WASHINGTON, D.C. 20460
                                                                               OFFICE OF THE
                                                                           CHIEF FINANCIAL OFFICER
                                       JAN  1  1  2012
SUBJECT:   Environmental Financial Advisory Board (EFAB) Letter on Financing
              Clean Air Technology

FROM:      Barbara J. Bennett
              Chief Financial Off]

TO:          Gina McCarthy, Assistant Administrator
              Office of Air and Radiation

I am pleased to transmit to you the attached letter on the Board's preliminary examination and findings
of financing incentives for consideration by industrial facilities to change to newer, cleaner technologies.

Since considerable time has elapsed from the initiation of EFAB's work while the promulgation of the
MACT rule has been worked through, we thought it important to provide this overview ofEFAB's work
to date, preliminary findings and observations, interim recommendations, and the Board's next steps.

The Board welcomes your review and feedback.  If you have any questions or comments regarding the
letter, please contact me or have a member of your staff contact Joseph Dillon, Director, Center for
Environmental Finance at 564-9679.


cc:  Lisa P. Jackson, Administrator
    Bob Perciascepe, Deputy Administrator
    Michael Shapiro, EFAB Designated Federal Official
                                   Internet Address (URL) * http //www epa gov
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              Financial Advisory Board
Bradley Abelow

Michael Shapiro
Designated Federal

Helen Akparanta
Gavin Clarkson
William Cobb
Eric Draper
Donna Ducharme
Frances Dubrowski
James Gebhardt
Rick Giardina
Ann Grodnik
Scott Haskins
Philip Johnson
Thomas Liu
Debi Livesay
Mathilde McLean
Greg Mason
Karen Massey
Lindene Pattern
Sharon Dixon Peay
Tobias Rittner
Wayne Seaton
Blanca Surgeon
Leanne Tobias
Steve Thompson
Chiara Trabucchi
Cynthia Williams
      Letter on Financing Incentives for
       Replacing Boilers with Clean Air
This report has not been reviewed for approval by the U.S. Environmental Protection
      Agency; and hence, the views and opinions expressed in the report
       do not necessarily represent those of the Agency or any other
               agencies in the Federal Government.
                                         January 2012

                                      Printed on Recycled Paper


Bradley Abelow, Chair

  Helen Akparanta

  Gavin Clarkson

   William Cobb

   Eric Draper

 Donna Ducharme

 Frances Dubrowskl

  James Gebhardt

   Rick Glardlna

   Ann Grodrtik

   Scott Hasklns

  Philip Johnson

   Thomas Uu

  Deborah Uvesay

 Mathilda McLean

   Greg Mason

   Karen Massey

  Undone Patton

 Sharon Dixon Peay

   Tobias  Rittner

  Wayne Seaton

  Blanca Surgeon

  Leanne Tobias

 Steve Thompson

 Chlara Trabucchi

 Cynthia Williams
  Michael Shapiro
   Designated .
  Federal Officer
                                                JAN  -4  ^
Honorable Gina McCarthy, Assistant Administrator
Office of Air and Radiation
U.S. Environmental Protection Agency
Washington, DC 20460

Dear Ms. McCarthy:

      The Environmental Financial Advisory Board (EFAB) is pleased to
submit a preliminary report on its examination of financing issues related to the
promulgation of Maximum Achievable Control Technology (MACT) standards
for boilers and process heaters at major sources of hazardous air pollutants. In
particular,  EFAB has been working to identify creative options that would
incentivize boiler facility owners to comply with the MACT standards by using
newer cleaner technologies rather than by retrofitting existing facilities using
traditional  control technologies. This examination is proving to be both interesting
and challenging as you will see by the following review of EFAB's efforts.

EFAB Work To Date

      Initially, in response to the Office of Air and Radiation's (OAR) request
for assistance on addressing this question, EFAB formed a project work group to
study the issue in depth and help the Board to develop findings and
recommendations for Agency use. The leadership of this new EFAB workgroup
quickly met with OAR to further delineate the scope of the project and to begin to
develop a plan of action.

      As  part of the project, EFAB has held numerous workgroup conference
calls, met on an on-going basis with relevant OAR staff and managers, reviewed
information generously provided by OAR from a number of sources, including
the Department of Energy, and solicited information, feedback, and analysis from
a range of sources, including a DOE speaker at its March 2011 Board meeting.
The workgroup also began an effort to collect, review, and analyze information on
the financial conditions of a number of EPA identified industries/corporations that
must comply with any new MACT standards.

