September 16, 2005 Draft
EPA 430-R-03-005
DRAFT REPORT
State Set-Aside Programs for Energy Efficiency and Renewable Energy
Projects Under the NOX Budget Trading Program:
A Review of Programs in Indiana, Maryland, Massachusetts, Missouri,
New Jersey, New York, and Ohio
Climate Protection Partnerships Division
Office of Atmospheric Programs
U.S. Environmental Protection Agency
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September 16, 2005 Draft
State Set-Aside Programs for Energy Efficiency and Renewable Energy Projects
Under the NOX Budget Trading Program:
A Review of Programs in Indiana, Maryland, Massachusetts, Missouri, New Jersey,
New York, and Ohio
Acknowledgments
This document was prepared by EPA's Office of Atmospheric Programs, Climate
Protection Partnerships Division, with assistance under EPA Contract No. 68W02029.
Any questions regarding this report should be directed to Edgar Mercado, Office of
Atmospheric Programs, Office of Air and Radiation (202) 343-9058; Email:
mercado.edgar@epa.gov. The material specific to individual state programs was obtained
through the state agency contacts listed in the summary table for each state in Appendix
A.
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State Set-Aside Programs for Energy Efficiency and Renewable Energy Projects
Under the NOX Budget Trading Program:
A Review of Programs in Indiana, Maryland, Massachusetts, Missouri, New Jersey,
New York, and Ohio
Table of Contents
Page
A. Introduction 1
B. Other EPA Background Materials 2
C. Which States Have Developed Set-Aside Programs? 2
D. What Are the Sizes of the Set-Aside Programs? 3
E. What Projects or Actions are Eligible? 4
1. General Types of Projects 4
2. Time Constraints for Eligibility 6
3. Aggregation of Projects 6
F. How is the Application Process Designed? 7
1. One-Step versus Two-Step Approach 7
2. Level of Documentation 8
G. How are Allowances Calculated and Awarded? 10
1. Measurement and Verification 10
2. Converting Energy Savings/Displaced Generation to NOX Tons 11
3. Distributing Allowances 14
4. Determining the Length of the Award 15
H. What are the Allocation Procedures if the Set-Aside is Over-Subscribed? 16
I. What are the Allocation Procedures if the Set-Aside is Under-Sub scribed? 17
J. How is Each State Coordinating the Set-Aside with Other Programs 18
K. What Program Actions Have States Taken So Far? 19
1. Guidance and Forms 19
2. Projects Reviewed and Approved 20
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Table of Contents (cont.)
Page
L. Detailed State-by-State Program Information 21
Appendix A: State Summary Tables
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List of Tables
Table 1: Size of Set-Aside Account by State 3
Table 2: Summary of Eligible Projects under the EE/RE Set-Aside Provisions 5
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State Set-Aside Programs for Energy Efficiency and Renewable Energy Projects
Under the NOX Budget Trading Program:
A Review of Programs in Indiana, Maryland, Massachusetts, Missouri, New Jersey,
New York, and Ohio
A. Introduction
In the NOX SIP call (63 FR 57356, October 27, 1998), EPA established NOX
emission reduction requirements for 22 eastern states and the District of Columbia to
address the interstate transport of ozone and ozone precursors. EPA set emission budgets
for each affected state for the May 1st through September 30th period each year (referred
to as the "ozone season" or "control period" throughout this report).1 As a control strategy
under the NOX SIP call, EPA and the states designed an interstate trading program to
reduce emissions from large electric generating units and industrial combustion units
(generally referred to as "NOX budget" units). The states establish a trading budget and
allocate allowances (each allowance equals one ton of NOX) to these units. In addition,
states may reserve allowances from the budget to address new units or to provide
incentives for certain activities. EPA refers to this trading program as the NOX Budget
Trading Program (NBP).
States can use one type of incentive, an energy efficiency/renewable energy
(EE/RE) set-aside, to award NOX allowances for energy efficiency and renewable energy
projects. These projects can prevent emissions by reducing energy demand or increasing
the supply of clean energy. To date, six states have developed an EE/RE set-aside
program, and a seventh has proposed a set-aside program. Thus, about 1/3 of the affected
states have elected to include an EE/RE incentive program.
This report is intended to provide an overview of the states' set-aside programs.
The report: 1) identifies the states that have established EE/RE set-aside programs; 2)
discusses how the states address the primary elements of an EE/RE set-aside program; and
3) identifies any coordination between EE/RE set-aside programs with other EE/RE
programs. Appendix A provides a brief table for each state program that summarizes their
key elements. The report will be useful for state agency staff and EE/RE project
developers and participants to understand the different program features, and to consider
application of similar programs in other contexts.
1 Because of litigation, the emission reduction requirements of the NOX SIP call
were dropped for Wisconsin, delayed until 2007 for affected portions of Georgia
and Missouri, and, for 2004 only, limited to May 31 to September 30 in eleven
states.
1
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B. Other EPA Background Materials
EPA has developed two documents to assist states that decide to establish an
EE/RE set-aside program. The first guidance document entitled "Guidance on
Establishing an Energy Efficiency and Renewable Energy (EE/RE) Set-Aside in the NOX
Budget Trading Program" was released in March 1999. The guidance discusses the
elements that a state may consider in deciding whether to establish an EE/RE set-aside
and how it should be designed, such as the size of the set-aside, eligibility, and the length
of awards. The second guidance document entitled "Creating an Energy Efficiency and
Renewable Energy Set-Aside in the NOX Budget Trading Program" was released as a draft
guidance document in April 2000 (EPA-430-K-00-004). This document includes
additional detail on designing the set-aside application process, allocating to eligible
projects, translating energy savings into emissions reductions, determining atimeframe
for implementation and awards, and establishing documentation and reporting procedures.
A third report, "Designing Measurement and Verification Requirements," is under
development and will provide additional guidance to states on options for measuring and
verifying the potential emissions reductions resulting from EE/RE projects.
While the guidance documents contain significant discussion on the EE/RE set-
aside elements, EPA has emphasized throughout that most of the program design issues
can be determined by the individual states based on their own set of circumstances.
Therefore, this report uses the EPA guidance documents as an outline for discussing the
elements of the various state programs, but variations between EPA's earlier guidance
documents and actual state practices are expected. The discussion of those differences in
this report does not make judgments about the appropriateness or adequacy of an
individual state's program. This report compares the different approaches in the states and
in EPA's guidance in order to provide information that others can use to understand these
programs and to evaluate options for designing similar programs.
C. Which States Have Developed Set-Aside Programs?
Currently, seven states have
States with EE/RE set-asides for the NOX
SIP call: IN, MD, MA, NJ, NY, and OH.
Missouri has a proposed set-aside program.
developed EE/RE set-aside programs as
part of their NOX SIP call programs.
These states are Indiana, Maryland,
Massachusetts, Missouri (proposed),
New Jersey, New York, and Ohio.
Missouri's EE/RE set aside is part of a proposed rule that the state included as part of their
April 2005 submittal in response to the NOX SIP call. EPA has issued final approvals for
the other six states' SIP submittals, but has not yet finalized an approval for Missouri.
Maryland Department of the Environment requires the maintenance of a set-aside
for clean air projects under their NOX Reduction and Trading Program regulations, but has
not yet reached final agreement on a detailed implementation process.
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D. What Are the Sizes of the Set-Aside Programs?
The EPA guidance recommends that states establish an EE/RE set-aside program
that is between 5 and 15 percent of their NOX trading program budget. States have
established EE/RE set-aside programs (see Table 1, below), ranging from one to five
percent of their NOX trading program budget. Most states were unwilling to divert as
large a portion of their allowances from the affected budget sources to EE/RE projects.
Despite this, the amount of allowances available in states such as Indiana (1,115 tons) and
New York (1,241 tons) are sizeable since their overall budgets are relatively large.
It is important to note that EE/RE projects can also potentially prevent multiple
emissions from energy production. The extent to which EE/RE projects displace
emissions will depend both on (1) which sources do not have to generate as much
electricity because an efficiency project reduces demand or a renewable project displaces
the need for generation, and (2) on the type of EE/RE project. Generally, the evaluation
of these benefits requires an analysis of emission rates based on electricity dispatch
modeling. In addition, any evaluation of reduced emissions must take into account the
extent to which a renewable energy project, such as a landfill methane project, may result
in emissions. For instance, in New Jersey, more than half of the allowances from the
EE/RE set-aside have been distributed to landfill gas operations.
Table 1
Size of Set-Aside Account by State
State
IN
MD
MA
MO
NJ
NY
OH
Size of Set-Aside
NOX Tons
1115
436
643
134
410
1241
454
Percent of 2003* Trading Program Budget
2%
3%
5%
1%*
5%
3%
1%
* Missouri's proposed EE/RE set aside is 1% of the state's 2006 NOX Trading Program budget.
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E. What Projects or Actions are Eligible?
