Cleaner Air Set-Asides (CASA)

February 14, 2006

DRAFT

Illinois Environmental Protection Agency / Bureau of Air

NOx Set-Asides Topics Allowance Calculation Allowance Distribution Period Look Back for Eligibility Over/Under Subscription Allowance Application Method Notes

Allowance Calculation Illinois’ proposed set-asides fall

into four category types:1. Energy Conservation Projects2. Energy Generation Projects3. Emission Reduction Projects4. Timing

Energy Conservation Projects

Demand Side Management (DSM) Energy Efficient New Const. (EENC) Supply Side Energy Efficiency (SSEE)

AllowancesAllowancesuu = =

( MWhr( MWhrconservedconserved ) x ( 1.5 lb/MWhr ) / ) x ( 1.5 lb/MWhr ) / 2000 lb2000 lb

Example: A large manufacturing facility under-

takes a lighting and electric motor upgrade project. Expected energy savings are 10,000 MWhrs per year.

The manufacturer would qualify under the DSM category.

Allowancesu = ( 10,000 MWhrconserved ) x ( 1.5 lb/MWhr ) / 2000 lb = 7.5

Energy Generation Projects

Zero Emission Energy Units (ZEEU) Efficient Operators (EO) Integrated Gasification Com. Cycle (IGCC)

Allowancesu ZEEU=

( MWhrgenerated ) x ( 2.0 lb/MWhr ) / 2000 lb

Example An investor undertakes a hybrid

wind and solar project. Combined, the plant achieves 525,000 MWhrs for a given year.

The investor would qualify under the ZEEU category.

Allowancesu = ( 525,000 MWhrgenerated ) x ( 2.0 lb/MWhr ) / 2000 lb = 525

Energy Generation Projects Cont. Allowancesu EO & IGCC= ( MWhr generated ) x ( 1.0 lb/MWhr – ER

lb/MWhr ) / 2000 lb ER = Annual average emission rate

based from CEM

Example A utility installs a fluidized bed

combustion boiler, whose emission rate (ER), based from an annual average of CEM data, is 0.7 lb/MWhr. The plant generated 1.0 million MWhrs that year.

The cooperative would qualify under the EO category for installing a FBC boiler.

Allowancesu = ( 1.0 M MWhr generated ) x ( 1.0 lb/MWhr – 0.7 lb/MWhr ) / 2000 lb = 150

Emission Reducing Projects

Renewable Energy Emis. Units (REEU) Pollution Control Upgrades (PCU)

Allowancesu REEU = ( MWhrgenerated ) x ( 0.5 lb/MWhr ) /

2000 lb

Example A landfill that is required under federal

law to abate methane emissions chooses to fire the methane in engine generator sets instead of flaring the gas. 100,000 MWhrs are generated.

The landfill would qualify under the REEU category for combusting the landfill gas to generate electricity.

Allowancesu = ( 100,000 MWhrgenerated ) x ( 0.5 lb/MWhr ) / 2000 lb = 25

Emission Reducing Projects Cont. Allowancesu PCU= ( MWhrgenerated ) x ( ERbefore lb/MWhr

– ERafter lb/MWhr ) / 2000 lb ERbefore = Baseline from recent 2 year

average emission rate from CEM ERafter = Annual average emission rate

based from CEM

Example An existing coal-fired utility installs a SCR

to control NOx emissions. It’s baseline emissions rate, prior 2 year average based from CEM data, was 1.8 lb/MWhr, and after the upgrade became 0.9 lb/MWhr. The utility generated 2.8 million MWhrs in a given year.

The utility would qualify under the PCU category for installing the SCR.

Allowancesu =( 2.8 M MWhrgenerated ) x ( 1.8 lb/MWhr – 0.9 lb/MWhr ) / 2000 lb = 1,260

Timing Early Adopter (EA) Allowancesu =

1.0 + (1/10) x (AΣ the sum of other eligible allowances) Eligible projects must commence by

Dec. 31, 2012.

Example The prior wind and solar plant

example is finished in 2009 and received 525 allowances.

The investor would also qualify under the early adopter category for installing the wind and solar plant prior to 2012.

