NOX
FUEL
FACTOR
INSERT
 
NOVEMBER
15TH
RE­
ORGANIZATION
B.
Fuel
Adjustment
Factors
Used
to
Set
State
NOx
Budgets
Several
petitioners
argue
the
Agency
did
not
provide
adequate
notice
regarding
the
use
of
specific
fuel
adjustment
factors
to
establish
NOx
budgets
for
States
in
the
CAIR
region.
As
explained
below,
EPA
believes
that
it
provided
adequate
notice
both
that
the
fuel
adjustment
factors
might
be
used
and
of
the
calculation
procedures
that
it
would
use
to
determine
the
specific
factors.

Nevertheless,
given
the
significant
public
interest
in
this
issue,
EPA
has
decided
to
grant
reconsideration
of,
and
to
take
comment
on,
EPA's
use
of
fuel
adjustment
factors
(
i.
e.,
1.0
for
coal,
0.4
for
gas,
and
0.6
for
fuel
oil)
in
setting
State
NOx
budgets.
Today's
action
also
presents
additional
analysis
that
EPA
conducted
to
further
explain
the
impact
of
these
factors
on
State
annual
NOx
budgets.

This
analysis
demonstrates
that
the
factors
selected
are
reasonable
and
decrease
the
disparity
between
most
States'

actual
electric
generation
unit
(
EGU)
emissions
and
their
State
NOx
budgets.
For
that
reason,
EPA
is
not
proposing
any
changes
to
the
final
CAIR
at
this
time.

The
CAIR
establishes
regional
emission
budgets
for
SO2,
annual
NOx,
and
seasonal
NOx
emissions.
These
regional
budgets
are
then
further
divided
into
State
budgets,
with
a
share
of
each
total
regional
budget
allocated
to
each
State
in
the
corresponding
CAIR
region.

States
choosing
to
participate
in
the
trading
programs
will
be
able
to
allocate,
to
sources
in
their
State,
the
number
of
allowances
in
their
budgets.
Petitioners
challenge
the
methodology
EPA
used
to
establish
these
State
budgets
for
annual
and
seasonal
NOx.

Background
For
States
choosing
to
participate
in
the
trading
program,
these
budgets
determine
the
number
of
allowances
that
could
be
allocated
to
sources
in
that
State.
In
a
cap
and
trade
system,
however,
the
methodology
used
to
allocate
allowances
in
any
given
year
would
not
affect
where
control
technologies
are
installed.
1
Rather,
the
determinant
would
be
the
cost
of
adding
controls
compared
to
the
cost
of
buying,
or
the
profit
from
selling,
allowances.
Controls
are
expected
to
be
installed
where
it
is
relatively
less
expensive,
without
regard
to
which
units
received
the
initial
allocation
of
allowances.
Further,
the
total
cost
1
A
permanent
allocation
approach,
such
as
the
CAIR
allocation
methodology
in
the
model
trading
rules,
should
not
affect
where
controls
are
installed.
This
is
true
regardless
of
the
the
type
of
approach
used
to
permanently
allocate
allowances
(
e.
g.,
heat
input,
adjusted
heat
input,
or
output).
The
use
of
an
updating
allocation
system,
on
the
other
hand,
could
impact
future
generation
behavior.
to
industry
of
controlling
emissions
and
the
total
amount
of
reductions
achieved
would
not
be
affected
by
the
allocation
methodology
in
a
given
year
(
for
a
permanent
system).
The
allocation
method,
however,
could
have
financial
impacts
on
individual
units
and
companies.
A
unit
that
receives
more
allocations
than
it
has
emissions
would
get
a
benefit
at
the
expense
of
a
unit
that
does
not
receive
enough
allocations
to
cover
its
emissions.
While
States
choosing
to
participate
in
the
cap
and
trade
program
can
determine
how
to
allocate
allowances
among
their
units,

companies
in
States
whose
budgets
exceed
projected
EGU
emissions
would
likely
receive
a
financial
benefit
while
companies
in
States
whose
budgets
are
lower
than
their
EGU
emissions
would
likely
incur
additional
costs.
EPA
believes
that
a
system
that
minimizes
the
disparity
between
the
number
of
allowances
in
a
State
budget
and
total
projected
State
EGU
emissions
is
the
most
equitable,
and
that
it
is
in
the
public
interest
to
promote
equity
among
the
States.