      This work has been impacted by a series of events over the past six
months, of which you are all too aware. These include EPA finalizing emission
standards for boilers and incinerators in February; EPA allowing time for
additional public input and review of new industry information; and EPA setting a
                   Providing Advice on "How to Pay" for Environmental Protection

new schedule for updating the standards in June. In addition to these regulatory actions, industry
and others have filed numerous legal actions to compel, stop, speed up or slow EPA's work on
the standards. As a result of all of this, active EFAB work on the project has slowed to adjust to
changes and to allow the various legal considerations to be worked through.

       Since considerable time has elapsed while all of this occurred, we thought it was
important to provide this overview of EFAB's work to date as well as the following preliminary
findings, observations, and recommendations.

EFAB's Preliminary Findings

EFAB's preliminary findings regarding the financial condition of boiler owners, the costs of
technologies, and their energy efficiency include:

      The financial condition information of boiler owners varies widely from industry to
       industry, firm to firm, and even plant to plant.

      Boiler owners oppose the new rules because they require costly capital expenditures. This
       is true for the existing retrofit technologies as well as the new, more environmentally
       desirable technologies.

      The new technologies are, on the whole, more expensive.

      Many of the new technologies are not particularly energy efficient. They do not produce
       any financial payback of the investment.

      The newer technologies may be less energy efficient than the older retrofit technologies.

To help address the cost challenges, EFAB has been searching for financial incentives that would
help industry pay for the more costly new technologies. The Board has not yet identified any
existing financial incentives for encouraging these investments so it has begun to look for other
incentives/reasons for making them. EFAB is exploring areas such as the value of improved
corporate image and better environmental responsibility credentials. In addition, EFAB would
like to review with OAR the financial implications of the whole suite of future air rules. If any of
them might require boiler owners to update to the newer technologies, then EFAB could examine
the costs of upgrading now versus the costs of retrofitting now and upgrading later.

As the boiler MACT process  continues, the Board preliminarily recommends that:

    1)  Agency coordinate federal resources around the state and local efforts to move companies
       toward cleaner technologies;
    2)  the Administrator work across agencies, including the Departments of Energy and
       Commerce, to promote coordinated assistance to boiler owners by industry;

   3)  the Administrator encourage redoubled intra-agency cooperation to examine and promote
       regional success stories in the use of innovative cleaner technologies throughout the
       country; and
   4)  the Agency review its discretionary grant authority in any programs where boiler owners
       and the most polluting facilities might be helped to move to cleaner technologies.

Future Thoughts/Next Steps

The Board still believes that the new MACT rules provide an unprecedented opportunity to
involve boiler owners in proactively contributing to improving the quality of our environment. If
efforts to promote the use of cleaner technologies are successful, and they are widely adopted,
they will make a significant reduction in air pollution across the country.

EFAB will continue to expand its financial analysis of boiler owners. This work will include a
discussion of opportunities and challenges which vary based on the particular industry, the size,
nature and capitalization of the individual firm, and the location of the specific facility.

Among the financing techniques that EFAB will further explore are:

      long-term financing - matched with the useful life of cleaner technologies. Securing
       loans through a variety of methods using boiler owner's real property, the actual assets or
       streams of payments, as well as reductions in operating costs. Inducing boiler owners to
       factor in lower operating costs in the out years in their decision making process;

      public and private sources and mechanisms for coordinating local government finances
       with federal programs;

      inducement to banks to offer much lower interest rates; and

      opening up federal and state sources to possible taxable as well as tax-exempt

The Board wishes to note the invaluable assistance of Ellen Kurlansky during this time and we
look forward to continuing this important work with your office.
                                         Michael Shapiro
                                         Designated Federal Official

                                 WASHINGTON, D.C 20460
 *< PRO<-0
                                  MAR 2 6 2012
                                                                              OFFICE OF
                                                                           AiR AND RAI ' '.  '
               Environmental Financial Advisory Board (EFAB) Letter on Financing Clean Air
               Gina McCarthy
               Assistant Adrtnnfs/rator
                       j'      \l

               Barbara J. Bennett
               Chief Financial Officer
Thank you for your memorandum of January 11, 2012 forwarding the Environmental Financial
Advisory Board's preliminary report on its examination of financing incentives for industrial and
institutional boiler owners for the installation of new cleaner technologies. We are especially
interested in encouraging the use of combined heat and power as an alternative to retrofitting
older boilers with pollution controls. I appreciate that there is no easy or obvious solution to
financing that kind of investment. At the same time, improvements would be more energy
efficient and could have a financial payback. We will continue to explore this area and I am
grateful that the Board will as well.

Again, thank you for the opportunity to comment on the preliminary report and I look forward to
their findings  as we move to finalize the regulation and provide assistance to companies working
together with  the Department of Energy. If you have any questions or comments, please contact
me or have a member of your staff contact Ellen Kurlansky in the Office of Policy Analysis and
Review at (202) 564-1669.
                                 Internet Address (URLi  nitp J/wwwepa gov
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