CHP
&EPA COMBINED HEAT AND
POWER PARTNERSHIP
Draft
Output-Based Environmental Regulations
An Effective Policy to Support Clean Energy Supply
^H ^BB
Output-based regulations (OBR) can
be an important tool for
promoting an array of innovative
energy technologies that can help achieve
national environmental and energy goals
by reducing fuel use. OBR encourages
energy efficiency and clean energy supply,
such as combined heat and power (CHP),
by relating emissions to the productive
output of the process, rather than the
amount of fuel burned.
How Do Output-Based
Emission Limits Encourage
Clean Energy?
Traditional "input-based" environmental
regulations for power generators and
boilers establish emission limits based on
heat input (e.g., pounds per million British
thermal units [Ib/MMBtu] heat input) or
exhaust concentration (parts per million)
in the exhaust stream. These input-based
limits do not account for the pollution
prevention benefits of increased efficiency
in the generation of heat or electricity.
Output-based emission limits, expressed
as emissions per unit of useful energy
output (e.g., pounds per megawatt-hour
[Ib/MWh]), on the other hand, promote
clean energy by accounting for the air
pollution effects of energy efficiency in
the compliance computation.
For example, a facility that installs an
energy-efficient technology has lower
What Are the Benefits of Using More Efficient
Combustion Technologies?
Reduced Fossil Fuel Use. Encouraging energy efficiency and renewable energy
sources will reduce the demand for imported fossil fuels.
Multipollutant Emission Reductions. The use of efficiency as a pollution control
measure results in multipollutant emission reductions. For example, a source that
chooses to comply with NOX limits by increasing fuel conversion efficiency will also
reduce emissions of all other pollutants as well.
Multimedia Environmental Reductions. By encouraging reduced fuel use, an OBR
reduces air, water, and solid waste impacts that result from the production, processing,
transportation, and combustion of fossil fuels.
» Technology Innovation. Encouraging more efficient energy generation can advance
the use of innovative technologies, such as CHP.
Compliance Flexibility. Allowing the use of energy efficiency as part of an emission
control strategy provides regulated sources with an additional compliance option. This
flexibility enables the plant operator to determine the most cost-effective way to reduce
emissions, while providing an incentive to use less fuel.
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emissions because it burns less fuel. However, input-
based emission limits do not count the reduced
emissions from improved energy efficiency toward
compliance. By not accounting for these emission
reductions, input-based emission limits can present a
missed opportunity for adopting energy-efficiency
improvements. Output-based emission limits, which
do account for the emission reduction benefits of
energy efficiency, make it more attractive for
regulated sources to install clean energy technologies
because these technologies provide greater
compliance flexibility and the opportunity for reduced
compliance costs.
Output-based emission limits are particularly
important for promoting the energy and
environmental benefits of CHP. CHP units produce
both electrical and thermal output. Output-based
limits can be designed to explicitly account for both
types of output in the compliance computation.
Traditional input-based limits, on the other hand, do
not account for the pollution prevention benefits of
CHP (see Figure 1).
Output-based emission limits do not favor any
particular technology, nor do they result in increased
emissions. They simply level the playing field by
allowing energy efficiency and renewable energy to
compete on an equal footing economically with any
other method of reducing emissions (e.g.,
combustion controls and add-on controls).
In What Ways Can Output-Based
Approaches Be Incorporated Into Air
Regulatory Approaches?
Output-based regulatory concepts can be applied to
a variety of air regulatory programs, including:
Conventional emission limits, such as emission
limits in State Implementation Plans for
Reasonably Available Control Technology.1
Emission limits for small distributed generation
(DG) and CHP. Most states that have recently
promulgated emission limits for DG are using OBR.
Allowance allocation in emission trading programs.
Emission allowances are most commonly allocated
based on either heat input or energy output.
Allocation based on heat input gives more
allowances to less efficient units. Allocation based
on energy output gives more allowances to more
efficient units. An updating allocation system
(where allowances are reallocated in the future)
based on output provides an ongoing incentive for
improving energy efficiency.