1. General Types of Projects
EPA guidance suggests that an EE/RE set-aside should provide allowance awards
only for projects that meet the following criteria:
• Reduce or displace the electricity load from the electric generating units (EGU)
that are affected under the NOX SIP call;
• Lead to energy savings during the summer ozone season;
• Include activities that are not already required by federal regulation and are not
used to generate compliance or permitting credits otherwise in the SIP;
• Operate in the ozone season for which an applicant will receive allowances;
• Be capable of being measured and verified; and
• Convert to at least a one ton increment (alone or by aggregating eligible projects).
In addition, EPA recommends that the project should not benefit a NOX budget
unit by freeing up allowances that the source already has been allocated (for example, by
retiring a unit). Generally, the EPA guidance indicates that states consider allowing core
sources to qualify for allowances under the EE/RE set-aside only if the action entails:
• Installation of a new combined heat and power (CHP) system project (provided
allowances have not already been distributed to the project from the new source
set-aside);
• Renewable energy projects, including wind, solar, biomass, and landfill methane;
or
• A demand side management action either within or outside the source's facility.
The various state eligibility provisions appear reasonably consistent with EPA
guidance on the issue of project eligibility. In one of the more notable differences, some
state programs permit NOX budget units to receive set-aside allowances for in-plant
efficiency improvements. In addition, Ohio has a separate companion set-aside for
innovative technology projects (that reduce NOX emissions from either stationary or
mobile sources). Because it is not specifically part of the EE/RE set aside program, this
report does not address this separate program. Table 2 summarizes the types of projects
that may qualify for allowances from the states' EE/RE set-aside programs.
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Table 2
Summary of Eligible Projects under the EE/RE Set-Aside Provisions
EE/RE Project Type
States
End-use energy efficiency. Special considerations:
MA: Projects must directly result in energy savings at a facility located in MA.
Electrical, thermal and mechanical energy savings are eligible. Combined heat and
power systems with actual energy efficiency of at least 60% are also eligible. MA
specifically includes any new building or addition that exceeds the requirements of
the MA state Building Code 780 CMR 1301.0 et seq., Energy Conservation.
However, NOX Budget Units are not eligible to receive allowances for energy
efficiency projects
NJ: Initiatives must be by consumers that purchase from a provider licensed in NJ and
must not lead to increases in other emissions.
OH Combined heat and power systems are eligible if they are not NOX budget units.
IN, MA, NJ,
NY, OH,
MO
Renewable energy. Special considerations:
IN: Includes wind, solar, and certain hydropower projects.
MA: Includes wind, solar, photovoltaics, ocean thermal, wave/tidal energy, certain
hydropower projects, fuel cells that do not employ a fuel processor that emits NOX,
and geothermal.
MO: Includes wind, solar, photovoltaics, biogas, geothermal, certain hydropower
projects, andbiomass (specifically excludes municipal waste).
NJ: Includes wind, solar, and fuel cells.
NY: Includes wind, solar, photovoltaics, methane waste, or sustainably managed
biomass (and specifically excludes waste-to-energy facilities).
OH: Includes wind, solar, landfill methane generation, and biomass.
IN, MA, NJ,
NY, OH,
MO
Methane waste gas capture. Special considerations:
IN, NJ, NY,
OH, MO
MO, NY, and OH:
Methane generation is included in the list of eligible renewable
energy projects, not as a separate category.
In-plant energy efficiency. Special considerations:
IN, MO,
NY, OH
IN: Allocation process discounts awards to applicants that own/operate NOX
trading sources as compared to projects sponsored by non-affected
sources.
MO and OH: EGUs may receive allowances for on-site energy efficiency improvements.
NY: Such projects eligible only after all eligible EE/RE projects receive
allowances.
Other:
NJ: Other environmentally beneficial electric generation as approved by NJDEP.
NJ
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2. Time Constraints for Eligibility
Some states also include constraints on the time frame for a project to be eligible
to receive allowances from the set-aside. These time limits include:
• Indiana requires that a project must have been implemented within two years of
the submittal of a request.
• Massachusetts limits applicability to projects that were built, in use, or installed
and operational after December 31, 1999. Energy efficient projects can earn
allowances for up to 7 years and renewable energy projects may earn allowance
for each year that they continue to generation electricity.
• Missouri proposes to limit allowances for EE/RE to projects that commence
operation after September 1, 2005.
• New Jersey limits applicability to projects that commenced in 1992 or later.
• New York allows for requests to be submitted within five years of initial project
implementation.
EPA's guidance suggests that states credit early actions. However, none of the
states have established policies to encourage early actions for EE/RE projects.
3. Aggregation of Projects
EPA guidance encourages states to allow for the aggregation of projects by a
single entity, such as end users, energy service companies, or other entities. Because the
amount of energy savings from a single EE/RE project often may not qualify for even one
allowance, often it will be necessary to aggregate the savings from multiple projects to
take advantage of the set-aside program. Examples of entities that can serve as an
aggregator may include state energy offices, real estate investment trusts, or industry trade
associations. States generally allow aggregation in their set-aside programs:
• Indiana, Massachusetts, Missouri, and New York allow for the aggregation of
smaller projects if submitted through a single application and project sponsor.
• Indiana, Massachusetts and Missouri, also indicate that aggregation is necessary
if individually, the projects do not lead to a reduction in NOX of at least one ton.
(Missouri's proposed rule uses conventional arithmetic rounding to the nearest
ton.)
• In their application process, Indiana specifically requests that the applicant submit
information on related projects.
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• New Jersey's regulations do not address aggregation of projects. However, New
Jersey has processed applications for aggregated projects undertaken by an energy
retrofit company over the past several years (about 40% of the total set-aside
allocations for 2000-2003), and expects to continue to accept this type of
aggregated project application in the future.
• New York specifically encourages aggregation of efficiency projects but is still
developing guidance and procedures on this issue. New York has indicated that
they may also consider awarding allowances to applicants that have only a
contractual relationship to an efficiency project.
• Ohio encourages the aggregation of projects, but requires that multiple sponsors
must designate one authorized account representative for the aggregated projects.
Given the nature of many EE/RE projects, multiple sponsors may exist for a given
project. Especially with aggregating projects, it would be possible for multiple sponsors
to seek allowances for the same project. While not all states address this issue directly,
Indiana, Massachusetts, and Ohio note that if more than one application or project sponsor
claims credit for a particular project, those applications will be rejected. Missouri's
proposal also specifies that only one entity may claim eligibility for allowances for a
given project. New Jersey notes that to date, there have been no occurrences of multiple
individuals submitting applications for the same project. The application must be
resubmitted by a single sponsor or individual application in order to receive allowances
under the set-aside.
F. How is the Application Process Designed?
1. One-Step versus Two-Step Approach
EPA guidance provides details on how states may design their application process
to minimize confusion and maximize the efficiency of allowance distributions from the
set-aside. EPA presents two options, a one-step or a two-step process. First, a one-step
process where applicants submit their claim for allowances after the ozone season during
which the project was implemented, including information verifying emission reductions
or energy savings. The second option is the two-step process where applicants submit a
proposal for their project prior to implementation, receive preliminary approval from the
state, and then subsequent to the ozone season during which the project is implemented
submit additional information that verifies the completion and benefits of the project.
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Indiana and Ohio have established a two-step application process, with some of
the following key features:
• Indiana requires that requests be submitted by September 1 in the calendar year
prior to the control period for which the applicant seeks EE/RE set-aside
allowances for the project.
• Ohio requires that the applicant submit the request by November 15th of the year
prior to the year for which allowances are to be reserved. The initial step
determines project eligibility and adequacy of the measurement and verification
plan. Ohio EPA will approve or deny the initial applications by March 1st. The
second step occurs after the applicable compliance period and involves the
sponsor's project verification report (to be submitted by October 31st), the
agency's review, and the issuance of the allowances (to be completed by February
15th).
In contrast, Massachusetts, Missouri, New Jersey and New York use a one-step
application process:
• Massachusetts required that a request for public benefit set-aside allowances be
submitted by September 1, 2004 for 2003 and 2004 allowances (which were based
on 2002 and 2003 energy savings, respectively), and by April 1, 2005 for 2005
allowances (which are based on 2004 energy savings). The April 1 deadline
applies for 2005 and all subsequent years.
• Missouri proposes that project sponsors submit a complete application on DNR
forms by the last business day of November following the period of May 1 through
September 30 during which the eligible project activities occurred. Project
sponsors may opt to request a pre-application eligibility review preceding project
activities that will serve as a basis for an application for awards.
• New Jersey and New York have established a one-step application process with
the submittal of claims required by October 30th and July 1st, respectively,
following the ozone season during which the project was in place.
2. Level of Documentation
EPA recommends that states require, at a minimum, that the application for set-
aside allowances include certain basic information on the project sponsor, a description of
the project or activity (including an implementation schedule and an estimate of the
project's lifetime), the resulting electricity savings or generation with supporting
documentation, an explanation of the measurement and verification method, three seasons
of baseline energy use data, and verification that the information submitted is accurate.
