING SYSTEM
401 M STREET, SW
WASHINGTON, DC 20460
Paperwork Burden Estimate
The burden on the public for collecting and reporting of
information under this request is estimated at 2 hours per
response. Send comments regarding this collection of
information, including suggestions for reducing the burden, to:
Chief, Information Policy Branch (PM-223), U.S. Environmental
Protection Agency, 401 M Street, SW, Washington, D.C. 20460;
and to: Paperwork Reduction Project (OMB#2060-0258), Office
of Information and Regulatory Affairs, Office of Management and
Budget, Washington, D.C. 20503. Do not send this form to
these addresses; see the submission instructions above.
-------
v>EPA
United States
Environmental Protection Agency
Acid Rain Program
OMB No. 2060-0258
Allowance Transfer
For more information, see instructions and refer to 40 CFR 73.50 - 73.53.
Pagel
Pag? | | of | |
STEP1
Enter account information
about the transferor (in
whose account the
allowances currently reside)
Transferor:
ATS Account #
Authorized Account Representative (AAR) ID#
AAR Phone Number
AAR Fax Number
STEP 2
Enter account information
about the transferee (into
whose account the
allowances are being
transferred)
Transferee:
ATS Account #
Authorized Account Representative (AAR) ID#
AAR Phone Number
AAR Fax Number
STEP 3
Complete Steps 4 and 5
Both AARs should read
the certification, print
name, and sign and date
I am authorized to make this submission on behalf of the owners and operators of the affected source or affected units
or on behalf of the parties with an ownership interest with respect to the allowances held for which the submission is
made. I certify under penalty of law that I have personally examined, and am familiar with, the statements and
information submitted in this document and all its attachments. Based on my inquiry of those individuals with primary
responsibility for obtaining the information, I certify that the statements and information are to the best of my knowledge
and belief true, accurate, and complete. I am aware that there are significant penalties for submitting false statements
and information or omitting required statements and information, including the possibility of fine or imprisonment.
Transferor:
Name
Signature
Date
Transferee:
Name
Signature
Date
EPA Form 7610-6 (1-93)
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ATS Account # (from page 1)
Allowance Transfer - Page 2
Page | | of | |
STEP 4
Mark the box if all
allowances listed below are
to be transferred in
perpetuity. To correctly list
the allowances in
perpetuity, refer to the
instructions for this form.
J The allowances listed at Step 5 and the allowances with corresponding serial numbers insuccessive
future year subaccounts will be transferred in perpetuity to the Transferee's account.
STEPS
List the allowances to be
transferred by serial
number (see example).
You may specify single
allowances or a series of
allowances. In the total
column, enter the total
number of allowances to be
transferred. Enter separate
series or series with a
different use date on a
separate line.
Start Number (12 digits)
End Number (12 digits)
Total
Submission
Information
Mail to the following address:
U.S. Environmental Protection Agency
Acid Rain Program (6204J)
Attention: Allowance Tracking System
401 M Street, S.W.
Washington, D.C. 20460
EPA Form 7610-6 (1-93)
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Appendix B- Sample Procedures Manual
The following is a model procedures manual that EPA developed for states to
assist in designing the administrative and quantitative elements of a set-aside. It is
meant to be used as a starting point for states in designing their own procedures manual
and/or additional materials for explaining program requirements to applicants. States
can adapt any of the components of this document, use the language contained within,
or develop an alternative format for their state's particular needs. Likewise, in
developing a procedures manual, states may also find it helpful to look at the manuals
developed as part of existing energy efficiency crediting programs.
Any specific programmatic elements in this sample are completely hypothetical,
and are included only for instructional purposes. In particular, the example uses 2003 as
the allowance year, and is based on a seasonal lag and a two-step application process.
As such, in this example applicants would be applying for allowances during the May 1-
September 30, 2002 ozone control period. In addition, "the Administrator" and the
"XXXX Energy and Air Quality Office" are used interchangably in reference to the state
office administering the program.
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Sample Procedures Manual
Table of Contents
• Introduction
• Part 1. General Information and Program Requirements
Section 1: Program Description
Section 2: Eligibility
Section 3: NOx Allowances
Section 4: Application Procedures and Submittals
Section 5: Application Approval
Section 6: Additional Program Information
• Part 2. Measurement and Verification Guidelines
Part 2 will be addressed in the third guidance document.
• Appendixes
Appendix A: Table of standard lighting fixture wattages
Appendix B: List of equipment and baseline standards
Not included in this sample.
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Sample Procedures Manual
Introduction
This document presents procedures for the 2003 NOx Budget Trading Energy Efficiency Set-Aside
Program administered by the XXXXX State Energy and Air Quality Office. The document is
divided into two parts:
A. General Information and Program Requirements. This part provides a description of the
program, including eligibility requirements for participants and energy efficiency actions, and
additional program requirements. This part details the required application materials and the
procedures involved in reviewing them. Included are discussions about each step necessary as
part of the application process for set-aside allowances, including the initial application
request project, executing an application agreement, reporting estimated and verified energy
savings, and establishing a NOx Allowance Tracking System (NATS) account.
B. Measurement and Verification (M & V) Guidelines. This part provides guidelines for
applicants to follow when conducting M & V activities.