« Allowance allocation set-asides for energy
efficiency and renewable energy. In addition to
allocating allowances to regulated sources, a cap
and trade program can "set aside" a portion of its
allowances for allocation to energy efficiency,
renewable energy, and CHP projects that are not
regulated under the cap and trade program. These
unregulated units can sell the allowances to
regulated units to generate additional revenue.
has used an output-based approach with recognition of CHP for the new
source performance standards (NSPS) for IMCy from utility boilers, NSPS for
mercury from coal-fired utility boilers, and National Emission Standards for
Hazardous Air Pollutants for combustion turbines.
Figure 1. CHP System Efficiency
Conven
Generj
Power f^\-
Station n
Fuel ^ P
tional Combined Heat & Power:
Ition: 5 MW Natural Gas
Combustion Turbine
n [~| Losses
JU ~
" -PSpSi <^^i-
_. __ EFFICIENCY: 31% l-^-^-J V N*\_5_J
Li^^r
EFFICIENCY: 80%
1£1> k. I 1 Heat k- IE1 -4 Heat
Boiler
Fuel
Boifc
\1
E
Combined
Heat And ., ^^-^
Pov^er - pue| ^H
CHP
| Losses Losses
') (ID ' (25)
^] ...TOTAL EFFICIENCY...
ft^rij
Source: EPA 2004.
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Which States Have Established
Output-Based Environmental
Regulations?
Several states have been at the forefront of adopting
OBR in general and, in particular, developing rules
that account for the efficiency benefits of CHP.
Table 1 presents a summary of state OBR programs.
Features of several state OBR programs are
highlighted below.
Connecticut has promulgated an OBR for NOX,
particulate matter, CO, and C02 from small DG (< 15
MW capacity), including CHP. Connecticut's regulation
values the efficiency of CHP based on the emissions
that are avoided by not having separate electric and
thermal generation. Connecticut also allocates
allowances based on energy output in their NOX
trading program. For more information, visit
www.ct.gov/dep/lib/dep/air/regulations/mainregs/sec
42.pdf. '
Table 1.
State Output-Based Regulations
California
Connecitcut
Delaware
Indiana
Maine
Maryland
Massachusetts
New Jersey
Ohio
Texas
New
Hampshire
New York
Small DG Rule*
Allowance Allocation/trading
Small DG Rule*
Small DG Rule*
Allowance Allocation/set-asides
Small DG Rule
Allowance Allocation/set-asides
Allowance Allocation/trading*
Small DG Rule
Multipollutant Regulation
Allowance Allocation/set-asides
Allowance Allocation/trading
Allowance Allocation/set-asides
Allowance Allocation/set-asides
Conventional NOX Limits
Small DG Rule*
Multipollutant Regulation
Small DG Rule
Allowance Allocation/set-asides
^Includes recognition of CHP through inclusion
of thermal credit.
Indiana's NOX trading program includes a set-aside
of allowance allocations for energy efficiency and
renewable energy. Indiana allocates 1,103 tons of
NOX allowances each year for projects that reduce
the consumption of electricity, reduce the
consumption of energy other than electricity, or
generate electricity using renewable energy. Eligible
projects can involve combined cycle systems, CHP,
microturbines, or fuel cells. For more information,
visit www.in.gov/idem/programs/air/sip.
The Massachusetts NOX cap and trade program
employs useful output, including the thermal output
of CHP, to allocate emission allowances to affected
sources (i.e., generators > 25 MW). This approach
provides a significant economic incentive for CHP
within the emissions cap. Massachusetts also has a
multipollutant emission regulation (i.e, NOX, S02, Hg,
C02) for existing power plants, which uses an
output-based format for conventional emission limits.
For more information, visit
www.mass.gov/dep/air/laws/pbsareg.pdfor
www. mass, gov/dep/air/la ws/729final, doc.