The state programs address this element with varying degrees of detail:
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Indiana has developed several forms and other documents to be used for the set-
aside program and has included these forms in Appendix A to their guidance
(Indiana NOX Budget Trading Program, Energy Efficiency & Renewable Energy
Set-Aside Guidance Manual, January 2003). In addition, Indiana provides a
detailed description of the application and distribution procedures. Indiana's
application includes all of the elements recommended by EPA but does not
specifically request three ozone seasons of historical data, only that the project
sponsor should provide any historical data that would help facilitate a review of
the project.
Massachusetts requires applicants to establish a NOX allowance account with the
EPA and to complete an application form. The application form requires the name
and contact information of a project proponent and a statement of whether the
proponent represents a single project or several aggregated projects. The type of
project (energy efficiency or renewable energy) must be indicated, along with
narrative project description(s), address(es), a summary of project dates (when
buildings were completed, materials and equipment were installed, and procedures
were made operational), and the number of allowances requested. Calculations
must be attached for the allowance request figures, and additional information
(such as site information, plans, specifications, drawings, calculations and
operation and maintenance procedures) may be required by the state
environmental agency. The application certification must be signed by a
responsible official, authorized by the project proponent.
Missouri proposes that it will provide mandatory forms for applications and re-
applications. Submissions will require certification by a professional engineer
attesting that information and calculations submitted in the application are
complete and accurate. Applicants must demonstrate electricity savings or
renewable generation using measurement and verification procedures approved by
the state environmental agency and calculate the NOX allowance award request
according to the agency's methods. If the applicant intends to reapply in
subsequent years, the application must indicate the stream of benefits expected for
subsequent years.
New Jersey generally requires that a claim for incentive allowances include
information on the project sponsor, including documentation that the person
submitting the claim is eligible; electricity savings or generation, including all
relevant calculations and methods; whether the allowances should be issued as
allowances or discrete emission reduction (DER) credits (a separate emission
trading concept managed by the state); and a certification statement. New Jersey
has indicated that to date, there have been no requests for DER credits.
New York does not include specific criteria for documentation within the
application process, only that the request for allowances must include information
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demonstrating NOX reductions based on the Department's measurement and
verification protocols. New York has indicated that they are currently in the
process of developing guidance on this issue.
Ohio requires that applicants submit a proposal including a detailed project
description and an estimated number of allowances that will be requested, and the
method for measurement and verification. Following implementation, Ohio
requires that the project sponsor submit a project report that verifies the expected
reductions as estimated in the initial application.
G. How are Allowances Calculated and Awarded?
1. Measurement and Verification
EPA is currently developing a report on measurement and verification (M/V)
protocols and programs.2 This report will highlight measurement and verification
programs currently used for demand-side management and renewable energy programs.
Programs in Massachusetts, Missouri, New Jersey, New York, and Ohio address this issue
with specific procedures.
• Massachusetts stipulates that measurement and verification of energy saved or
generated by each project shall adhere to the International Performance
Measurements and Verification Protocol, March 2002, DOE/GO-102002-1554
(TPMVP), or the U.S. EPA's Conservation Verification Protocol. Also required are
measurement and verification provisions of NEPOOL's Operating Procedure 18
"Metering and Telemetering," or other provisions acceptable to the state agency.
• Missouri, in lieu of specific measurement and verification procedures, proposes to
rely on a requirement that all applications be submitted with certification by a
professional engineer attesting that information and calculations submitted in the
application are complete and accurate. The state agency also has the right to
require verification of data and calculations presented in the application as a
condition for awarding the allowances and may include site visits by the agency or
its agents.
• New Jersey has a specific guidance document for energy efficiency projects (see
"Measurement Protocol for Commercial, Industrial and Residential Facilities," inc
by ref at NJAC 7:27-31.21).
2 An M/V protocol is used to measure and verify that the energy savings from a
specific EE/RE project have occurred. Based on those savings, the state
establishes a process to convert the energy savings to an emissions equivalent in
order to allocate allowances.
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• New York requires that applicants follow protocols as specified by the state, and is
currently developing additional guidance material that will clarify their M/V
procedures.
• Ohio states in its guidance that sponsors must use established M/V procedures.
The guidance refers to M/V procedures developed by U.S. Department of Energy
and EPA as examples.
The current EPA guidance on developing EE/RE set-aside programs contains a
discussion on accounting for "business as usual" (BAU), and M/V uncertainty in awarding
NOX allowances. The concept of "business as usual" adjustments is that states may not
want to provide a full allowance award for EE/RE projects that would occur even without
the EE/RE set-aside program. Adjustments for M/V uncertainty represent a mechanism to
incorporate a trade off for allowing less rigorous M/V protocols for various projects.
Although the states do not have any specific adjustment factors for BAU or M/V
uncertainty in their programs, some of the states intend to address this issue:
• Indiana, Missouri, and New York have indicated that they do not plan to adjust
for either BAU or M/V uncertainty in the evaluation or verification phase
following project implementation. While not addressing BAU or M/V uncertainty,
New Jersey does clarify that calculations for energy generation should not include
any portion of electricity that is generated through the use of supplemental firing
of fossil fuels (oil, gas or coal). Missouri's proposal also specifies that allowance
calculations must be for net renewable generation in plants that co-fire with other
fuels.
• Massachusetts applicants must make normalization adjustments for energy
savings in accordance with the IPMVP, and may be required to include
thermodynamic steam table energy extrapolations, the American Society of
Mechanical Engineers' Standard for Measurement of Fluid Flow in Pipes Using
Orifice, Nozzle, and Venturi (ASME MFC-3M-1989); manufacturers' efficiency
specifications for useful energy determinations; or other measurements and
verification protocols acceptable to the Department.
• Ohio EPA previously noted that it may want to adjust for BAU and M/V
uncertainty, but its recent guidance does not include any procedures for such
adjustments.
2. Converting Energy Savings/Displaced Generation to MX Tons
Because allowances are expressed in terms of tons of emissions, the EPA guidance
summarizes how a NOX emissions factor can be used to convert energy savings or
displaced generation into emissions reductions. EPA recommends that states use a NOX
emissions rate of 0.0015 Ibs/kWh or (1.5 Ibs/MW-hr), which is based on a typical average
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system heat rate of 10,000 Btu/kWh and the NOX emissions limit of 0.15 Ibs/mmBtu in the
SIP call rule. However, EPA also offers an alternative of using marginal NOX rates. The
use of marginal emission rates provides increased accuracy in the estimate of expected
emission reductions associated with EE/RE projects.
There is no specific guidance regarding exactly how allowance awards should be
calculated for potentially eligible projects. EPA anticipates that this determination will be
made by each state and that the calculation may vary depending on the type of project.
Most of the states indicate through rule language or follow-up interviews that they will
apply a conversion rate of 1.5 Ibs/MW-hr for all types of projects. The conversion
procedure in some states remains open. The general approaches taken by states are as
follows:
• New Jersey's regulation states that the calculation of allowance awards under the
set-aside will use the 1.5 Ibs/MW-hr allocation rate.
• Missouri's proposal also states that the calculation of allowance awards under the
set-aside will use the 1.5 Ibs/MW-hr allocation rate. Converted allowances will be
rounded to tons using conventional arithmetic rounding.
• New York uses a 1.5 Ibs/MW-hr allocation rate.
• Ohio uses the EPA recommended 1.5 Ibs/MW-hr allocation rate and incorporates
in its guidance how that conversion factor applies to specific types of EE/RE
projects.
Indiana provides a detailed approach that uses different conversion procedures for
different types of projects. A primary element of the draft revisions to Indiana's
regulations is to clarify some of these calculation procedures. Based on the final
regulations (as affected by the draft revisions), the key features of Indiana's approach
include:
• For end-use energy efficiency projects that claim a reduction in consumption of
electricity and are sponsored by end-users or non-utility third parties, Indiana uses
EPA's recommended conversion factor of 1.5 Ibs/MW-hr. For projects that are
sponsored by budget source account holders, the formula is modified to
incorporate a 75% discount factor (applicant must use 0.000375 rather than 0.0015
Ibs/kWh).
• EPA's recommended factor also is used for zero-emission renewable energy and
methane gas capture projects.
• For end-use energy efficiency projects that claim a reduction in the consumption
of energy other than electricity and are not NOX budget units, Indiana uses a
specific formula based on the ratio of energy consumed per unit of product before
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and after the EE project and the NOX rate before and after the project. Again, if
NOX budget account holders are the project sponsors, the formula incorporates a
75% discount factor.
• For high efficiency generation, such as combined cycle units (50% energy
efficiency threshold), microturbines (40% energy efficiency threshold), and fuel
cell systems (40% energy efficiency threshold) that are sponsored by end-users or
non-utility third parties and are not budget units, and for high efficiency generation
projects that are for the predominant use of a single end-user and are sponsored by
NOX budget units, the NOX allowances are determined by the following formula:
(kWG * (0.0015 - NOX))/2000, where kWG and NOX represent the number of net
kW hours of electricity and the amount of NOX (in Ibs/kW-hr), respectively, as
generated by the project during the ozone control period.
