CSAPR is a regional cap-and-trade program that regulates emissions from large fossil fuel-fired electricity generating units (EGUs) that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. The proposed changes are necessary to ensure New York State receives EPA approval and maintains control of CSAPR allowance allocations to regulated entities within the state under Parts 243, 244 and 245.

Applicability

Sections 243.1, 244.1 and 245.1

The applicability requirements for Parts 243, 244 and 245 are defined in federal regulations (40 CFR 97.804, 40 CFR 97.404 and 40 CFR 97.604). Although the proposed Parts 243, 244 and 245 have the same applicability as the current regulations, the text of the proposed version is much shorter in length. The proposed applicability sections are shorter because the current regulations incorporate the CSAPR rules in their entirety, whereas the proposed rules only incorporate, by reference, the requisite applicability sections of the federal regulations.

Definitions

Sections 243.2, 244.2 and 245.2

The definitions sections of the proposed Parts 243, 244 and 245 incorporate by reference definitions from the federal CSAPR regulations. In the current regulations, definitions were copied directly from the federal rule, while in the proposed set of regulations several of these terms are incorporated by reference. The proposed regulations list the term to be defined followed by a citation of the exact location of this definition in the federal CSAPR regulations. The only definitions unique to Parts 243, 244 and 245 are those related to the New York State Energy Research and Development Authority (NYSERDA) Energy Efficiency and Renewable Energy Technology (ERRET) Account. This account is specific to New York State and proceeds from the sale of allowances will support NYSERDA programs that encourage energy efficiency measures and renewable energy technologies.

Trading Program Budgets

Sections 243.3, 244.3 and 245.3

The trading program budget sections of the proposed Parts 243, 244 and 245 detail the allocation methodology of New York State’s CSAPR allowances. In general, five percent of the allowances are set aside for new units, ten percent go to NYSERDA, and the rest of the allowances are allocated to facilities based on an average of the amount they emitted over the three most recent calendar years for which data is available. In the trading program budget section of the proposed Parts 243, 244 and 245, a citation to the federal CSAPR rules which references the incorrect state allowance budget was corrected. This section of the proposed rules also includes additional language to clarify that three full calendar years of data are needed to calculate facility level allowance allocation amounts. Partial years do not count. Language was also added to this section to make clear that Indian country new unit set asides are handled by EPA and taken out of New York’s allowance budget before any other distributions are performed.

Timing Requirements for Allowance Allocations

Sections 243.4, 244.4 and 245.4

The schedules and deadlines for the Department to submit allowance allocations to the EPA Administrator for the EERET account and existing electricity generating units in the state can be found under the timing requirements for allowance allocations sections of Parts 243, 244 and 245. The current rules only specify that by December 1, 2015 the Department will submit allowance allocations to EPA for the 2017 and 2018 control periods. The proposed rule goes further to provide deadlines for when the allowance allocations need to be submitted to EPA for the 2019 and 2020 control periods, the 2021 and 2022 control periods and every year thereafter.

New Unit Set-aside Allocations

Sections 243.5, 244.5 and 245.5

The new unit set-aside allocation sections detail how much of the state’s budget of allowances is set aside for new units, the actions a designated representative would need to take for a unit be considered new, how long it takes for a new unit to be considered an existing unit, and where any extra new unit allowances go if they are not needed for new units. The proposed rules correct the deadline for when the Department needs to submit the recommended allowances for any of New York’s new units to the EPA Administrator from October 31st to July 1st of each year. It also clarifies the number of control periods for which a new unit will receive allocations from the new unit set aside budget before it switches over to the allocation methodology that applies to existing units.

Energy Efficiency and Renewable Energy Technology Account

Sections 243.6, 244.6 and 245.6

The energy efficiency and renewable energy technology (EERET) account sections of Parts 243, 244 and 245 provide NYSERDA direction regarding the sale of allowances allocated to the EERET account. These sections of Parts 243, 244 and 245 direct NYSERDA to make allowances available for sale on the open market no later than 30 days after they are deposited in the EERET account. These sections also include an explanation of what happens if allowances are forfeited back to the Department because NYSERDA failed to sell or distribute the EERET account allowances within the prescribed time period. New text was added to the proposed rules to address the handling of unallocated Indian country new unit set aside allowances. Such allowances will be deposited into the EERET account.