Notice
of
Fuel
Factor
Use
in
CAIR
Promulgation
In
the
CAIR
notice
of
proposed
rulemaking
(
NPR),
EPA
proposed
to
use
the
simple
heat
input
method.
(
69
FR
4566)

This
approach
used
the
un­
adjusted
heat
input
to
set
budgets
based
on
heat
input
data
from
the
years
1999
through
2002.
EPA
proposed
to
give
each
State
a
pro
rata
share
of
the
regional
NOx
budget
based
on
the
ratio
of
its
average
annual
heat
input
to
the
regional
total
average
annual
heat
input
In
the
Supplemental
Notice
of
Proposed
Rulemaking
(
SNPR),
EPA
proposed
to
supplement
and
update
the
data
used
to
calculate
the
State
annual
NOx
budgets
(
69
FR
32684).

EPA
also
described
an
alternative
method
that
could
be
used
to
calculate
the
budgets
­­
the
adjusted
heat
input
(
fuel
factor)
method.
This
approach,
EPA
explained,
would
"
.
.

.
reflect
the
inherently
higher
emissions
rate
of
coalfired
plants,
and
consequently
the
greater
burden
on
coal
plants
to
control
emissions."
(
See
69
FR
32689.)
The
SNPR
continued
by
explaining
that
the
use
of
fuel
factors
is
more
equitable
to
these
"
coal­
fired
plants
that
have
already
installed
pollution
controls"
(
69
FR
32689).
In
the
SNPR,
EPA
also
described
the
method
that
it
would
use
to
derive
specific
fuel
factors
if
this
adjusted
heat
input
method
was
selected.
EPA
explained,
"
States'
shares
would
be
determined
by
the
amount
of
the
State
heat
input,
as
adjusted,
in
proportion
to
the
total
regional
heat
input.

The
factors
could
be
based
on
average
historic
emissions
rates
(
in
lbs/
mmBtu)
by
fuel
type
(
coal,
gas,
and
oil)
for
the
years
1999­
2002"
(
69
FR
32689).
The
SNPR
did
not
identify
the
specific
numeric
factors
that
would
be
used.

EPA
received
and
responded
to
numerous
comments
addressing
this
alternative
fuel
factor
approach.
(
See
"
Corrected
Response
to
Significant
Public
Comments
on
the
Proposed
Clean
Air
Interstate
Rule,"
pp.
520­
576.)

EPA
established
State
NOx
budgets
for
the
final
CAIR
using
the
adjusted
heat
input
method.
The
specific
fuel
factors
used
to
adjust
heat
input
data
were
1.0
for
coal,

0.4
for
gas
and
0.6
for
oil.
These
factors
are
based
on
the
average
historic
NOx
emissions
rate
for
each
fuel.

They
reflect
for
each
fuel,
the
1999­
2002
average
emissions
by
State
summed
for
the
CAIR
region,
divided
by
average
heat
input
by
fuel
by
State,
summed
for
the
CAIR
region
(
70
FR
25230­
31).

EPA
Analyses
of
Potential
Impacts
EPA
conducted
two
analyses
to
evaluate
the
potential
the
impact
of
using
the
adjusted
heat
input
method
versus
the
simple
heat
input
method
on
State
annual
NOx
budgets:

one
on
a
regionwide
scale
and
the
second
on
a
State­
by­

State
level.

The
regionwide
analysis
of
the
potential
impacts
compared
regionwide
budgets
using
both
approaches
(
i.
e.,

simple
heat
input
and
fuel
factor)
to
the
regionwide
projected
emissions
of
units
fired
with
that
fuel.
2
Regional
budgets
and
emissions,
by
fuel
type,
are
summarized
in
Table
1
below.