• For high efficiency cogeneration, such as combined heat and power (CHP)
systems, that are sponsored by end-users or non-utility third parties and are not
budget units, the regulations provide a detailed formula that accounts for the
overall efficiency in terms of electricity and steam production.
• For improvements to existing fossil fuel fired electric generating units or the
installation of high efficiency generating equipment that replaces or displaces
retired units and meets applicable efficiency thresholds in the rule, the regulations
discount the allowances by 75% and calculate the allowances based on the
difference in NOX emissions before and after the replacement or improvement.
Massachusetts' NOX Allowance Trading Program regulation, 310 CMR 7.28
specifies several different allowance calculation formulas, depending upon the type of
project for which the allowances are requested. Projects and aggregations of projects that
involve less than five allowances may use other reliable, replicable quantification methods
if the MA DEP finds them acceptable. The key features of the allowance calculation
formulae are:
• Allowances for renewable energy projects that generate electrical energy and
energy efficiency projects that save electrical energy are based on EPA's
recommended conversion factor of 1.5 Ibs/MWh, where MWh is the net electrical
energy generated by a renewable energy project or the amount of electrical energy
saved by an energy efficiency project.
• Allowances for renewable energy and energy efficiency projects that generate or
save useful net thermal energy will be based on a conversion factor 0.44 Ibs per
mmBtu output, where mmBtu output represents the useful net thermal energy
generated by the renewable energy project or the amount of thermal energy saved
by the energy efficient project.
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• For energy efficient projects saving thermal or mechanical energy in a
manufacturing process where energy consumption is measured on a unit of
production basis, a specific formula is used based on both the ratio of energy
consumed per unit of product and the NOX rate before and after the project. Note
that the formula used to calculate allowances for these projects is identical to that
used for similar projects under Indiana's set-aside program. However, unlike
Indiana, the Massachusetts set-aside provisions do not apply a 75% discount factor
to projects sponsored by NOX budget account holders.
• Energy efficiency projects that are combined heat and power (CHP) systems with
actual energy efficiency equal to or greater than 60% must show calculations
proving this level of efficiency and compare actual emissions for the CHP to a
conventional system that includes a utility power plant for electricity and an
industrial boiler for steam. The conventional system is assumed to have an
emissions factor of 0.15 Ibs NOx/mmBtu, an electrical generation efficiency of
34%, and a steam boiler efficiency of 80%. Allowances are calculated by
subtracting the CHP system NOX emissions from the conventional system NOX
emissions (in Ibs) and then dividing by 2,000 Ibs/ton.
3. Distributing Allowances
The EPA guidance recommends that states distribute allowances with a "seasonal
lag." Under this approach, the vintage year of the awarded allowances would be the year
following the season in which the reductions are documented for a specific project. (The
vintage year refers to the year in which allowances can first be used for compliance.) This
recommended approach means that, although allowances will be distributed after the
season in which the EE/RE activity created the energy savings/generation, the allowances
received from the set-aside will be current season allowances when they are received.
Thus, the allowances will not be treated as banked allowances, and the allowance value in
the year the allowances are issued will not be affected by flow control provisions under
the trading program. Similarly, the guidance indicates that if a same-year allocation
approach is taken, the allowances should be distributed prior to the November 30th true-
up deadline so that the recipients have the option to use their allowances for current year
compliance purposes.
The states have followed various approaches on this issue. Only about half of the
states issue allowances so that the source receives the allowances in the same year as the
vintage year for the allowances (so that they can be used for compliance purposes prior to
being classified as banked allowances). The basic approaches include:
• Indiana will issue allowances from the set-aside by December 31 of each year
(after the state verifies project implementation and certifies energy, emission or
electricity savings). The state agency indicates that it will reserve allowances with
the initial application and then award those allowances after the results are
approved the following year. Therefore, the allowances awarded will be issued
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from the previous year's set-aside account, so that recipients will receive the
allowances as banked allowances.
• Massachusetts required applications for 2004 Public Benefit Set-Aside (PBSA)
allowances to be submitted by September 1, 2004. Applications submitted in 2004
could include requests for 2003 and 2004 designated allowances, but separate
calculations were required for each year's energy savings or generation. From
2005 on, applications for allowances must be received by April 1 of each year, and
will be designated to the year in which the request is submitted. Also from 2005
on, allowances may be requested for only one year at a time. Applications must be
made annually for allowance requests based on projects with multi-year renewable
energy project generation or energy efficiency project savings. For all years,
allocations are based on the previous year's savings or generation (e.g. 2004
savings and generation form the basis for 2005 allowances). Allocations are made
on November 1 of the year of application.
• Missouri proposes to award allowances with a vintage year for the control period
following the control period during which the qualifying activity took place. For
example, sponsors of project activities that take place during the 2006 control
period will receive 2007 vintage year allowances. Allowances will be calculated
and awarded by March 1 preceding the control period for which they are
requested.
• New Jersey states that the set-aside allowances for each project will be distributed
from the following year's set-aside account at the time of post-season reserve
allocation.
• New York provides that allowances will be distributed within two years following
the start of the control period for which the request was made. The vintage year of
the allowances awarded will correspond to the year in which the energy reductions
or savings were achieved. For example, for verifiable savings or generation in
2003, an applicant will receive their 2003 vintage allowance award in 2004 or
2005. Thus, these allowances would be received as banked allowances.
• Ohio will reserve current year allowances by March 1st based on the initial project
applications it receives and approves. The agency then will distribute those
allowances following the ozone season and project verification, by February 15th.
4. Determining the Length of the Award
The EPA guidance provides a general discussion regarding the length of the award
that states should grant, noting that a longer term award may discourage new projects and
tie up too many allowances in the set-aside and a shorter term award may not provide an
adequate incentive. EPA specifically recommends that awards for eligible EE/RE
projects be granted from the set-aside for at least three consecutive years, with verification
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on an annual basis. However, states may set longer or shorter awards depending on the
circumstances within the state as well as the characteristics of each individual project.
States were generally consistent on the initial length of an award. Six states (IN,
MA, MO, NJ, NY, and OH) award allowances for only one year, and then allow for
applicants to resubmit their claim for an award under the set-aside each year. These states
then apply the following:
• Missouri, Indiana, New York, and Ohio specifically state in their rule that each
eligible project may not receive allowances for more than five consecutive years.
• Massachusetts requires that EE/RE project sponsors submit separate annual
applications for each year that they generate or save energy. Energy efficiency
projects are eligible for allowances for energy saved during each of the seven
years immediately following the project's first year of use (new buildings and
additions), installation (materials), or operation (equipment or procedures).
Renewable energy projects are eligible to apply for each year during which they
continue to generate electricity.
• New Jersey has indicated that no limit has been established for the total number of
consecutive years that a single project can qualify for allowances.
H. What are the Allocation Procedures if the Set-Aside is Over-Subscribed?
EPA guidance on this issue suggests that states could either allocate the
allowances on a first-come, first-served basis or could prorate the allowances in the set-
aside to ensure that all applicants receive an award. To encourage EE/RE initiatives, EPA
recommends that states consider expanding the size of the set-aside if the number and size
of eligible projects exceed the available supply of allowances. The state approaches to
this issue include:
• In the event that there is a shortage of allowances in the set-aside, Indiana will
transfer any unused allowances from the new unit set-aside as needed. If there is
still a shortage after this transfer, Indiana will give first priority to end-use
efficiency, renewable energy and methane gas capture projects, second priority to
high efficiency generation, third priority to high efficiency coal or natural gas
projects that lead to the replacement or displacement of less efficient units, and
finally to in-plant energy efficiency projects. In the event that there is a shortage
within any of these four priority groupings, the allowances will be allocated on a
pro rata basis (with the previous priority grouping(s) receiving a 1:1 allocation).
• Similarly, New York gives first priority to end-use efficiency and renewable
energy projects and any other projects will receive allowances from the set-aside
only if available. In addition, within these priority groupings, New York issues
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allocations on a first-come, first-served basis, with all requests received within the
same calendar quarter considered to be simultaneous submittals. If the number of
allowances requested "simultaneously" exceeds the set-aside allowances, then the
remaining allowances will be allocated on a pro rata basis.
In Massachusetts, unused allowances from the new unit set-aside, up to a
maximum of 2% of the state NOX trading program budget, will be used to meet
excess demand for public benefit set-aside allowances. If this approach is not
sufficient to meet demand, then allowances will be distributed on a pro rata basis.
Missouri proposes to determine awards based on each applicant's position in an
eligible projects queue.
New Jersey has not had to prorate allowances in past years under the Ozone
Transport Commission NOX Budget Program or the SIP call NOX Budget Trading
Program. Starting with 2004, the state established a process to transfer any unused
allowances from the new unit set-aside to meet the demand and, if there is still a
shortage, would distribute the allowances on a pro rata basis.
Ohio will prorate allowances if the program is over subscribed. The minimum
allocation would be one ton.
