Originally published as a Schiff Hardin Environmental Update newsletter

The Cross-State Air Pollution Rule — or the Transport Rule — was published in the Federal Register at 76 Fed. Reg. 48208 on August 8, 2011. Appeals of the CSAPR must be filed by October 7, 2011, the date that it becomes effective.

As indicated in our previous alert when the CSAPR was published on USEPA’s Web site, USEPA created four emissions cap and trade programs in the CSAPR (Groups 1 and 2 SO2 and annual and ozone season NOx), applicable to fossil fuel-fired power plants, to reduce states’ downwind impacts on nonattainment and maintenance of the PM2.5 and ozone national ambient air quality standards. All four trading programs begin in 2012, with Group 1 SO2 caps further reduced in 2014. The reductions from 2010 emissions levels are, in some cases, significant.

USEPA has promulgated federal implementation plans applicable to all affected states but has provided three avenues for states to submit state implementation plans (SIPs) for any one or more of the four programs if they choose. In the first avenue, a state may notify USEPA by October 17, 2011, that it plans to submit a very abbreviated SIP that addresses only the allocations to existing sources for 2013; following a public notice and comment period, the state may submit a list of 2013 allowance allocations for existing sources, only, by May 1, 2012. The second avenue to a SIP is an “abbreviated SIP” in which the state addresses only the allocation methodology. Finally, a state may submit full SIPs in which it addresses all elements of the program(s) or even chooses not to participate in the program(s) but then must provide other means for meeting the state’s emissions cap.

USEPA reduced the base new unit set-aside (NUSA) to 2%, meaning it reserves 2% of each state’s allowances for use by new units that come online after January 1, 2010. However, USEPA also determined on a state-by-state basis whether there are “planned” units, i.e., those that are under construction and that will definitely emit in the reasonably near future. USEPA increased the NUSA in states with planned units up to a maximum of 8% on a state-by-state basis. Because allowance allocations to existing units are permanent, with one exception, units that come online after January 1, 2010, will always receive their allowances through the NUSA (unless the state develops a SIP that establishes a roll-in for new units to the existing unit pool of allowances). The one exception to permanent allowance allocations is for units that are shut down. Units are considered permanently shut down after two consecutive years of no emissions. In the fifth year after shutdown, allowances that would be allocated to those units will be allocated to the state’s NUSA.

A significant change in the final rule concerns the determination of exceedance of the variability limit. USEPA determined there is an 18% variability in SO2 and annual NOx emissions and a 21% variability in seasonal NOx emissions. By April 1, following a control period, sources or companies may band together to appoint a joint designated representative (DR). Subsequently, if all of the emissions in a state have exceeded the state’s cap for SO2 or annual or seasonal NOx, USEPA will determine at the “DR level” which DR groups have exceeded their share of the state’s variability limit and, therefore, must surrender two allowances for each ton that the group has exceeded its share of the variability limit. This approach at the “DR level” theoretically provides significant flexibility to sources within a state to group together to minimize exposure to the variability excess surrender requirements.