Table
1:
Regionwide
Comparison
of
CAIR
Allowance
Distributions
and
Emissions
by
Fuel
Type
(
thousand
tons)

Projected
2009*
Emissions
and
Allocation
Projected
2015
Emissions
and
Allocation
Coal
Natural
Gas
and
Oil**
Total
Coal
Natural
Gas
and
Oil
Total
Base
Case
2,634.7
97.2
2,731.9
2,650.3
96.1
2,746.4
CAIR
1,404.3
99.2
1,503.5
1,150.7
89.4
1,254.1
Simple
Heat
Input
1,197.4
307.5
1,504.9
997.8
256.3
1,254.1
Fuel
Factor
Adjusted
1,348.6
156.3
1,504.9
1,123.8
130.2
1,254.1
*
Numeric
value
is
based
on
2010
projections.
**
Numeric
value
includes
wood
and
refuse
in
three
States.

Assuming
allowances
are
generally
passed
through
to
generation
units
in
the
same
way
that
they
are
apportioned
to
the
States,
Table
1
illustrates
that
under
either
approach
natural
gas­
fired
and
other
non­
coal­
fired
generation
receives
more
allowances
than
their
projected
emissions
in
both
2009
and
2015.
However,
using
the
fuel
factor
approach,
the
disparity
between
the
number
of
allowances
provided
and
the
emissions
are
less
than
under
the
simple
heat
input
method.
Table
1
also
demonstrates
that
the
majority
of
emission
reductions
are
made
by
coal­

2
It
should
be
noted
that
simple
heat
input
or
adjusted
heat
input
are
used
to
set
State
budgets
and
do
not
imply
that
States
would
allocate
allowances
to
units
in
that
manner.
In
the
proposal,
EPA
gives
States
flexibility
in
the
distribution
of
allowances.
fired
sources,
which
are
provided
additional
allowances
under
the
fuel
factor
approach.
Therefore,
the
fuel
factor
approach
generally
provides
allowances
to
the
coal­
fired
units
that
are
making
the
investments
in
emission
control
measures
and
technologies.
EPA
believes
this
is
a
reasonable
approach.

EPA
conducted
a
second
analysis
that
examined
the
potential
impacts
of
the
two
approaches
for
developing
Statewide
budgets
(
i.
e.,
simple
heat
input
and
fuel
factor)

on
a
State­
by­
State
basis.
This
analysis,
summarized
in
Tables
2
and
3
below,
shows
that
States
receiving
fewer
allowances
using
a
fuel
factor
approach,
generally
still
receive
Statewide
budgets
that
are
greater
than
their
projected
emissions
in
2009
and
2015.
This
results
from
a
substantial
portion
of
their
generation
portfolio
being
gas­
fired
sources
with
generally
low
NOx
emission
levels.

Table
2:
Comparison
of
Projected
NOx
Emissions
and
State
Budgets
for
CAIR
States
Not
Dominated
by
Coal
Generation
(
thousand
tons)

Projected
2009*
Emissions
and
Allocation
Projected
2015
Emissions
and
Allocation
State
Coal
Other
Fossil
Total
Coal
Other
Fossil
Total
DC
Base
Case
0.0
0.0
0.0
0.0
0.0
0.0
CAIR
0.0
0.0
0.0
0.0
0.0
0.0
Simple
Heat
Input
0.0
0.2
0.2
0.0
0.2
0.2
Fuel
Factor
Adjusted
0.0
0.1
0.1
0.0
0.1
0.1
LA
Base
Case
44.9
4.6
49.5
44.9
5.4
50.3
CAIR
30.3
4.2
34.6
27.1
5.3
32.3
Simple
Heat
Input
19.0
22.7
41.7
15.8
25.9
41.7
Fuel
Factor
Adjusted
21.4
14.1
35.5
17.8
11.8
29.6
NY
Base
Case
38.5
6.7
45.1
38.1
5.9
44.0
CAIR
28.6
7.5
36.1
14.8
6.4
21.1
Simple
Heat
Input
18.6
42.1
60.7
15.5
35.1
50.6
Fuel
Factor
Adjusted
20.9
24.7
45.6
17.4
20.6
38.0
TX
Base
Case
140.8
45.0
185.8
140.9
38.6
179.4
CAIR
121.7
44.1
165.8
122.1
35.4
157.5
Simple
Heat
Input
113.5
117.5
231.0
94.6
97.9
192.5
Fuel
Factor
Adjusted
127.8
53.2
181.0
106.5
44.4
150.8
MS
Base
Case
35.8
1.0
36.8
35.8
1.7
37.5
CAIR
29.6
0.9
30.6
5.9
1.9
7.7
Simple
Heat
Input
11.1
10.0
21.2
9.3
8.4
17.6
Fuel
Factor
Adjusted
12.5
5.3
17.8
10.4
4.4
14.8
FL
Base
Case
132.5
18.6
151.1
132.5
18.5
151.0
CAIR
51.1
17.4
68.6
43.6
17.7
61.4
Simple
Heat
Input
58.0
58.0
116.0
48.4
48.3
96.7
Fuel
Factor
Adjusted
65.4
34.1
99.4
54.5
28.4
82.9
*
Numeric
value
is
based
on
2010
projections.