Allowancesu = 1.0+(1/10) x (525) = 53.5

Pro Rata and Rounding If the CASA category is sufficient

for the number of requested allowances, rounding will be used.

If the CASA category is insufficient for the number of requested allowances, a pro rata distribution will be used, and then rounded.

Combination of Set-Asides The proposed IEPA rule allows an entity

to undertake in separate simultaneous qualified projects.

For example, while installing various generation upgrades to an existing coal-fired utility, the utility may also install wind generation.

The utility would qualify under both the SSEE category and ZEEU.

Combination of Set-Asides Ex. An efficient new plant could receive

multiple incentives. Assuming construction after Jan. 1, 2006

but before Dec. 31, 2012, and energy conscious support buildings; the new utility could receive allowances from: New Unit Set-Aside (NUSA) Efficient Operator (EO) Energy Efficient New Construction

(EENC) Early Adopter (EA)

Allowance Distribution Period Years Demand Side Management (DSM) 8 Energy Efficient New Const. (EENC) 8 Supply Side Energy Efficiency (SSEE) 8 Zero Emission Energy Units (ZEEU) ∞ * Efficient Operators (EO) ∞ *

Integrated Gasification Com. Cycle (IGCC) ∞ * Renewable Energy Emis. Units (REEU) ∞ * Pollution Control Upgrades (PCU) 15 Early Adopter (EA) 10* = Allowances given to the source so long as the source is generating.

Look Back for Eligibility Years Demand Side Management (DSM) 2003 Energy Efficient New Const. (EENC) 2003 Supply Side Energy Efficiency (SSEE) 2003 Zero Emission Energy Units (ZEEU) 2001 Efficient Operators (EO) 2001 Integrated Gasification Com. Cycle (IGCC) 0 Renewable Energy Emis. Units (REEU) 2001 Pollution Control Upgrades (PCU)* 0 Early Adopter (EA) 0* = specifically not allowed for those entities required to install controls

Under Subscription Allowances from under subscribed

category(s) shall be allowed to bank until an individual CASA category doubles. The excess of the doubled CASA category will be distributed to other categories as necessary, banked further, or retired by 50-100%, as determined by the Agency, to ensure continual progress toward or maintenance of attainment.

Over Subscription After an individual CASA category doubles, its

excess will be used, as necessary, to supplement any over subscribed categories.

No over subscription: The entity will be eligible for the number of allowances determined by that categories calculation.

Over subscription: The entity will be eligible for the prorated number of allowances determined by that categories calculation.

Allowance Application Method Application based. Subject to IEPA review and approval. IEPA will review in accordance with

established DOE calculation and metering/monitoring methods; possibly other acceptable methods.

Final determination of an individual project allocation is the sole discretion of IEPA.

Notes Calculation weight choices for X lb/MWhr:

0.5 = Ex. REEU. These sources are considered renewable, however they generate some NOx .

1.0 = Ex. EO & IGCC. Approximately equal to the 0.1 lb/mmBtu emission rate that is believed necessary for attainment goals.

1.5 = Ex. DSM & SSEE. Standard weighting choice per guidance as well as other States.

2.0 = Ex. ZEEU. Renewable energy source with no associated emissions. Extra incentive also provided to help attain the Governor's SEP goal.

Notes Cont. The CASA category lists are for the

most part not all inclusive due to the vast number of potential projects.

The pollution control upgrade (PCU) category is intended to be used only for existing plants. For the purpose of the CASA, existing will be established as commercially generating for 5 years.

Notes Cont. Existing coal-fired utilities are able to

participate in any category of the 25% CASA.

Only they may participate in the Supply Side Energy Efficiency (SSEE) and Pollution Control Upgrades (PCU) categories, 7%, that account for almost 30% of the total CASA.

Early adoption could account for up to an additional 2%, or almost 40% of the total CASA.

Notes Cont. Comment: “Allowances given to a wind

farm do not reduce pollution as the wind farm in turn sells it to a utility – therefore any set-aside is of virtually no environmental benefit.”

Response: Every MWhr of power that is offset through increased efficiency or alternative means reduces our need for increased generation and capacity from coal-fired plants. Effectively, we can “produce” twice the power per ton of NOx: once from the EE/RE and then a second from the utility.