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Sample Procedures Manual
Part 1. General Information and Program Requirements
Section 1: Program Description
The State of XXX Energy Efficiency/Renewable Energy Set-Aside is an effort by the State of
XXX to encourage new energy efficiency and renewable energy actions, by offering NOx
allowances to qualified parties for the emissions reductions achieved through voluntary energy
efficiency and renewable energy efforts, under the NOx Budget Trading Program. Energy
efficiency and renewable energy actions can help reduce the regional transport of ground-level
ozone through reductions in NOx, while reducing other conventional air pollutants.
This program offers NOx allowances to entities that develop energy efficiency or renewable
energy projects delivering verifiable electric energy savings during the summer ozone season,
May 1-September 30. Qualified projects can receive NOx allowances for up to three years as part
of this program.
To encourage the development of projects that provide savings levels greater than those typically
achieved in retrofit or replacement projects, the program bases energy savings on current State
and federal minimum efficiency standards or on current standard practice. Energy savings will be
based on existing energy usage only in cases where no minimum efficiency standards or current
standard practices exist.
Participants in the program must meet minimum eligibility criteria, comply with all program rules
and procedures, submit standard forms and supplemental documentation describing their projects,
and enter into a Application Agreement with the XXX Office of Energy and Air Quality.
Furthermore, program participants must also adhere to measurement and verification (M&V)
guidelines and reporting requirements throughout the term of the Agreement.
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Sample Procedures Manual
Section 2: Eligibility
2.1 Applicant Eligibility
This program is open to energy end-users, such as commercial, industrial and residential facility
owners or tenants that meet program requirements. More than one applicant may not receive
allowances for each project submitted for allowances. Entities may share allowances with other
involved parties after the applicant has received allowances for the submitted project, but the
State will render multiple (or duplicate) applications ineligible.
The maximum NOx allowance award will be XX% of the 2003 set-aside budget for a single
applicant. Contact the XXX Office of Energy and Air Quality with any questions regarding
applicant eligibility.
2.2 Project Eligibility
Eligible energy efficiency measures must reduce electric energy consumption at the project site,
and this reduction must be measurable and verifiable. Retrofit efficiency and renewable energy
projects are eligible; fuel-switching projects are not eligible. New construction may be considered
on a case-by-case basis. Cost effective renewable energy projects are encouraged to apply.
The following table provides a list of pre-approved energy efficient measures, and technologies or
measures that are not eligible under the program. Any measures that are not listed will be
considered on a case-by-case basis.
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Sample Procedures Manual
Pre-Approved Measures
Lighting Technologies
T-5 or T-8 lamps: Eligible technologies include
Fluorescent lamps with electronic or high-efficiency
Magnetic ballasts.
Occupancy Controls: Infrared or ultrasonic
Occupancy sensors and interface installed where
Existing controls do not exist.
Daylight Dimming Controls: Photocell control
System to adjust lighting level installed where
Existing controls do not exist.
Incandescent to Hardwired CFL: Permanently
Attached compact fluorescent fixtures to replace
Standard incandescent lamps.
High Pressure Sodium or Metal Halide:
High pressure sodium or metal halide fixtures to
Replace mercury vapor lamps.
LED Exit Signs: Light emitting diode exit signs
to replace standard incandescent signs.
LED Traffic Signals: Continuous operation
Signals. Red or green incandescent traffic signal
Lights replaced with light emitting diode traffic
Lights and pedestrian signals.
Energy Efficient Labeled Products
Energy Star: Labeled office equipment, consumer
products, building systems, lighting, HVAC equipment,
motors, pumps, roof products, transformers, agricultural
fans, insulation and windows.
Motors/Other Pre-Approved Measures
Premium Efficiency Motors: Permanently wired
motors over 1 hp, operating over 2,000 hours per year.
Variable Speed Drives: VSD motor control to
replace single speed motor control. Savings calculated
on direct motor savings only.
Economizer: System must use outside air to reduce
cooling or heating loads and operate automatically.
Does not include repair of an existing economizer.
EMS System: Energy Management System controlling
HVAC or lighting loads. Does not include repair or
activation of an existing EMS system.
Heat Pump Water Heaters: Commercial or domestic hot
water heating system replacing existing electric resistance
heating system.
Cooling
This category is aimed at technologies that reduce
summer peak demand.
Unitary A/C Unit Replacement: Factory made direct
expansion space cooling system with self contained or
matched split evaporator coils.
Chiller Replacement: New chiller and associated
condenser resizing for space cooling applications only.
Chilled water loop pump and condenser motor controls
would be incented under motor category if chiller is not
replaced.
List adapted from NYSERDA Standard Performance Contract Program
Technologies Not Eligible Under the Program
Technologies with a measure life of under 5 years
All technologies that are below Federal and State minimum standards
All measures that are removable without the use of tools, such as screw-in compact fluorescent lamps
Projects that save energy through operational changes (i.e. changing hours of operation or function of a
facility)
Load shifting technologies
All measures that do not reduce electrical consumption
Fuel-switching projects (except to renewables)
Repair or maintenance projects
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Sample Procedures Manual
2.3 Custom Measures
For measures that are not pre-approved, the state will review profile information provided by the
application to determine if a custom measure is eligible for set-aside allowances on a case-by-
case basis. Contact the XXX Energy and Air Quality Office for additional information about
custom measures.
2.4 Project Eligibility
The minimum project size will produce one ton of NOx emissions savings per year where savings
are based on those incurred during the summer ozone season. Projects with savings potential of
less than one ton may be aggregated with other sites to develop a project that meets the minimum
size requirement.
