FACT SHEET
Final Rule:
Revised Cross-State Air Pollution Rule Update
for the 2008 Ozone NAAQS
Allowance Bank Conversion
Both the 2016 CSAPR Update and the 2021 Revised CSAPR Update address states' obligations
under the Clean Air Act's good neighbor provision with regard to the 2008 ozone National
Ambient Air Quality Standards (NAAQS). The CSAPR Update established budgets for emissions
of nitrogen oxides (NOx) from electricity generating units in 22 states during the May-
September ozone season, implemented through requirements for the sources to participate in
the CSAPR NOx Ozone Season Group 2 Trading Program starting in 2017. The Revised CSAPR
Update establishes more stringent NOx emission budgets for sources in 12 of the states,1
implemented through requirements for these sources to instead participate in the new CSAPR
NOx Ozone Season Group 3 Trading Program starting in 2021. Sources in the remaining 10
states will continue to participate in the Group 2 trading program.
To promote compliance flexibility without relaxing the program stringency identified as
appropriate to address states' obligations under the good neighbor provision, EPA is creating a
limited initial bank of allowances for use in the new Group 3 trading program ("Group 3
allowances") by converting allowances banked in 2017-2020 under the existing Group 2 trading
program ("Group 2 allowances") using a formula-based conversion ratio. EPA will carry out the
conversion process approximately 45 days after the final rule's effective date. The conversion
will apply to Group 2 allowances held in Group 3 sources' compliance accounts. If the Group 3
bank target is not reached, the conversion will also apply to Group 2 allowances held in general
accounts. Group 2 allowances held in Group 2 sources' compliance accounts will not be
affected.
The main elements of the bank conversion provisions are summarized below:2
• The initial Group 3 bank target amount is based on the sum of the 12 affected states'
"variability limits" - that is, the amounts by which emissions from a given state's units
can exceed the state's emission budget before incurring a penalty surrender ratio. For a
full ozone season, this target amount would be 21,777 allowances. The full-season
target amount will be prorated downward to reflect the portion of the 2021 ozone
season remaining after the final rule's effective date.
• The conversion ratio is calculated by a formula. The numerator of the formula is the
portion of the existing Group 2 allowance bank attributable to Group 3 states
1The 12 "Group 3 states" are Illinois, Indiana, Kentucky, Louisiana, Maryland, Michigan, New Jersey, New York,
Ohio, Pennsylvania, Virginia, and West Virginia.
2 For a more complete discussion of the creation of the initial Group 3 bank, refer to section VII.C.4.b. of the
preamble for the final Revised CSAPR Update. For the official regulatory text, refer to 40 CFR 97.826(d)(1).
-------
(specifically, the sum of these states' 2017-2020 budgets under the Group 2 program
plus the portion of the initial Group 2 allowance bank attributable to these states minus
the sum of the 2017-2020 emissions of these states' sources). The denominator is the
initial Group 3 bank target amount (before prorating). Using January 2021 data, the
formula yields a rounded conversion ratio of 8:1.
• EPA will allocate Group 3 allowances up to the initial Group 3 bank target amount to
Group 3 sources at the 8:1 conversion ratio in proportion to the holdings of 2017-2020
Group 2 allowances in each source's compliance account immediately before the
conversion. If the Group 3 sources' compliance accounts collectively hold fewer
allowances than the amount required to reach the Group 3 bank target, EPA will also
allocate Group 3 allowances to general accounts at the same 8:1 conversion ratio in
proportion to each general account's holdings of 2017-2020 Group 2 allowances
immediately before the conversion, up to the Group 3 bank target amount.
• Eight Group 2 allowances will be deducted for each Group 3 allowance allocated, on a
first-in, first-out basis.
For questions concerning the allowance bank conversion provisions, please contact Garrett
Powers at 202-564-2300 or powers.jamesg@epa.gov.
------- |