In 2001, Texas promulgated a standard permit with
output-based emission limits for small electric
generators. The permit sets different NOX limits
(Ib/MWh) based on facility size, location, and level of
utilization. The compliance calculation accounts for
the thermal output of CHP units by converting the
measured steam output (Btu) to an equivalent
electrical output (MWh). For more information, visit
www. tceq. state, tx. us/assets/public/permitting/air/
NewSourceReview/Combustion/segu_permitonly.pdf.
Elements of a Successful Policy
Based on the experiences of state environmental
agencies that have developed OBR, a number of best
practices have emerged for designing and
implementing effective OBR. These best practices
include:
Conduct internal education to ensure that state
environmental regulators understand the benefits,
principles, and mechanisms of OBR and CHP.
Evaluate the state's overall air pollution
regulatory program. Regulatory programs are
routinely reviewed and revised, and occasionally
new programs are mandated by state or federal
legislation. States can take advantage of those
opportunities to evaluate their regulatory programs
to determine whether their regulations are
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structured to encourage energy efficiency, pollution
prevention, and renewable resources.
Coordinate with other state agencies that
can lend support. State energy offices, energy
research and development offices, and economic
development offices can be important supporters
in promoting OBR, efficiency, and CHP. Their
perspective on the importance of energy efficiency
and pollution prevention can be very valuable
when formulating OBR policies.
Determine what types of DG and CHP
technologies and applications might be
affected and whether there are any specific
technology issues that the regulation needs to
address. Consult with the Public Service
Commission, Independent System Operator, and
owners or operations of DG and CHP units to
inform regulatory determinations.
Gather/review available output-based
emission data for regulated sources.
Alternatively, convert available data to output-
based format. Obtain information from equipment
providers on technologies and emissions profiles,
and capitalize on experience and work already
conducted by other states.
Evaluate alternative approaches to account
for multiple outputs of CHP units.
Train permit writers on implementation of the
new rules, once adopted.
EPA Assistance Available
The EPA CHP Partnership is a voluntary program that
seeks to reduce the environmental impact of power
generation by promoting the use of cost-effective
CHP. The Partnership assists state policy makers and
regulators to evaluate opportunities to encourage
CHP through the implementation of policies and
programs. See www.epa.gov/chp.
Additional Resources
EPA has developed Output-based Regulations:
A Handbook for Air Regulators, which explains the
benefits of output-based emission limits, how to
develop OBR, and the experience of several states in
implementing OBR. This handbook is intended as a
resource for air regulators in evaluating opportunities
to adopt OBR and writing regulations. The handbook
is available at www.epa.gov/chp/state_resources.htm.
EPA has created The Clean Energy-Environment
Guide to Action. The Guide provides an overview of
clean energy supply technology options and, in
addition to OBR, presents a range of policies that
states have adopted to encourage continued growth
of clean energy technologies and energy efficiency.
The Guide is available at www.epa.gov/cleanenergy/
stateandlocal/guidetoaction.htm.
Developing and Updating Output-Based NOX
Allowance Allocations. This EPA guidance document
was the result of a 1999 stakeholder process to
develop approaches to output-based allocation of
emission trading allowances, including allocation to
CHP facilities. See
www.epa.gov/airmarkets/progsregs/nox/docs/finalout
putguidanc.pdf.
Analysis of Output-Based Allocation of Emission
Trading Allowances. This report for the U.S.
Combined Heat and Power Association provides
background on emission trading programs and the
benefits of output-based allocation, with a particular
focus on CHP. See http://uschpa.admgt.com/
allocationfinal.pdf.
For more information, contact:
CHP
&EPA COMBINED HEAT AND
POWER PARTNERSHIP
Felicia Ruiz
U.S. Environmental Protection Agency
Combined Heat and Power Partnership
Phone: 202-343-9129
e-mail: ruiz.felicia@epa.gov
Last updated March 5, 2008
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