For the purpose of meeting the eligibility requirements, a project consists of all energy efficiency
measures and any associated equipment or improvements that are installed, maintained, or
operated by a particular energy user to achieve the energy savings claimed within a single
Application Agreement.
A site may consist of one or several adjacent buildings owned or operated by a single entity.
Buildings owned or operated by a single entity on a contiguous site may not be treated as separate
sites, although they may be treated as separate projects at the applicant's option. One project may
include multiple sites.
2.5 Aggregation of Sites
Sites may be aggregated to meet the minimum project savings of one ton of NOx per year subject
to the following conditions:
• Up to five sites with different measures and energy usage profiles may be aggregated to meet the
minimum NOx savings requirement; or
• Any number of similar sites with identical measures, energy use profiles, and M&V plans
may be included in one project.
2.6 Credit for Early Action
Because this is the first year of the set-aside program, a project initiated in the three years prior to
initiation of this program can be eligible for the 2003 set-aside allowance pool. Once accepted,
these projects will receive a three-year stream of allowances. However, after the current year,
projects initiated these early actions will not be eligible for entry into the set-aside program.
2.7 Other Limitations
Projects receiving funds from any other state or federally administered program are ineligible.
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Sample Procedures Manual
Section 3: NOx Allowances
3.1 Set-Aside Allowances
A total of XXXX allowances, X% of the state of XXX's NOx Budget Trading Program energy efficiency set-
aside allowances have been set aside for 2003.
Applications for a three year stream of allowances will be accepted from applicants only on a first-come, first-
served basis until total allowances are committed. Initial project applications must be received by May 1, 2003.
Program rules, procedures, and the posted incentive levels are subject to change on a yearly basis.
A project's total allocation of allowances is calculated by multiplying these rates by the average annual energy
savings (one full year of energy savings) achieved by the project over the two-year measurement and verification
period.
3.2 Receiving Allowances
After the applicant's initial application for set-aside allowances is approved, the applicant is responsible for
submitting a completed NOx Allowance Tracking System (NATS) account to the appropriate Authorized
Account Representative. A NATS account is required to be able to receive allowances under the NOx Budget
Trading Program. The NATS system is administered by the U.S. Environmental Protection Agency's Clean Air
Markets Division.
The Authorized Account Representative for the State of XXXX is:
Mr./Ms. XXXXX
Completed NATS forms can be submitted to:
Mr./Ms. XXXXX
Authorized Account Representative
State Address
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Sample Procedures Manual
Section 4: Program Procedures and Submittals
The procedures and submittals required as part of the State of XXX Energy Efficiency and Renewable
Energy Set-Aside Program are coordinated with the three phases of the program:
• Project planning/application period, before May 1, 2002
• During the ozone control period, between May 1-September 30, 2002
• After the ozone control period, after October 1, 2002.
An overview of the application procedures is shown in the following flow chart, based upon the three time
periods. Detailed instructions on how to complete the each submittal will be included with the required
forms in the application.
Project planning/application period
Task 1: Applicant
Initial Project Application (IPA)
Notifies the Administrator that the applicant will be requesting allowances from
the pool of allowances set aside for energy efficiency and renewable energy
actions. Lists:
• Project Type (lighting, HVAC, motors, etc.)
• M&V methodology and plan
• Estimated energy savings and associated number of allowances
4
Task 2: State
Notification of Approval of IPA
Administrator reviews the IPA regarding:
• Projects/Applicant meets eligibility criteria
• Applicant's proposed M&V methodology and estimated energy savings
4
Task 3: Applicant
Submits modifications to IPA
(if needed)
Makes changes to the IPA as necessary, based on the Administrator's comments.
4
Task 4: Applicant
Notification of Intent to Proceed
Notifies the administrator that the project will be undertaken and when work will
begin, if not in place May 1.
4
Task 5: State
Reservation of NOx Allowances
Notifies applicant that a conditional 3 year allowance stream has been reserved
for the applicant.
• Exact amount to be finalized after the particular ozone control period, and
energy savings are measured and verified
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During the ozone control period
Task 5: Applicant
NATS account application
Applies to Authorized Account Representative for a NATS general account.
4
Task 6: Applicant
Notice of Project Status (optional)
Informs the Administrator as to any project changes that may alter the amount of
allowances awarded to the project.
After the ozone control period
Task 5: Applicant
Notice of Ozone Control Period
Results
Applicant measures ozone season energy savings and reports savings to the
Administrator.
• Explains how results have been measured and verified
• Translates energy savings into NOx emissions reductions
Task 6: State
Notice of Allowance Crediting
The Administrator reviews claimed ozone season results and methodology.
• Notifies EPA to issue NOx allowances to applicant's NATS account for the
2003 ozone season.
• Notifies the applicant that the allowances have been credited to the
applicant's NATS account.
4
Task 7: State
Claiming Subsequent Year Savings
The State submits OCP for year 2, and a year later for year 3, after ozone season
results for the subsequent year(s) have been measured and verified.
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Sample Procedures Manual
4.1 Initial Project Application (IPA)
The first step in the application process is for the applicant to submit a completed IPA for its proposed
project. By submitting an IPA, the applicant is requesting allowances be reserved for a proposed project at
a specified project site.
The IPA includes information about the facility where the proposed project will be installed and a general
project description, including estimated energy savings and associated emissions reductions. The IPA must
also include an M&V plan detailing how savings will be verified, according to M&V guidelines issued by
the State of XXXX, such as who will do the work, what type of metering equipment will be used, when the
metering will be done, and the calculation and calibration methods to be used.