I. What are the Allocation Procedures if the Set-Aside is Under-Subscribed?
EPA provides several suggestions for addressing the issue of an under-subscribed
set-aside account, such as auctioning or distributing the remaining allowances to core
sources or other interested parties, distributing the allowances to EE/RE projects already
in place (in addition to the allowances they have already received), retiring the unclaimed
allowances, or reserving the allowances for distribution to eligible projects implemented
during the following ozone season. EPA indicates that the best option may be to either
reallocate under-subscribed allowances to core sources each year that they are unclaimed
for that specific ozone control period, or to reserve the unclaimed allowances for use in
following ozone seasons.
The states' approach on this issue appears to be generally consistent with EPA's
guidance to reallocate some unused allowances to core sources or for retirement under the
state's environmental benefit provisions. All of the other states provide for a system of
allocating some or all of the unused allowances to existing NOX budget units:
• Missouri, New York and Ohio will allocate all unused allowances to existing NOX
budget units on a pro rata basis.
• Indiana will keep 50 percent of any unused allowances in the set-aside account for
the following year and the remaining 50 percent will be allocated to existing NOX
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budget units on a pro rata basis. Indiana also places a cap on the amount of
allowances that can remain in the set-aside account; any leftover allowances in the
set-aside that exceed twice the annual size of the set-aside (i.e., that exceed 2,196
tons) will be allocated to core sources.
Massachusetts will allow any unused allowances to remain in the set-aside
account and be made available in future seasons until the number of allowances
exceeds 10 percent of the NOX trading program budget. Then, all allowances in
excess of 5 percent of the budget will be allocated to NOX budget units on a pro
rata basis.
New Jersey kept all unused allowances from the 2003 reserve for the following
year. Starting with the 2004 set-aside account, the state began to transfer unused
allowances first to the new source-growth reserve, as needed, and then to existing
budget sources to the extent those units received only a pro-rata share of the full
allowance allocation they were eligible to receive under the basic allocation
formulas. If there is no shortfall in the allowances available for allocating to
existing budget units or to units under the new source/growth reserve, unused
allowances in the EE/RE set-aside are retained in the set-aside for use in future
years.
J. How is Each State Coordinating the Set-Aside with Other Programs?
All state environmental agencies plan to administer the basic elements of the set-
aside program. However, some of the agencies will be coordinating with other state
agencies in various capacities, such as the development of allocation procedures or the
review of applications under the program. State coordination activities include the
following:
• In Indiana., the Indiana Department of Commerce (IDOC), Energy Policy Division
has been involved with the development of Indiana's set-aside program, including
the guidance manual. The Indiana Department of Environmental Management
(IDEM), Office of Air Quality will be responsible for the actual allocation and
transfer of the allowances, but will be coordinating with IDOC with respect to
project review and the determination of actual energy savings or generation.
IDOC will be assisting with ongoing management and is currently the only other
agency working with the Office of Air Quality. IDEM's Office of Pollution
Prevention and Technical Assistance may be involved in the future, but the nature
and capacity of any coordination has not been determined.
• Maryland is not currently coordinating with any other state agencies in the
development or implementation of their set-aside program. However, the
Maryland Energy Office is exploring options, independent of any initiatives under
the trading program, for promoting EE/RE projects through tax incentives or other
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means. It is unclear at this time whether these efforts will eventually be
coordinated with the set-aside program.
Massachusetts is coordinating with the Department of Energy Resources (DOER),
which is responsible for the oversight and promotion of renewable energy state-
wide. MA DEP staff have indicated that they likely will allow any application for
a renewable energy project to be submitted to DOER for a preliminary review
prior to its submittal to DEP. In addition, for projects that are ratepayer funded,
DEP will be coordinating with the Department of Telecommunications and Energy
(DTE). Among other responsibilities, DTE oversees the siting of energy facilities
and also ensures that ratepayers' rights are protected.
Missouri's Department of Natural Resources has oversight for both energy and
environmental issues and is not currently coordinating with other agencies. In the
future, the Public Service Commission may help with marketing.
New Jersey DEP is not currently coordinating with any other state agencies in the
implementation of the set-aside program and did not indicate if there would be any
future involvement of other agencies.
In New York, the New York State Energy Research and Development Authority
(NYSERDA) administered the pilot phase of the EE/RE set-aside program (1999-
2002) under the Ozone Transport Commission's NOX Budget Program and
provided funding for the municipal projects under this program. For the NOX
Budget Trading Program under the NOX SIP call, the New York Department of
Environmental Conservation (NYDEC) is coordinating with NYSERDA in
developing guidance materials for the application and award process, conversion
calculations, and measurement and verification procedures. NYDEC will take into
consideration the policies for promoting EE/RE projects under the State Energy
Plan as developed by the State Energy Planning Board and NYSERDA.
Ohio EPA is working with Ohio's Department of Development, Office of Energy
Efficiency in developing guidance documents, evaluating aggregated projects, and
establishing measurement and verification procedures.
K. What Program Actions Have States Taken So Far?
1. Guidance and Forms
• Indiana has developed a comprehensive guidance document, Indiana NOX Budget
Trading Program: Energy Efficiency and Renew able Energy Set-Aside Guidance
Manual, as well as application forms. Detailed information is included on
estimating energy savings and calculating NOX allowances.
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• Massachusetts has developed a form: BWPAQ26, Application for PBSA NOX
Allowances with accompanying instructions: BWPAQ26, Instructions for PBSA
NOX Allowances Application. The form must be submitted both electronically and
in hard copy, accompanied by a spreadsheet showing calculations used to
determine the amount of energy saved or generated according to the formulas in
the regulation (PBSA Procedures, 310 CMR 7.28(6)9.b).
• Missouri's Department of Natural Resources is developing guidance that will be
made available in 2006 before the first control period eligible for state set-aside
program allowances.
• New Jersey has M/V guidance that it has used for its EE/RE set-aside program.
• New York's Department of Environmental Conservation (NY DEC) is
collaborating with the New York State Energy Research and Development
Authority (NYSERDA) in developing guidance for the application and award
process, conversion calculations, and measurement and verification procedures.
• Ohio's Environmental Protection Agency has worked with the State Office of
Energy Efficiency in releasing a guidance document.
• Maryland has not yet developed any guidance documents or forms that are
specific to the set-aside program.
2. Projects Reviewed and Approved
New Jersey and New York started SIP call EE/RE set-aside programs in 2003;
Indiana, and Massachusetts implemented programs in 2004; and Ohio will implement its
program in 2006. Maryland's set-aside program became available in 2003, but project
approvals are unlikely until more specific implementation procedures are agreed upon.
New York and New Jersey previously have evaluated and approved EE/RE set-aside
projects under the OTC trading program. Thus experience with processing applications
under the NOX Budget Program EE/RE set aside to date is limited:
• New Jersey has received 2 to 4 applications per year, averaging 60 tons NOX, for
environmental retrofits and landfill gas recovery.
• New York's first claims for NOX Budget Trading Program EE/RE set-aside
allowances occurred in 2004.
• Under the Massachusetts set-aside program, two renewable energy projects
(hydro) and many energy efficiency projects (including light bulbs, boiler controls,
motors, LED exit signs, computer "sleep" mode software, ENERGY STAR®
homes, thermostats, refrigerators, insulation, chiller and HVAC controls and
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occupancy sensors). Ninety six vintage 2003 PBSA allowances and 208 vintage
2004 PBSA allowances were approved.
Missouri proposes to begin accepting applications following the 2006 control
period.
Ohio will make set-aside allowances available beginning in 2006 and expects
applications to start in 2005.
As of 2004, Indiana had not had requests for allowances under their EE/RE set
aside programs.
In 2003, Maryland received two applications for set-aside allowances from new
wind power generators. No determinations were made regarding the applications,
and the plants may not have been built.
L. Detailed State-by-State Program Information
The appendix to this report provides summary tables and contact information for
each state.
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Appendix A
State Summary Tables
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September 16, 2005 Draft
Indiana's EE/RE Set-Aside Program (326 IAC 10-4)
Size of set-aside
2% of state NOX trading program budget (1,115 tons)
Start date
September 1, 2003
Administered by
Indiana Department of Environmental Management (IN DEM); The
Department will consult the Indiana Department of Commerce (IDOC), Energy
Division concerning verification and certification of energy, emission, or
electricity savings.
Project eligibility
Time constraint: Eligible projects must have been implemented within 2
years of a request (from the beginning of the first ozone control period for
which the request is made).
Types of Projects (see section 2(18)):
End-use efficiency projects including DSM
Highly efficient electricity generation for use by single user (CHP with
Rated EE>60%, microturbine projects <500kW with Rated EE>40%, CC
projects >500kW with Rated EE> 50%, or fuel cell systems (regardless of
whether part of CHP) with Rated EE> 40%).
Renewable energy projects (wind, photovoltaic, or hydropower).
Methane gas capture from municipal solid waste landfills, water treatment
plants sewage treatment plants, or anaerobic digestion systems operating
on animal or plant wastes.