Changes to Part 200

Section 200.9 was modified to list the specific sections of 40 CFR 97 and the Federal Register that are incorporated by reference in Parts 243, 244 and 245.

INTRODUCTION

On November 12, 2015 New York State promulgated 6 NYCRR Part 243, Transport Rule NO_x Ozone Season Trading Program, 6 NYCRR Part 244, Transport Rule NO_x Annual Trading Program, and 6 NYCRR Part 245, Transport Rule SO₂ Trading Program. These rules were adopted to allow the Department to allocate Cross-State Air Pollution Rule (CSAPR) allowances to regulated entities in New York. On December 1, 2015 the Department submitted Parts 243, 244 and 245 to EPA for incorporation into the New York State Implementation Plan (SIP). EPA provided comments on the aforementioned SIP submission on June 2, 2016 and November 28, 2016. In this rulemaking the Department is proposing to repeal and replace Parts 243, 244 and 245 to address issues raised by EPA’s comments. In addition, attendant changes will be made to 6 NYCRR Part 200.

CSAPR is a regional cap-and-trade program that regulates emissions from large fossil fuel-fired electricity generating units (EGUs) that have a nameplate capacity greater than 25 megawatts electrical (MWe) and produce electricity for sale. The proposed changes are necessary to ensure that New York State receives EPA’s SIP approval and maintains control of CSAPR allocations to regulated entities within the state under Parts 243, 244 and 245.

STATUTORY AUTHORITY

The statutory authority for this action is found in the Environmental Conservation Law (ECL), Sections 1-0101, 3-0301, 19-0103, 19-0105, 19-0107, 19-0301, 19-0302, 19-0303, 19-0305, 19-0311, 71-2103 and 71-2105.

ECL Section 1-0101 makes it the policy of New York State to conserve, improve and protect natural resources, the environment, and control air pollution in order to enhance the health, safety, and welfare of the people of New York State and their overall economic and social wellbeing and coordinate the State’s environmental plans, functions, powers and programs with those of the federal government and other regions and manage air resources. This section also makes it the policy of the State to foster, promote, create and maintain conditions for air resources that are shared with other states.

ECL Section 3-0301 states that it shall be the responsibility of the Department to carry out the environmental policy of the state. In furtherance of that mandate, Section 3-0301(1)(a) gives the Commissioner authority to “[c]oordinate and develop policies, planning and programs related to the environment of the state and regions thereof. . . .” Section 3-0301(1)(b) directs the Commissioner to “[p]romote and coordinate management of air resources to assure their protection, enhancement, provision, allocation, and balanced utilization consistent with the environmental policy of the state and take into account the cumulative impact upon all of such resources in making any determination in connection with any license, order, permit, certification or other similar action or promulgating any rule or regulation, standard or criterion.”¹ Pursuant to ECL Section 3-0301(1)(i), the Commissioner is charged with promoting and protecting the air resources of New York State by providing for the prevention and abatement of air pollution. Section 3-0301(2)(a) authorizes the Commissioner to adopt rules and regulations “to carry out the purposes and provisions” of the ECL. Section 3-0301(2)(g) allows the Commissioner to enter and inspect sources of air pollution and to verify their compliance with applicable regulations. Section 3-0301(2)(m) gives the Commissioner authority to “[a]dopt such rules, regulations, and procedures as may be necessary, convenient, or desirable to effectuate the purposes of this chapter.”

ECL Section 19-0103 declares that it is the policy of New York State to maintain a reasonable degree of purity of air resources, which shall be consistent with the public health and welfare and the public enjoyment thereof, the industrial development of the State, and to that end to require the use of all available practical and reasonable methods to prevent and control air pollution in the state.

ECL Section 19-0105 declares that it is the purpose of ECL Article 19 to safeguard the air resources of New York State under a program that is consistent with the policy expressed in Section 19-0103 and other provisions of Article 19.

ECL Section 19-0107 provides definitions to be used in the application of the requirements of Article 19 of the ECL.

ECL Section 19-0301 declares that the Department has the power to promulgate regulations for preventing, controlling or prohibiting air pollution and shall include in such regulations provisions prescribing the degree of air pollution that may be emitted to the air by any source in any area of the state.