IP As will be accepted until the allowances for the year have been committed. The deadline for submitting
an IPA is May 1,2002.
Allowances for a project are reserved only upon the Administrator's written approval of the IPA.
Final allocation of the allowances is contingent upon the applicant submitting a Notice of Ozone Control
Period Results within the specified time frame, which is 10 days after the conclusion of the ozone control
period, October 10, 2002.
4.2 Application Agreement
The Application Agreement is submitted in tandem with the IPA. It states that all information that the
applicant submits as part of the set-aside program is correct and accurate. The administrator will cease
evaluating and return all submittals from any applicant who submits any false or misleading information.
4.3 Notification of Intent to Proceed
The notification informs the Admistrator that the project will be undertaken, and when energy efficient
measures will begin, if project commencement is expected after May 1, 2002.
4.4 M&V Reporting
During the three-year performance period, applicants must conduct M&V activities as specified in their M&V
Plan. Within 10 days following the end of each ozone control period, an annual
M&V Report must be prepared by the applicant and submitted to the Administrator. The M&V Report will be
included as part of the OCP.
4.5 Notice of Ozone Control Period Results (OCP)
The OCP contains the applicant's quantified results of energy savings for the relevant ozone control period.
The notice will explain how results have been measured and verified. The M&V Reports must include clear
and verifiable data and describe the baseline assumptions and calculations used to calculate actual energy
savings. The OCP results will become the basis for the amount of allowances the project will recieve.The
notice may require a detailed account about the pre- and post-retrofit equipment, such as equipment counts,
efficiencies, operating schedules, nameplate data, building occupancy, and engineering calculations and
stipulations used to estimate energy savings, depending on the particular M&V methodology (detailed in
Part 2) that the applicant has chosen.
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Sample Procedures Manual
4.6 Notice of Allowance Crediting
The Administrator will notify EPA to issue allowances to the applicant after reviewing, verifying, and
approving the OCP. Each allocation will be based on the total verified energy savings. The Administrator
reserves the right to adjust for differences between the estimated and verified energy savings and
reconciling the allocation amount accordingly.
The Administrator will notify EPA to issue the allowances to the applicant's NATS account within 30 days
upon receipt of the OCP. The allowances will be available for trade in 2003.
4.7 Claiming Subsequent Year Savings
The applicant will submit verified ozone season electricity savings for the second and third ozone season in
a new OCP for the two subsequent years following the initial application year. Based on OCP results, the
applicant may receive a different number of allowances for a subsequent year if energy
savings/displacements increase or decrease.
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Sample Procedures Manual
Section 5. Application Approval/Rejection Process
5.1 Initial Project Application
The XXXX Office of Energy and Air Quality will reserve allowances for the applicant if the
initial project application is accepted.
The Administrator reserves the right to reject an initial project application for any reason
including, but not limited to, the following:
a) The State's receipt of an initial project application occurs after the set-aside program is fully
subscribed or after May 1, 2002; or
b) Project fails to meet Program requirements; or
c) Applicant fails to submit a complete initial project application or the required supporting
documentation; or
d) Intentionally includes misrepresentations in the Project or energy savings; or
e) The project fails to comply with applicable federal, state and local laws and regulations; or
f) The State determines that the applicant will not be able to fulfill the terms or conditions of the
Application Agreement.
If the Administrator deems the Initial Project Application incomplete or insufficient, the
Administrator will provide written notification rejecting the Initial Project Application within 30
days of receipt, if the application was received after April 1, 2002. If the application was received
before April 1, 2002, the Administrator will issue a notification of the modifications required for
the project to be approved.
The EESP may resubmitthe Initial Project Application before May 1, 2002.
If the Administrator deems the Initial Project Application complete but incorrect, the
Administrator may make an adjustment to the savings and incentive estimates, and will notify the
applicant of any adjustments in writing.
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Sample Procedures Manual
Section 6.0 Additional Information
6.1 Preparing and Submitting Materials
All submissions for the State of XXX's Energy Efficiency Set-Aside Program must be sent to the address listed
below.
XXXX Program Administrator
XXXX Energy and Air Quality Office
XXXX Street
City, State XXXXX
The Administrator will date-stamp and log all program materials as they are received. The Administrator
recommends that applicants send all program materials via certified or registered mail. It is the sole responsibility
of the applicant to ensure that the Administrator receives applicable program materials at the designated address
by close of business on the applicable due date. The applicant should retain proof of delivery (such as a return
receipt for certified, registered, or overnight mail) for all program materials submitted.
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Appendix C- Sample Application Forms and Documentation Materials
The following sample forms are included for a state administering an energy efficiency
and renewable energy set-aside:
Appendix C-1.
Appendix C-2.
Appendix C-3.
Appendix C-4.
Appendix C-5.
Appendix C-6.
Appendix C-7.
Appendix C-8.
Appendix C-9
Appendix C-10.
Sample Initial Project Application (IPA) Form
(to be completed by applicant)
Sample Application Agreement
(to be completed by applicant)
Sample Notification of Approval of IPA/Modifications Required
(to be completed by the state)
Sample Notice of Intent to Proceed
(to be completed by applicant)
Sample Notice of Allowance Reservation
(to be completed by the state)
Sample Notice of Project Status
(to be completed by applicant)
Sample Notice if Ozone Control Period Results
(to be completed by applicant)
Sample Notice of Allowance Crediting
(to be completed by the state)
Sample Notice of Insufficient Submission
(to be completed by the state)
Sample Resubmission of Ozone Season Savings
(to be completed by applicant)
In reviewing these forms, it is recommended that states refer back to the flow chart for
the one-step and the two-step application process included in Chapter 8.