• Coal-fired EGUs with Rated EE=42% and natural gas-fired EGUs with
Rated EE=50% that replace or displace retired EGUs.
In-plant energy efficiency projects.
Note: Rated EE is the percentage of gross energy input recovered as
useable net energy output in the form of electricity and/or thermal energy.
ForEGU, 1 kw-hr (3,412 Btu) of electricity divided by unit's design heat
rate (using higher heating value of the fuel). For CHP, divide sum of net
electric output (Btu/unit of time) and utilized thermal output (Btu of
thermal energy/unit of time) by gross energy input (based on higher heating
value of fuel, per unit of time).
(cont.)
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Indiana's EE/RE Set-Aside Program (326 IAC 10-4) (cont.)
Application & award
process
Applicant submits request for allowances from the set-aside for one control
period at a time and must reapply each year.
Requests must be submitted by September 1 prior to the ozone season for
which allowances are requested.
Allowances will be awarded by December 31 of each year only after
verification of project implementation and certification of energy, emission or
electricity savings.
Conversion calculations
Allowances granted from the set-aside will be calculated based on applicable
procedures under 326 IAC 10-4-9(e)(3)(C). Note that applicants that do not
own or operate EGUs get favorable treatment under these formulas.
Length of award
1 year; applicants may renew annually for up to 5 consecutive years.
Procedures if over-
subscribed
First priority will be given to eligible end-use energy efficiency, renewable
energy projects, and methane gas capture (Section 2(18)(A), (C), and (D)).
Second priority to highly efficient generation through CHP, microturbine, CC,
and fuel cell projects (Section 2(18)(B)). Third priority to highly efficient coal
and natural gas-fired units that replace retired EGUs (Section 2(18)(E)). Last
priority to improving existing EGUs (Section 2(18)(F)).
Any unused allowances in the new unit set-aside may be transferred to the
EE/RE set-aside as needed. If there is still a shortage after unused new unit
set-aside allowances are transferred, allocations will be awarded on a pro-rata
basis. Allowances will be distributed on a 1:1 basis within each of the four
priority groups listed above, unless there is a shortage within one of the four
groups, in which case allowances will be prorated for that group.
Procedures if under-
subscribed
50% will remain in the set-aside for use in the next year's allocation and 50%
will be allocated to core sources (pro rata).
But, once the level of banked allowances remaining in the EE/RE set-aside
exceeds 2,158 tons (per ozone season), the number of allowances above that
amount will be allocated to existing NOX budget units on a pro rata basis.
(cont.)
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Indiana's EE/RE Set-Aside Program (326 IAC 10-4) (cont.)
Measurement and
verification (MAO
procedures
Adjustments (e.g.,
business as usual projects
or M/V uncertainty)
Comments
Available guidance
documents
State contact
Rule does not include specific verification procedures, but indicates that any
request for set-aside allowances will be subject to verification of project
implementation and certification of energy, emission or electricity savings by
IDEM in consultation with the IN Department of Commerce. IDEM indicates
that they will be using M/V guidance issued by EPA and the U.S. Department
of Energy (DOE).
Guidance issued by IDEM includes some information on M/V procedures and
references the following DOE documents:
• U. S. DOE's M& V Guidelines: Measurement and Verification for Federal
Energy projects, Version 2.2
• International Performance Measurement and Verification Protocol,
Concepts and Options for Determining Energy Savings, Volume 1, October
2000.
There are no specific adjustment procedures but may be addressed on an as-
needed basis during project review.
Indiana is considering the need for a marketing strategy to raise awareness of
the program and attract applicants.
Indiana NOX Budget Trading Program, Energy Efficiency & Renewable Energy
Set-Aside Guidance Manual, January 31, 2003, Prepared by Office of Air
Quality, Indiana Department of Environmental Management and Energy
Division, Indiana Department of Commerce. This guidance document includes
information on eligibility, NATS, allocation procedures, documentation and
reporting requirements, measurement and verification procedures, contacts, and
resources. Application forms with instructions are included as an appendix to
the guidance document.
Roger Letterman, IDEM, 317-232-8342, rletterm@dem.state.in.us
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Maryland's EE/RE Set-Aside Program (COMAR 29.11.29, November 2002 Draft)
Size of set-aside
Start date
Administered by
Project eligibility
Application & award
process
Conversion calculations
Length of award
Procedures if over-
subscribed
Procedures if under-
subscribed
Measurement and
verification procedures
Adjustments (e.g.,
business as usual projects
or M/V uncertainty)
Available guidance
documents
State contact
3% of state NOX trading program budget (436 tons)
May 1, 2003
Maryland Department of the Environment (MDE)
Clean air projects
Procedures not yet specified.
Not yet specified.
Not yet specified.
Not yet specified.
Not yet specified.
Not yet specified.
Not yet specified.
None; MDE has not yet developed guidance documents.
Gene Higa, MDE, 410-537-3353, ghiga@mde.state.md.us, or Parker Dean,
410-537-3364
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September 16, 2005 Draft
Massachusetts' EE/RE Set-Aside Program (310 CMR 7:28)
Size of set-aside
5% of state NOX trading program budget (643 tons)
Start date
Implemented in July 2004
Administered by
Massachusetts Department of Environmental Protection (MA DEP)
Project eligibility
Projects must have been built, in use, or installed and operational after
December 31, 1999. Types of eligible projects include:
Renewable Energy Projects (REPs) that generate electrical energy or useful net
thermal energy and do not emit NOX including: solar photovoltaic or solar
thermal energy; wind energy; fuel cells that do not employ a fuel processor
that emits NOX; ocean thermal, wave, or tidal energy; hydro and geothermal
energy. (Note: Energy generated from nuclear fuel, biomass, landfill gas, fuel
cells with fuel processors that emit NOX, and hydro using pumped storage are
not renewable energy under 310 CMR 7.28.)
Energy Efficiency Projects (EEPs) that directly result in electrical, thermal, or
mechanical energy savings at a facility located in Massachusetts, including:
• Construction of a new building or addition that exceeds 780 CMR 1301.0 et
seq., Energy Conservation.
• Installation, replacement or modification of equipment, fixtures, or
materials.
• EEPs that are combined heat and power systems with actual energy
efficiency equal to or greater than 60%.
• Commencement or modification of building or facility operation and
maintenance procedures.
(Reductions in labor, load shifting, and any other measures that do not directly
result in energy savings are not EEPs under 310 CMR 7.28.(2). Projects
resulting in energy savings for a budget unit are not EEPs under 310 CMR
7.28.(2)).
(cont.)
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September 16, 2005 Draft
Massachusetts' EE/RE Set-Aside Program (310 CMR 7:28) (cont.)
Application & award
process
Applications for 2004 Public Benefit Set-Aside (PBSA) allowances were
required to be submitted by September 1, 2004. The application could include
requests for both year 2003 and year 2004 designated allowances, but separate
calculations were required for each year's energy savings or generation.
From 2005 on, applications for PBSA allowances must be received by April 1
of each year, and will be designated to the year in which the request is
submitted (but based on energy generation or savings in the previous year's
control period). Also from 2005 on, allowances may be requested for only one
year at a time.
Applications must be made annually for allowance requests based on projects
with multi-year REP generation or EEP savings.
For all years, allocations are based on the previous year's savings or generation
(e.g., 2004 savings/generation form the basis for 2005 allowances).
Allocations are issued on November 1 of the year of application.
Conversion calculations
Allowances for REPs that generate electrical energy and EEPs that save
electrical energy are based on EPA's recommended conversion factor of 1.5
Ibs/MWh, where MWh is the net electrical energy generated by a REP or the
amount of electrical energy saved by an EEP.
Allowances for REPs and EEPs that generate or save useful net thermal energy
will be based on a conversion factor 0.44 Ibs per mmBtu output, where mmBtu
output represents the useful net thermal energy generated by the REP or the
amount of thermal energy saved by the EEP.
For EEPs saving thermal or mechanical energy in a manufacturing process
where energy consumption is measured on a unit of production basis, a
specific formula is used based on both the ratio of energy consumed per unit of
product and the NOX rate before and after the EEP.
EEPs that are combined heat and power (CHP) systems with actual energy
efficiency equal to or greater than 60% must first show calculations proving
this level of efficiency and compare actual emissions for the CHP to a
conventional system that includes a utility power plant for electricity and an
industrial boiler for steam. The conventional system is assumed to have an
emissions factor of 0.15 Ibs NOx/mmBtu, an electrical generation efficiency of
34%, and a steam boiler efficiency of 80%. Allowances are calculated by
subtracting the CHP system NOX from the conventional system NOX (in Ibs)
and then dividing by 2000 Ibs/ton.
(cont.)
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Massachusetts' EE/RE Set-Aside Program (310 CMR 7:28) (cont.)
Length of award
REPs and EEPs must submit separate annual applications or each year that
they generate or save energy. REPs are eligible for each year that they
continue to generate energy. EEPs are eligible for allowances for energy saved
during each of the seven years immediately following the EEP's first year of
use (new buildings and additions), installation (materials), or operation
(equipment or procedures).