ECL Section 19-0302. This section states that permit applications, renewals, modifications, suspensions and revocations will be governed by rules and regulations adopted by the Department, and that permits issued may not “include performance, emission or control standards more stringent than any established by the Act or by [EPA] unless such standards are authorized by rules or regulations.”²

ECL Section 19-0303 provides that the terms of any air pollution control regulation promulgated by the Department may differentiate between particular types and conditions of air pollution, various air contamination sources, and particular areas of the state.

ECL Section 19-0305 authorizes the Department to enforce the codes, rules and regulations established in accordance with Article 19.

ECL Section 19-0311 directs the Department to establish an operating permit program for sources subject to Title V of the CAA. Section 19-0311 specifically requires that complete permit applications must include, among other things, compliance plans and schedules of compliance. This section further expresses that any permits issued must include, among other things, terms setting emissions limitations or standards, terms for detailed monitoring, record keeping and reporting, and terms allowing Department inspection, entry, and monitoring to assure compliance with the terms and conditions of the permit.

ECL Sections 71-2103 and 71-2105 describe the civil and criminal penalty structures for violations of Article 19.

LEGISLATIVE OBJECTIVES

Articles 1 and 3 of the ECL set out the overall state policy of reducing air pollution and providing clean, healthy air for the citizens of New York. These Articles provide general authority to adopt and enforce measures to achieve this goal, including the regulation of stationary sources of air pollution.

In addition to the general powers and duties of the Department and Commissioner to prevent and control air pollution found in Articles 1 and 3 of the ECL, Article 19 of the ECL was specifically adopted for the purpose of safeguarding the air resources of New York from pollution. To facilitate this purpose, the Legislature authorized the Department to formulate, adopt, amend, and repeal codes, rules, and regulations for preventing, controlling, or prohibiting air pollution. The legislative policy, as set forth in the Article 19, is to maintain a reasonable degree of purity of air resources which is consistent with public health and welfare, industrial development of the state, propagation and protection of flora and fauna, and the protection of physical property and other resources, while integrating sound environmental practices.

This proposal furthers these statutory and public policy objectives because it would allow the Department to control emissions of NO_x and SO₂ that contribute to local and regional nonattainment of the ozone and PM2.5 National Ambient Air Quality Standards (NAAQS). State regulation of these pollutants protects New York’s air resources as well as the health and welfare of the public.

NEEDS AND BENEFITS

On November 12, 2015, the Department promulgated Parts 243, 244 and 245. These regulations make explicit the allowance allocation method New York uses to distribute federal CSAPR allowances for NO_x ozone season emissions, annual NO_x emissions and annual SO₂ emissions. Parts 243, 244 and 245 give the state control of CSAPR allowance allocation to New York sources affected by CSAPR beginning with the 2017 control period. The responsibility for implementing all other aspects of CSAPR remains with EPA under a Federal Implementation Plan (FIP). Parts 243, 244, and 245 establish, only, the allocation methodology New York will use to distribute CSAPR allowances to in-state sources. Since all other portions of CSAPR remain under EPA control, and the Department submitted these regulations to EPA as a partial SIP. EPA approval of the Department’s SIP is needed to maintain control of the allocation process.

In its comments on Parts 244 and 245³, EPA recommended technical corrections, clarifications, cross-reference revisions and deadline adjustments. EPA did not comment on Part 243 since the Transport Rule NO_x Ozone Season Trading Program was being replaced by the CSAPR NO_x Ozone Season Group 2 Trading Program. Although specific comments on Part 243 were not provided, EPA’s suggested revisions to Parts 244 and 245 easily transfer to Part 243. Addressing these comments will correct inaccuracies and provide symmetry between CSAPR and the amendments being proposed to Parts 243, 244 and 245.

The proposed replacement of Parts 243, 244 and 245 will address:

• Erroneous citations of the federal rule for NYS allowance budgets and definitions,

• Incorrect deadlines for:

– Submitting allocations to EPA for control periods

– Submitting New Unit Set Aside (NUSA) allocations to EPA, and

• Improper inclusion of Indian Country NUSA allowances in the NYS budget

EPA also requested minor editorial changes to:

• Incorporate by reference different parts of CSAPR into the Department’s rules,

• Match definitions in this set of rules to CSAPR,

• Clarify the timing and method for when a new unit becomes an existing unit for allowance allocation purposes,

• Include a disposition mechanism for any unallocated Indian Country NUSAs,

• Ensure petitions for applicability determinations are received by EPA, and

• Change the term “Transport Rule” to “CSAPR” for consistency between state and federal rules.