72
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Appendix C-1. Initial Project Application (IPA) Form
For administrative use only:
Assigned project code:
Date received:
SECTION A
Please provide the following information for the entity requesting allowances:
Entity name: Contact person:
Address: Phone number:
Fax:
Email:
Relationship to project, e.g., owner, ESCO, etc.
Please attach the names and contact information for any additional entities who could potentially submit
duplicate allowance claims for the same project(s).
SECTION B
Please provide the following information for each project site:
Project site #1
Type of facility: Contact person:
Project site name: Phone number:
Address: Fax:
Email:
Project site #2
Type of facility: Contact person:
Project site name: Phone number:
Address: Fax:
Email:
Please attach duplicates of this form for any additional project sites.
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Appendix C-1. Initial Project Application (Cont.)
SECTION C
Project type and overview: (HVAC. Lighting. Variable Load. Constant Load. Insulation, etc.)
Please describe the proposed project and include the type and quantity of equipment affected by this
project, i.e., 5 HVAC systems, 10,000 light bulbs, etc. and any fuel switching that will occur. If additional
space is required, please attach.
SECTION D
Measurement and Verification Methodology:
Please explain the project measurement and verification methodology below and attach a detailed
measurement and verification plan with diagrams and any other pertinent information requested in the
M&V Guidelines. If additional space in required, please attach.
SECTION E
Project Installation Completion Date:
SECTION F
Historic data:
Please attach any documents related to energy consumption or billing data that will facilitate our review
of your proposed project.
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Appendix C-1. Initial Project Application (Cont.)
SECTION G
Estimated savinqs level due to project:
Please fill in the table below to calculate estimated kWh savings.
Type of Electricity End
Use (Lighting,
HVAC,etc.J
Energy Efficiency
Measure (EEM)
and Quantity of
Equipment (e.g.
§00 T-8 lamps)
kW
Savings
per
Measure
Ave. Ozone
Season Hours of
Operation
Estimated kWh Savings
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Appendix C-2 Application Agreement
_, the undersigned participant in the State of Energy Efficiency and
Renewable Energy Program, recognizes and accepts that participation in this Program, and receipt of
any allowances, is predicated on the participant following all guidelines and procedures established for the
Program.
These requirements include, but are not limited to:
Following program procedures as detailed in the year Procedures Manual and M& V Guidelines
Meeting all submittal progress timelines
Meeting all submittal requests to the satisfaction of the program office
All information submitted is accurate
I understand that eligibility to this program is contingent on meeting the above requirements.
Project Sponsor Name Date
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Appendix C-3. Notification of Approval of IPA/Notification of Modifications Required
STATE REVIEW
1. Does the equipment specified in the proposed project have the potential to
produce the claimed level of savings? If "no" please explain.
Y N
2. Will savings likely occur during ozone season? If "no," please explain.
Y N
3. Will the measurement and verification plan adequately capture accurate
savings results? If "no," please explain.
Y N
4. Additional comments:
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Appendix C-3.
Project Accepted
Notification of Approval of IPA/Notification of
(Cont.)
Project code: | | |
Please check appropriate box
| | Modifications Required
Modifications Required
1 1
If project is accepted, please complete and submit the attached
Notice of Intent to Proceed
If project requires modifications and you would like to continue pursuing NOx
allowances, please address the following modifications in a revised IPA, and
attach with a completed Notice of Intent to Proceed
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Appendix C-4 Notice of Intent to Proceed
Project Code:
Please check the appropriate box
Yes No
Modifications made to original Notice of Intent | |
(If modification made, be sure to attach documentation regarding changes in a revised IPA)
.hereby state that I am a legitimate representative of
and agree to all state regulations regarding allowance crediting from energy efficiency projects.
By signing this document, I am also authorizing the state of to audit this energy
efficiency project for purposes of verifying that the energy savings measures have been installed and that
the measurement and verification of energy savings being carried out is in accordance with the
approved measurement plan.
Please reserve NOx allowances for the (Date) ozone season for this project.
Signature
Title
Modifications Undertaken
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Appendix C-5. Notice of Allowance Reservation
Project code:
Thank you for submitting the required forms to participate in the NOxset aside allowance program.
Based on the material submitted, the state of has reserved one ton
allowance(s) from the state set-aside allowance budget for this project for the (Dates) ozone seasons.
The reserved allowances will be credited to your NATS account after your first ozone season
savings are measured and verified, and submitted to the program office in a completed
Notice of Ozone Control Period Results Form.
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Appendix C-6. Notification of Ozone Control Period (OCR) Results
Must be submitted by October 10
| Project Code:
SECTION A
Enerqv Savinqs Data:
Please com
Use a separ
Provide the
Include, in a
e.g., histori
Please expl
If additional
May
June
July
August
September
May
June
July
August
September
If a regress!
documentat
plete the following table(s) describing savings achieved at the project site.
•ate table for each efficiency measure, e.g., lighting, HVAC, Insulation, etc.