Procedures if over-
subscribed
Allowances will be transferred from the new unit set-aside, if available
(transferred allowances not to exceed 2% of NOX trading program budget).
If the additional allowances from the new unit set-aside are not available, or
are not sufficient to meet all claims under the public benefit set-aside,
allowances will be allocated on a pro-rata basis.
Procedures if under-
subscribed
Unused allowances will be banked in the set-aside account. If the number of
banked allowances in the public benefit set-aside exceeds 10% of the total
state budget at the end of the ozone season, then all allowances in excess of
5% of the total budget will be allocated (pro rata) to NOX budget units based on
net control period electrical and useful thermal energy output for the previous
calendar year.
Measurement and
verification (M/V)
procedures
Measurement and verification of energy saved or generated by each project
shall adhere to the International Performance Measurements and Verification
Protocol, March 2002, DOE/GO-102002-1554 (IPMVP), or the U.S. EPA's
Conservation Verification Protocol. Also required are measurement and
verification provisions of NEPOOL's Operating Procedure 18 "Metering and
Telemetering," or other provisions acceptable to the Department.
Adjustments (e.g.,
business as usual projects
or M/V uncertainty)
Applicants must make normalization adjustments for energy savings in
accordance with the IPMVP, and may be required to include thermodynamic
steam table energy extrapolations, the American Society of Mechanical
Engineers' Standard for Measurement of Fluid Flow in Pipes Using Orifice,
Nozzle, and Venturi (ASME MFC-3M-1989); manufacturers' efficiency
specifications for useful energy determinations; or other measurements and
verification protocols acceptable to the Department. Massachusetts allows
projects seeking less than 5 allowances to avoid excessive measurement and
verification burden by proposing alternative methods (subject to MA DEP
approval).
Available guidance
documents
BWP AQ 26, "Application for PBS A NOX Allowances," and the
accompanying instructions set, BWP AQ 26, "Instructions for PBS A NOX
Allowances Application." There is no application fee, but the form must be
submitted both electronically and in hard copy and accompanied by a
spreadsheet showing calculations used to determine the amount of energy
saved or generated according to the formulas in the regulation. (See PBS A
Procedures, 310 CMR 7.28(6)9.b).
State contact
Marilyn Levenson, MA DEP, 617-574-6825, marilyn.levenson@state.ma.us
Eileen Hiney, MA DEP, 617-292-5520, eileen.hiney@state.ma.us
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September 16, 2005 Draft
Missouri's EE/RE Set-Aside Program (Proposed Rule 10 CSR 10-6.360, 3-15-05)
Size of set-aside
1% of state NOX trading program budget (134 tons)
Start date
May 1, 2006
Administered by
Missouri Department of Natural Resources (DNR)
Project eligibility
Any entity may request allocations from the energy efficiency and renewable
generation set-aside, including electricity generating units (EGUs) affected by
the proposed rule. Projects must have commenced operation after September 1,
2005, and must reduce energy use, generate electricity from renewable
resources, or provide combined heat and power (CHP) benefits during (May 1
- September 30) control periods. There are four categories of eligible projects:
energy efficiency, renewable generation, renewable biomass generation, and
combined heat and power.
• Eligible energy efficiency projects result in reduced or more efficient
electricity use through the voluntary modification of maintenance and
operating procedures in a building or facility, or the voluntary installation,
replacement, or modification of equipment, fixtures, or materials. Projects
undertaken by NOX budget electric generating units and demand side
projects face the same eligibility requirements.
• Eligible renewable electricity generation includes wind, photovoltaic
systems, biogas, geothermal, and certain types of hydro power generation.
Nuclear power is not considered renewable. Biogas includes electricity
generation from methane from landfills, wastewater treatment plants, or
agricultural livestock waste treatment systems. Eligible hydropower
includes: Low Impact Hydropower Institute-certified projects; projects with
a head often feet or less; or projects with a dam that pre-dates the rule.
• Eligible biomass generation projects fire biomass fuels with or without fossil
fuels. Municipal solid waste is not considered a biomass fuel.
• The DNR will establish threshold efficiency levels for specific CHP
technologies.
• Projects must not be required by the federal government and not be used for
generating compliance or permitting credit otherwise in the SIP.
• A project or an aggregation of multiple projects under a single allowance
request must reduce NOX emissions by at least one ton using conventional
arithmetic rounding.
• Renewable and biomass generation projects must be located in Missouri and
be owned, leased, operated or controlled by an affected Missouri electric
utility or an affiliate, and supply power that is primarily marketed or
distributed to end users in the utility's native load or who are located in the
Missouri SIP region. Energy efficiency and combined heat and power
projects must be located in the portion of Missouri that is in the NOX SIP
region.
(cont.)
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September 16, 2005 Draft
Missouri's EE/RE Set-Aside Program (Proposed Rule 10 CSR 10-6.360, 3-15-05) (cont.)
Application & award
process
The DNR will provide forms for project sponsors to request a pre-
application eligibility review covering eligibility requirements that can be
determined prior to receipt of a complete application.
Only one entity may claim eligibility for a project.
Applications must be received by the last business day of November
following the May 1 through September 30 control period during which the
eligible project activities occurred.
The DNR will provide application forms that must be submitted by the
project's authorized NOX account representative and certified by a
professional engineer - attesting that information and calculations submitted
in the application are complete and accurate. The DNR has the right to
require verification of data and calculations presented in the application as a
condition for awarding allowances, and DNR agents may visit sites.
The application must demonstrate electricity savings or renewable
generation and calculate the NOX allowance award requested using DNR
approved M and V standards and must indicate the anticipated stream of
benefits (if any) for subsequent years.
Conversion calculations
Allowances for end-use electrical energy efficiency projects will be
calculated as the number of MWh saved during a control period multiplied
by 1.5 pounds NOX per MWh and rounded to tons using conventional
arithmetic rounding. The DNR will provide a factor to adjust the calculation
of electricity saved to account for transmission and distribution line losses.
Allowances for renewable generation projects from wind, photovoltaic
systems, biogas, geothermal, and hydropower projects shall be calculated as
the kWh of electricity generated during the control period multiplied by 1.5
pounds NOX per MWh and rounded to tons using conventional arithmetic
rounding.
Allowances for biomass generation projects shall be based on net NOX
emission reductions. Net NOX emissions shall be calculated as the number
of kilowatt hours of electricity generated during a control period multiplied
by an emissions factor of 1.5 pounds of NOX per MWh, minus the tons of
NOX emitted by the renewable generating project during the control period.
When biomass is co-fired with other fuels, its share of electric generation
and NOX emissions will be calculated based on the total heat content for all
fuels used in the co-firing process.
Methods for calculating CHP allowances will be determined by the DNR.
Length of award
Up to 5 years with annual re-applications.
(cont.)
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September 16, 2005 Draft
Missouri's EE/RE Set-Aside Program (Proposed Rule 10 CSR 10-6.360, 3-15-05) (cont.)
Procedures if over-
subscribed
Procedures if under-
subscribed
Measurement and
verification procedures
Adjustments (e.g.,
business as usual projects
or M/V uncertainty)
Available guidance
documents
State contact
If the number of allowances claimed for award is more than the allowances
allocated to the set-aside as provided in Table 1 of the proposed rule, the DNR
shall base awards on the applicants' position in a queue of eligible projects.
If the number of allowances awarded is fewer than the allowances allocated to
the set-aside as provided in Table 1 of the proposed rule, the DNR shall
transfer surplus allowances to the accounts of the NOX Budget EGUs on a pro-
rata basis proportionate to their allocations.
Applications must be submitted with certification by a professional engineer
attesting that information and calculations submitted in the application are
complete and accurate.
The DNR shall have the right to require verification of data and calculations
that are presented in an application as a condition for awarding allowances to
the applicant.
If the applicant intends to reapply in subsequent years, the application must
indicate the stream of benefits that is expected in subsequent years.
No adjustment procedures specified.
The DNR plans to publish guidance documentation before the start of the 2006
ozone season.
JohnNoller, 573-526-3769, John.noller@dnr.mo.gov
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September 16, 2005 Draft
New Jersey's EE/RE Set-Aside Program (NJAC 7:27-31)
Size of set-aside
5% of state NOX trading program budget (410 tons)
State NOX trading program budget is 13,022 tons, but NJ will only allocate a
maximum of 8,200 tons to all sources combined.
Start date
May 1, 1999 (under OTC); May 1, 2003 (under SIP call)
Administered by
New Jersey Department of Environmental Protection (NJ DEP)
Project eligibility
The following if initiated in 1992 or after:
• End-use efficiency projects, initiated by consumers that purchase from a
provider licensed in NJ (must not lead to emission increase of any HAP or
other pollutants).
• Renewable energy (solar or wind) projects (provided equipment is not
considered to be a budget source).
• Methane gas capture from landfills (provided equipment is not considered
to be a budget source).
• Fuel cell technology (provided equipment is not considered to be a budget
source).