COSTS

New York’s proposed revisions to Parts 243, 244 and 245 are administrative corrections that will not result in additional costs to affected sources, the Department or local government entities.

PAPERWORK

The proposed repeal and replacement of Parts 243, 244 and 245 will not impose any new paperwork requirements for regulated parties.

LOCAL GOVERNMENT MANDATES

This proposal is not expected to result in any additional recordkeeping, reporting, or other requirements for any local government entity.

DUPLICATION

The proposed regulations do not duplicate, overlap, or conflict with any other State or federal requirements.

ALTERNATIVES

The Department considered alternatives before submitting a proposal for repeal and subsequent replacement of Parts 243, 244 and 245:

First, the Department could repeal 6 NYCRR Parts 243, 244 and 245 and accept full implementation of the FIP. This would result in EPA allocating CSAPR allowances to NYS generators under the FIP. EPA’s FIP allocation strategy does not change over time and may not reflect operational changes within the mix of sources that generate electricity throughout New York. The Department would lose control over allowance allocation, and could no longer utilize the allocation program to meet the specific needs of New York’s regulated community. In addition, allowances for the Energy Efficiency Renewable Energy Technology (EERET) account, administered and sold by NYSERDA, to support clean energy programs that reduce emissions would not exist under this alternative.

Second, the Department could take no action. Taking no action would lead to EPA rejecting the Department’s previously submitted revisions to the SIP resulting in EPA’s full implementation of the FIP. In addition, the inoperable regulations would cause confusion in the regulated community. Under this alternative, Parts 243, 244 and 245, although still effective, would be irrelevant as allowances would be allocated by EPA under a FIP. Consistent with the repeal alternative above, the Department would lose control of the allowance allocations and the sale of allowances by NYSERDA would not exist.

FEDERAL STANDARDS

This proposal does not result in the imposition of requirements that exceed any minimum standards of the federal government for the same or similar subject areas.

COMPLIANCE SCHEDULE

The proposed revisions result in administrative corrections that do not alter the compliance schedule currently in operation under EPA’s FIP.

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¹ Internal citations omitted.

² Internal citations omitted.

³ EPA sent comments to DEC regarding Parts 244 and 245 on June 2, 2016 and November 28, 2016.

EFFECT OF RULE

There are no small businesses affected by this rulemaking. The only local government affected by this rulemaking is the Jamestown Board of Public Utilities (JBPU) operator of the Samuel A. Carlson Generating Station. S.A. Carlson is an electricity generation station located in Jamestown, New York. S.A. Carlson operates 3 units that are regulated under the Cross-State Air Pollution Rule (CSAPR).

COMPLIANCE REQUIREMENTS

This rulemaking does not impose any new compliance obligations on regulated entities. This rulemaking, once approved by EPA as part of the New York State Implementation Plan (SIP), will give the Department the authority to allocate CSAPR allowances to regulated entities in New York as well as the New York State Energy Research and Development Authority. EPA is responsible for implementing and enforcing the provisions of the CSAPR program. Affected facilities must have sufficient allowances in their CSAPR accounts on the compliance dates in the federal program.

PROFESSIONAL SERVICES

JBPU operates S.A. Carlson’s units in compliance with CSAPR using the current amount of budgeted allowances and will not need any additional professional services as a result of this proposal.

COMPLIANCE COSTS

Under the Department’s proposed allocation method, the affected units at S.A. Carlson are expected to receive CSAPR allowances for the 2017 NO_x control periods that are very close to what the average actual emissions have been in recent years. S.A. Carlson has switched fuel from coal to primarily natural gas. This will essentially eliminate the need for SO₂ allowances. As of September 1, 2017, CSAPR annual allowances were selling for $3.50/ton NO_x and $1.75/ton SO₂. On that date, NO_x Ozone Season Group 2 allowances were selling for $530/ton. ¹

ECONOMIC AND TECHNOLOGICAL FEASIBILITY

S.A. Carlson no longer burns coal in any of the electricity generating units at their facility. Units #11 and #12 have been shut down. Unit #20 continues to burn natural gas. The remaining units at the facility (#9, #10) have switched from coal to natural gas. This will minimize the need for NO_x allowances and virtually eliminate the need for SO₂ allowances. The Department expects that S.A. Carlson will be provided with an adequate number of allowances to operate within the emissions cap. The NO_x allowances allocated to the facility for 2017 and 2018 under the Department’s allocation strategy is 154 tons. The facility emitted 128 tons of NO_x in 2015 and 114 tons in 2016. The facility emitted less than one ton of SO₂ in 2015 and 2016.