M&V method used to calculate energy savings, from M&V guidelines manual.
manner consistent with the approved M&V plan, how the baseline was determined,
cal average, adjusted cooling degree days, etc.
ain any adjustments or normalizations made in the adjustments area.
tables are required, please attach additional copies of this form
Energy Savings Data
Project Site #:
Energy Efficiency Measure:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(kWh)
Adjustments
Total kWh saved during ozone season
Energy Savings Data
Project Site #:
Energy Efficiency Measure:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(kWh)
Net Energy Savings
(kWh)
Adjustments
Total kWh saved during ozone season
Net Energy Savings
(kWh)
on analysis was used to calculate ozone season savings, please include both billing data and
on regarding the results of the regression analysis.
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Appendix C-6. Notice of Ozone Control Period Results (Cont.)
Must be submitted by October 10
SECTION B
Fuel Use Increase Data
To be completed if fuel switchinq has
(i.e., non-core source.)
Please prov
will be used
(For examp
Use a separ
Include, in a
e.g., histori
If additional
May
June
July
August
September
May
June
July
August
September
occurred at an area source
ide the state with information regarding any fuel switching due to the project. This section
to determine NOx increases from increased on-site fuel combustion.
e: switching an electric water heater to a gas water heater)
•ate table for each action.
manner consistent with the approved M&V plan, how the baseline was determined,
cal average, adjusted cooling degree days, etc.
tables are required, please use supplemental Form 7s, Section B.
Fuel Use Increase
Project Site #:
Fuel Switching Action:
Fuel Type:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(Btu)
Adjustments
Total Btu combustion increase during ozone season
Fuel Use Increase
Project Site #:
Fuel Switching Action:
Fuel Type:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(Btu)
Net Fuel Combustion
Increase (Btu)
Adjustments
Total Btu combustion increase during ozone season
Net Fuel Combustion
Increase (Btu)
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Appendix C-7. Notice of Allowance Crediting
Must be returned to applicant 30 days upon receipt of OOP
Project code:
The State of has approved your Notice of Ozone Control Period Results
(OCP) and has notified EPA to issue of the of the reserved NOx allowances to
NATS account # .
forthe (year) ozone season trading.
This project is eligible for an additional 2 ozone seasons of allowances provided the savings persist.
These additional allowances are reserved for this project in the State's account. To claim these
subsequent-year allowances, savings must be submitted forthe pertinent ozone seasons using a
completed OCP.
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Appendix C-8. Notice of Insufficient Submission
Must be returned by October 31
[Project code:
The state of has reviewed your Notice of Ozone Control Period Results and found that your
claimed savings are not acceptable based on the original Notice of Intent to Proceed. If you would like to
continue pursuing NOx allowances, the following deficiencies need to be addressed and resubmitted
within 2 weeks of receiving this form or the allowances reserved for this project will be released.
If the allowances are released, you may resubmitthe amended Notice of Ozone Control Period Results -
to secure an allowance stream for the next ozone season.
Deficiencies
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Appendix C-9. Resubmission of Ozone Control Period Savings
Must be resubmitted within 2 weeks of receiving Notice of Insufficient Submission
In response to the state's finding of measurement deficiencies,
NOx reductions due to the project as follows.
Corrected Ozone Season Results
(Claimant)
, has recalculated
SECTION A
Enerqv Savinqs Data:
May
June
July
August
September
May
June
July
August
September
If a regressic
documentati
Energy Savings Data
Project Site #:
Energy Efficiency Measure:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(kWh)
Adjustments
Total kWh saved during ozone season
Energy Savings Data
Project Site #:
Energy Efficiency Measure:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(kWh)
Net Energy Savings
(kWh)
Adjustments
Total kWn saved during ozone season
Net Energy Savings
(kWh)
n analysis was used to calculate ozone season savings, please include both billing data and
Dn regarding the results of the regression analysis.
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Appendix C-9. Resubmission of Ozone Control Period Savings
Must be resubmitted within I weeks of receiving Notice of Insufficient Submission
SECTION B
May
June
July
August
September
May
June
July
August
September
Fuel Use Increase
Project Site #:
Fuel Switching Action:
Fuel Type:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(Btu)
Adjustments
Total Btu combustion increase during ozone season
Fuel Use Increase
Project Site #:
Fuel Switching Action:
Fuel Type:
M&V Method:
How Baseline Determined:
Pre-retrofit data
Post-retrofit data
1st Season Results
(Btu)
Net Fuel Combustion
Increase (Btu)
Adjustments
Total Btu combustion increase during ozone season
Net Fuel Combustion
Increase (Btu)
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Appendix D- Additional Documentation and Reporting Materials
The previous two appendixes include sample materials for documenting
information exchanges between the state and applicants, based on either a one- or a
two-step application process. In addition, states can utilize other documentation and
reporting materials to be exchanged after the project has been initiated, to stay informed
on the progress of projects that are being submitted for set-aside allowances. These
include:
• Appendix D-1. Notice of Project Status
• Appendix D-2. Notice of Work Commencement
Notice of Work Completion
In reviewing these forms, it is recommended that states refer back to the discussion on
additional forms and reporting materials in Chapter 8.
87
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Appendix D-1. Notice of Project Status
Project code:
I, , hereby notify the state of about the following
changes to the proposed energy savings listed in my project's IPA.
Signature Date
Title
Explanation:
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Appendix D-2. Notice of Work Commencement/Completion
Project code:
I, , hereby notify the state of that work to install the
energy saving devices/mechanisms stated in my I PA is complete.