• Other environmentally beneficial projects approved by NJ DEP.
Although no special provisions for early action projects, 2002 projects were
eligible to receive 2003 NOX SIP call set-aside allowances under seasonal lag
allocation approach.
Application & award
process
Following the ozone season during which the project was in place, applicant
submits claim by October 30, which should include the following:
• Documentation that the applicant/project qualifies,
• Specification of the amount of electricity generation or savings, and the
calculations that were used (including data & methods),
• NATS general account identification number,
• Whether allowances or open market trading DER credits should be issued,
and
• Certification in accordance with NJAC 7:27-1.39
Conversion calculations
Allowances are calculated by multiplying energy savings/generation (E) in
MW-hrby the ratio of the rate at which allowances are allocated (1.5 Ibs/MW-
hr). Allowances = (1.5/2,000) * E.
Energy generation calculations must exclude any portion of electricity
generated through the use of supplemental fossil fuels (oil, gas or coal).
(cont.)
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September 16, 2005 Draft
New Jersey's EE/RE Set-Aside Program (NJAC 7:27-31) (cont.)
Length of award
Procedures if over-
subscribed
Procedures if under-
subscribed
Measurement and
verification procedures
Adjustments (e.g.,
business as usual projects
or M/V uncertainty)
Available guidance
documents
State contact
1 year. The rule does not specify a limitation on the total number of years that
a particular project can qualify for allowances under the incentive reserve.
Applicants must renew annually.
From 2003 ozone season onward: If necessary, any unused allowances in the
new source/growth reserve will be transferred to the incentive reserve and
distributed to applicants on a pro rata basis.
2002 ozone season: Any remaining allowances (which are issued from the
2003 incentive reserve) were held in the 2004 incentive reserve.
From 2003 ozone season onward:
First, any remaining allowances in the incentive reserve will be transferred to
the new source/growth reserve (provided the number of allowances to be
allocated under the new source/growth reserve exceeds the number of
available allowances).
Second, if there are still additional allowances available from the incentive
reserve and if the overall demand for allowances from all sources exceeds tons
to be allocated (i.e. 8,200 tons), then these extra allowances will be distributed
to NOX budget sources on a pro rata basis.
Third, any allowances left in the incentive reserve shall remain in the reserve
for the following year's allocations.
See guidance document entitled "Measurement Protocol for Commercial,
Industrial and Residential Facilities," incorporated by reference at NJAC 7:27-
31.21.
Not specified in rule.
None, except for M/V guidance noted above.
TomMcNevin, NJDEP, 609-984-9766, tmcnevin@dep. state. nj. us
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September 16, 2005 Draft
New York's EE/RE Set-Aside Program (6 NYCRR Part 204)
Size of set-aside
3% of state NOX trading program budget (1,241 tons)
Start date
May 1, 2003 (for SIP call rule)
Administered by
New York Department of Environmental Conservation (NY DEC)
Project eligibility
• End-use efficiency projects
• Renewable energy projects (wind, solar, photovoltaics, methane waste, or
sustainably managed biomass). Combustion or pyrolysis of solid waste is
specifically excluded as a "renewable energy project"
• In-plant energy efficiency projects
• Fossil fuel-fired EGUs that produce electricity more efficiently than the
annual average heat rate of fossil EGUs and non-EGUs with a thermal
efficiency that exceeds 80%
Requests must be submitted within five years of project implementation. There
are no awards for reductions prior to May 1, 2003. A project must have been
implemented after May 1, 2003 to be eligible for EE/RE set-aside NOX
allowances.
Application & award
process
Applicant submits a request to reserve a portion of the set-aside by July 1 after
the control period for which the allowances are requested, and should include a
demonstration of NOX emission reductions and/or avoidances. NY DEC will
issue a guidance memorandum specifying the application and awards
procedures.
NY DEC will distribute allowances within two years from the start of the
control period for which the request was made. The vintage year of the
allowances awarded will be based on the control period during which the
energy savings or generation was achieved. Therefore, these allowances will
be subject to any relevant banking and flow control provisions. Note that the
vintage of the fractional allowances awarded for a particular project will
generally be the year in which the allowance becomes whole, but may vary
depending on available allowances.
Conversion calculations
Converting energy savings to NOX tons will most likely be based on a rate of
1.5 Ibs/MW-hr, which was the rate used under the OTC program (1999-2002).
NY DEC will issue a guidance memorandum specifying and finalizing the
procedures.
Length of award
1 year; applicants may renew annually for up to 5 consecutive years.
(cont.)
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September 16, 2005 Draft
New York's EE/RE Set-Aside Program (6 NYCRR Part 204) (cont.)
Procedures if over-
subscribed
First priority will be given to eligible end-use energy efficiency and renewable
energy projects. Other eligible projects will be granted reservation requests
only if there are remaining allowances in the set-aside.
Allocations will be awarded on a first-come, first-served basis. Requests are
assumed to have been submitted simultaneously if received within the same
calendar quarter. Allowances will be distributed on a pro rata basis if
"simultaneous" requests exceed the number of allowances in the set-aside.
Procedures if under-
subscribed
Any allowances remaining in the set-aside will be allocated to core sources
(pro rata), based on the control period to which the set-aside allocation applies.
Note that allowances are only allocated from the set-aside in whole ton
increments, so any "fractional" allowances are banked and held in the name of
the NOX Budget unit and distributed only when they can be combined with
other fractional shares and issued to the unit as whole-ton increments.
Measurement and
verification (M/V)
procedures
Rule does not include specific verification procedures, but indicates that any
request for set-aside allowances must demonstrate that the NOX emission
reductions or avoidances can be measured and verified in accordance with NY
DEC protocols. NY DEC will issue a guidance memorandum specifying the
M/V procedures.
Adjustments (e.g.,
business as usual or M/V
uncertainty)
NY DEC does not plan to allow for adjustments during project review for
"business as usual" or M/V uncertainty.
Available guidance
documents
NY DEC is currently working on guidance materials that will address the
application and award process, conversion calculations, and M/V procedures.
NY DEC is working with the New York State Energy Research and
Development Authority (NYSERDA) to develop the guidance and will take
into consideration the policies for promoting EE/RE projects under the State
Energy Plan as developed by the State Energy Planning Board and NYSERDA.
Other notes
NY's OTC trading rule had different set-aside approach, as it only applied to
EE projects, and allowances were given to NYSERDA to recognize energy
performance contracting programs carried out through NYSERDA. Total set-
aside was 115 tons. Aggregation of projects was specifically allowed, and NY
DEC would consult with NYSERDA to determine credit to be given for
specific projects.
State contact
Mike Sheehan, NY DEC, 518-402-8396, mpsheeha@gw.dec.state.ny.us
A.J. Shroff, NY DEC 518-402-8403, aishroff@gw.dec.state.ny.us
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September 16, 2005 Draft
Ohio's EE/RE Set-Aside Program (OAC 3714-05)
Size of set-aside
Start date
Administered by
Project eligibility
Application & award
process
Conversion calculations
Length of award
Procedures if over-
subscribed
Procedures if under-
subscribed
Measurement and
verification (MAO
procedures
1% of state NOX trading program budget (454 tons)
May 1, 2006
Ohio Environmental Protection Agency (OH EPA)
The Ohio Department of Development, Office of Energy Efficiency will be
providing assistance in the areas of evaluating aggregated projects and
measurement and verification procedures.
• End-use efficiency projects (including demand side management)
• EGU in-plant energy efficiency improvements
• Renewable energy projects (wind, solar, biomass, or landfill methane
generation)
Prior to the ozone season, applicant submits a project proposal, including a
detailed description of project and an estimate of the number of allowances
requested.
OH EPA notifies applicant if project is approved, based on criteria determined
by OH EPA.
After the ozone season, applicant submits a completed project report that
verifies completion and achievement of proposed reductions.
Allocations are determined and awarded following the ozone season and upon
verification of the project's success. Deadline for awarding allocations is
February 15th.
Conversion calculation procedures are specified for different types of EE/RE
projects in Ohio EPA guidance. Based generally on EPA's recommended
conversion factor of 1.5 Ibs/MW-hr.
1 year; applicants may renew annually for up to 5 consecutive years.
Pro-rata distribution.
Any allowances remaining in the set-aside will be allocated to core sources
(pro-rata), based on the previous year's allocations.
Rule does not include specific verification procedures, but guidance states that
most use established procedures and that allowances will be
awarded/distributed only after the Director of the EE/RE program verifies the
reductions claimed by the applicant.
(cont.)
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September 16, 2005 Draft
Ohio's EE/RE Set-Aside Program (OAC 3714-05) (cont.)
Adjustments (e.g.,
business as usual projects
or M/V uncertainty)
Available guidance
documents
State contact
None at this time.
Ohio EPA Guidance Manual: Energy Efficiency /Renewable Energy and
Innovative Technology Projects (July 2005).
Jim Tichich, 614-644-4844, jim.tichich@epa.state.oh.us
A-16
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