EPA allocated 31 tons of NO_x Ozone Season Group 2 allowances to S.A. Carlson for 2017 and 2018 using a procedure analogous to that used by the Department for the annual CSAPR programs. The facility emitted 47 tons of NO_x during the 2015 ozone season and 51 tons of NO_x during the 2016 ozone season. Had the CSAPR NO_x Ozone Season Group 2 program been in place those years, the facility would have had to purchase up to 20 allowances which would have cost approximately $10,600 per year based on the September 1, 2017 market conditions. During the 2016 ozone season, the facility generated 74,834 megawatt-hours of electricity.² The unit cost for NO_x allowances for the 2016 ozone season would have been $0.14 per megawatt-hour.

MINIMIZING ADVERSE IMPACT

The Department does not expect these rules will impose any adverse economic impacts on small businesses or local governments. CSAPR regulates NO_x and SO₂ emissions from large fossil fuel-fired electricity generating units that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. These rules only address the method by which allowances are allocated to affected units within New York State. All of the compliance obligations for the affected facilities are currently governed by EPA’s Federal Implementation Plan and will remain the same if the Department transitions to a partial SIP and begins to allocate allowances for the 2017 control periods. The Department would review the allocations every year in order to account for any operational changes. By adjusting allocations on a periodic basis, the Department can adapt to an ever-changing electricity marketplace and regulatory environment. This approach is more flexible than EPA’s allocation strategy in which allocations do not change over time.

SMALL BUSINESS AND LOCAL GOVERNMENT PARTICIPATION

The Department held stakeholder meetings on July 12, 2017 and September 5, 2017 in which facility representatives of affected CSAPR sources, including local governments, were provided an opportunity to provide pre-proposal input on the rule making process.

The Department plans on holding public hearings during the proposal stage. The location of this hearing will be convenient for persons from local governments and small businesses to participate. Additionally, there would be a public comment period in which interested parties who are unable to attend a public hearing can submit written comments on the proposed regulation.

CURE PERIOD

In accordance with NYS State Administrative Procedures Act (SAPA) Section 202-b, this rulemaking does not include a cure period because the Department is undertaking this rulemaking for EPA approval of part of the New York SIP and to give the Department the authority to allocate CSAPR allowances to regulated entities in New York as well as the New York State Energy Research and Development Authority.

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¹ “Argus Air Daily”, Issue 17-169, September 1, 2017.

² EPA Clean Air Markets Division, www.epa.gov/airmarkets.

A RAFA is not required for this rulemaking. The Cross-State Air Pollution Rule (CSAPR) regulates the Environmental Protection Agency’s (EPA’s) regional NO_x and SO₂ cap and trade program designed to control emissions from large fossil fuel-fired electricity generating units that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. Parts 243, 244 and 245 were adopted on November 12, 2015 to give DEC the authority to allocate federal CSAPR allowances to in-state generators and the New York State Energy Research and Development Authority. This rulemaking would only make corrections, requested by EPA, to Parts 244 and 245, along with the replacement of Part 243 pursuant to the EPA’s CSAPR Update Rule adopted on September 7, 2016. The Department does not expect that this rulemaking would impose any adverse impact on rural areas or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas. The compliance obligations for the affected facilities are currently governed by EPA under CSAPR and will remain the same when the Department begins to allocate allowances for the 2017 control periods.

A JIS is not required. CSAPR regulates EPA’s regional NO_x and SO₂ cap and trade program designed to control emissions from large fossil fuel-fired electricity generating units that have a nameplate capacity greater than 25 megawatts electrical and produce electricity for sale. Parts 243, 244 and 245 were adopted on November 12, 2015 to give DEC the authority to allocate federal CSAPR allowances to in-state generators and the New York State Energy Research and Development Authority. This rulemaking would only make corrections, requested by EPA, to Parts 244 and 245, along with the replacement of Part 243 pursuant to the EPA’s CSAPR Update Rule adopted on September 7, 2016. The Department does not expect this rule to have an adverse impact on jobs and employment opportunities. The compliance obligations for the affected facilities are currently governed by EPA under CSAPR and will remain the same when the Department begins to allocate allowances for the 2017 control periods.