Signature Date
Title
Explanation:
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Appendix E- Energy Efficiency and Renewable Energy Set-Aside Workgroup
EPA Workgroup Representatives
Anna Garcia, Office of Atmospheric Programs
Doug Grano, Nancy Mayer & Annie Nikbaht,
Office of Air Quality Planning & Standards
Ethan McMahon
Office of Policy
Bruce Smith & Paul Wentworth
EPA Region 3
Dave Jesson & Karina O'Connor
EPA Region 9
State Air & Energy Workgroup Representatives
Rob Sliwinski
NY State Dept of Environmental Conservation
Rich Driscoll
MA Dept of Environmental Protection
Janet McCabe
IN Dept. of Environmental Management
Carolyn Garber
Wl Dept of Natural Resources
Lynn Terry & Edie Chang
California Air Resources Board
Joe Fontaine
NH Dept. of Environmental Services
Peter Smith & Carl Michaels
NY State Energy Research &
Development Authority (NYSERDA)
Pat Stanton
MA Division of Economic Development
Cheryl DeVol-Glowinski
IN Dept. of Commerce
Pat Meier
Wl Energy Bureau
Michael Jaske
California Energy Commission
Van Jamison & Bob Reisch
MT Dept. of Environmental Quality
90
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State Associations
Jeff Genzer, George Burmeister & Chuck Guinn, National Association of State Energy Officials
Gail Greaves, State and Territorial Association of Pollution Program Administrators
91
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GLOSSARY
Allocation Period: For purposes of the energy efficiency and renewable energy NOX
set-aside, the allocation period is defined as the period during which emission
allowances are awarded to energy efficiency and renewable energy actions. The
allocation period can extend beyond one control period.
Anyway Tons: Tons of NOX and/or other emissions that are already being prevented,
due to energy efficiency and renewable energy actions presently implemented, or are
likely to be undertaken without any extra incentives.
Area Sources: Stationary and non-road sources that are too small and/or too numerous
to be handled individually as point sources, but which can contribute collectively to
ozone formation. Two broad groups of area sources emit evaporative emissions and
fuel combustion emissions. Area source emissions have historically been
underestimated because of few appropriate inventory procedures or little emphasis on
obtaining area source data.
Biomass: Materials that are biological in origin, including organic material (both living
and dead)from above and below ground, constituting a renewable energy source.
Examples include trees, crops, grasses, tree litter, roots, animals and animal waste.
Btu (British Thermal Unit): A standard unit for measuring the quantity of heat energy
equal to the quantity of heat required to raise the temperature of one pound of water by
one degree Fahrenheit.
Continuous Emissions Monitors (CEMs): Equipment used to sample, analyze,
measure, and provide, by readings taken at least once every 15 minutes of the
measured parameters, a permanent record of NOX emissions, expressed in tons per
hour of NOX.
Control Period: The summer ozone season beginning May 1 of a year and ending on
September 30 of the same year, inclusive, during which NOX emissions from core
sources cannot exceed the allowance held or purchased by that source.
Combined Heat and Power (CHP): Integrated technologies, including cogeneration,
which convert fuel to electric, thermal, and mechanical energy for on-site or local use. In
the case of electricity generation CHP can include export of power to the local electric
utility transmission grid. The thermal energy from CHP systems can be created and
used in the form of steam, hot or chilled water for process, space heating or cooling, or
other applications.
Core Sources: Primary NOX emitting sources granted allowances by the EPA under a
state NOX budget. For the purposes of the energy efficiency and renewable energy set-
aside, allowance will only be credited for electricity reducing measures that lower
demand from electricity generating units (EGUs) larger than 25 MW.
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Criteria Air Pollutant: Pollutants determined to be hazardous to human health and
regulated under EPA's National Ambient Air Quality Standards (NAAQS). These
currently include NO2, SO2, CO, PM (particulate matter), lead, and ozone (of which NOX
and VOCs are precursors). The 1970 amendments to the Clean Air Act require EPA to
describe the health and welfare impacts of a pollutant as the criteria for inclusion in the
regulatory regime.
Demand-Side Management (DSM): The planning, implementation, and monitoring of
utility activities designed to encourage consumers to modify patterns of electricity usage,
including the timing and level of electricity demand. It refers only to energy and load-
shape modifying activities that are undertaken in response to utility-administered
programs. It does not refer to energy and load-shape changes arising from the normal
operation of the marketplace or from government-mandated energy-efficiency standards.
Demand-Side Management (DSM) covers the complete range of load-shape objectives,
including strategic conservation and load management, as well as strategic load growth.
Distributed Renewable Energy Resources: Renewable energy resources located
close to load centers or at customer sites. For example, photovoltaic system located on
the roof of an electricity consumer.
Electric Generating Unit (EGU): Any combination of physically connected
generator(s), reactor(s), boiler(s), combustion turbine(s), or other prime mover(s)
operated together to produce electric power.
Emissions: Anthropogenic (human caused) releases of hazardous gases or particulate
into the atmosphere (e.g., the release of NOX during fuel combustion).
Emission Factor: A unique value for scaling emissions to activity data in terms of a
standard rate of emissions per unit of activity (e.g., pounds of NOX emitted per kWh).
Energy Efficiency: Refers to programs that are aimed at reducing the energy used by
specific end-use devices and systems, typically without affecting the services provided.
These programs reduce overall electricity consumption, often without explicit
consideration for the timing of program-induced savings. Such savings are generally
achieved, by substituting technically more advanced equipment to produce the same
level of end-use services (e.g., lighting, heating, motor drive) with less electricity.
Examples include high-efficiency appliances, efficient lighting programs, high-efficiency
heating, ventilating and air conditioning (HVAC) systems or control modifications,
efficient building design, advanced electric motor drives, and heat recovery systems.
Energy Efficiency and Renewable Energy NOX Set-aside Pool: A portion of a state's
NOx emission budget reserved to encourage and promote energy efficiency and the use
of renewable energy.
Energy Star Voluntary Programs: Voluntary public-private sector partnership
programs administered by EPA and DOE to help facilitate and encourage the adoption
of cutting-edge energy efficient technologies and installation of energy-efficient
equipment and measures.
Fossil Fuel: Any naturally occurring organic fuel formed in the earth's crust, such as
petroleum, coal, or natural gas.
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General Account: A NOX Allowance Tracking System (NATS) account, which is not a
compliance or an overdraft account. An applicant for set-aside allowances is required to
set up a general NATS account.
Life-Cycle Energy Savings: The total energy savings achieved by a project or program
during the course of its life.
Measurement and Verification Protocol (M&V): A standard approach to measuring
and verifying energy savings due to the implementation of energy efficiency programs.
Mobile Source: Mobile sources are divided into two categories: on-road (highway) such
as automobiles, trucks, and motorcycles, and non-road such as trains, airplanes,
agricultural equipment, industrial equipment, construction vehicles, off-road motorcycles,
marine vessels, and other site-specific vehicles.
Model Energy Code (MEC): A set of standards and codes that establish the minimum
energy efficiency recommendations for the construction of new one- and two-family
homes and low-rise (three stories or less) multifamily buildings and additions to existing
buildings.
National Ambient Air Quality Standards (NAAQS): Maximum air pollutant standards
that EPA set under the Clean Air Act for attainment by each state. The standards were
to be achieved by 1975, along with State Implementation Plans to control industrial
sources in each state. A schedule has been established by the Clean Air Act for the
areas of the country that are currently in non attainment for the criteria pollutants to
achieve the NAAQS.
Nitrogen Oxides (NOX): A criteria pollutant that is a precursor to ground level ozone
(smog). The primary source of emissions is the combustion of fossil fuels. NOX
emissions are related to air-fuel mixes and combustion temperatures during the burning
of fuels.
NOX Allowance: An authorization by the permitting authority under the NOX Budget
Trading Program to emit up to one ton of NOX during the control period of the specified
year or of any year thereafter.
NOX Budget Trading Program: A multi-state NOX air pollution control and emission
reduction program established as a means of mitigating the interstate transport of ozone
and NOX, an ozone precursor.
Off-Site Fuel Consumption: Fuel consumption at electric generating stations that
produce electricity to meet the needs of residences, businesses, and industries.
On-Site Fuel Consumption: Fuel consumed at industrial, commercial, or residential
locations. Examples include a chemical manufacturer that burns natural gas in a boiler to
produce steam at the facility, or a residential consumer who burns natural gas in their
hot water heater at home.
Ozone: A molecule made up of three atoms of oxygen. Occurs naturally in the
stratosphere and provides a protective layer shielding the earth from harmful ultraviolet
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radiation. In the troposphere, it is a chemical oxidant, a greenhouse gas, and a major
component of photochemical smog.
Ozone Non-Attainment Area: A region, defined up to the county level that is not in
compliant with EPA's NAAQS standard for ozone.
Permitting Authority: The state air pollution control agency, local agency, other state
agency, or other agency authorized to issue or revise permits to meet the requirements
of the NOX Budget Trading Program.
Point Sources: Pollution emanating from a specific source such as a factory and
released at a known discharge point.
Quad: Quadrillion Btu (1 x 1015 Btu.) A standard unit for measuring large quantities of
energy.
Renewable Energy: Energy obtained from sources that are essentially inexhaustible or
regenerative (unlike, for example, the fossil fuel, of which there is a finite supply).
Renewable sources of energy include wood, waste, geothermal, wind, photovoltaic, and
solar thermal energy.
Renewable Portfolio Standard: A standard that requires an electric retailer to supply a
portion of its electricity from renewable energy resources.
State Implementation Plan (SIP): Air quality plans which include an analysis of the
sources of pollution (emission inventory), a strategy to attain and maintain the NAAQS
by reducing emissions from key sources (attainment or maintenance demonstration),
and enforceable regulations to carry out the strategy.
Supply-side Energy Efficiency Projects/Programs: Energy efficiency projects or
programs implemented by an electricity generator that reduces its energy consumption
without affecting the quantity of electricity supplied. These measures are not eligible to
be credited under the energy efficiency and renewable energy set-aside.
Supply-side Renewable Energy Projects/Programs: Renewable energy programs
and projects implemented by an electricity generator or third party that generate
electricity for the grid or reduce its consumption of grid-based electricity.
Summer Ozone Season: May 1 through September 30. Period when public health is
most at risk from smog due to ample sunlight and warm temperatures. Peak ozone
concentrations typically occur during hot, dry, stagnant summertime conditions, i.e., high
temperature and strong solar insolation. The strong seasonality of ozone levels makes it
possible for areas to limit their ozone monitoring to a certain portion of the year, the
ozone season.
System Benefit Charges (SBC): A system-wide charge assessed on the beneficiaries
of a distribution system to fund energy efficiency and renewable energy projects as well
as the provision of public benefit services such as life-line rates.
Up-Front Cost: The initial costs of implementing a project or program.
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