Table
2
lists
those
States
in
the
CAIR
region
that
have
significant
amounts
(
i.
e.,
40
percent
or
greater)
of
generation
source
that
combust
fossil
fuels
other
than
coal.
As
illustrated
by
Table
2,
DC,
FL,
LA,
MS,
NY,
and
TX,
while
receiving
fewer
allowances
under
a
fuel
factor
approach,
are
provided
with
reasonable
Statewide
budgets
that
are
comparable
to
their
projected
emissions
in
2009
and
2015.
Table
3:
Comparison
of
Projected
NOx
Emissions
and
State
Budgets
for
CAIR
States
(
thousand
tons)

Projected
2009*
Emissions
and
Allowance
Allocation
Projected
2015
Emissions
and
Allowance
Allocation
State
Base
Case
CAIR
Simple
Heat
Input
Fuel
Factor
Adjusted
Percent
Change
Base
Case
CAIR
Simple
Heat
Input
Fuel
Factor
Adjusted
Percent
Change
DC
0.0
0.0
0.2
0.1
­
32.3%
0.0
0.0
0.2
0.1
­
32.6%
LA
49.5
34.6
50.0
35.5
­
29.0%
50.3
32.3
41.7
29.6
­
29.0%
NY
45.1
36.1
60.7
45.6
­
24.9%
44.0
21.1
50.6
38.0
­
24.9%
TX
185.8
165.8
231.0
181.0
­
21.6%
179.4
157.5
192.5
150.8
­
21.6%
MS
36.8
30.6
21.2
17.8
­
15.8%
37.5
7.7
17.6
14.8
­
15.8%
FL
151.1
68.6
116.0
99.4
­
14.3%
151.0
61.4
96.7
82.9
­
14.3%
MI
117.0
88.0
63.6
65.3
2.6%
120.2
89.9
53.0
54.4
2.6%
MD
56.7
13.4
26.5
27.7
4.4%
57.4
12.4
22.1
23.1
4.4%
VA
67.9
43.0
34.5
36.1
4.5%
59.8
39.0
28.8
30.1
4.5%
AL
132.0
65.5
64.2
69.0
7.6%
133.8
49.1
53.5
57.5
7.6%
GA
143.1
105.5
61.1
66.3
8.5%
140.8
66.7
50.9
55.3
8.5%
IL
146.2
65.7
70.1
76.2
8.7%
159.5
64.8
58.4
63.5
8.7%
WI
71.1
46.9
37.3
40.8
9.4%
69.3
34.2
31.0
34.0
9.4%
PA
198.3
86.4
90.4
99.0
9.6%
192.9
71.7
75.3
82.5
9.6%
SC
48.8
37.6
29.8
32.7
9.7%
50.4
36.4
24.8
27.2
9.7%
MO
115.9
64.2
54.3
59.9
10.3%
117.9
65.6
45.2
49.9
10.3%
MN
71.9
36.4
28.4
31.4
10.5%
74.3
37.5
23.7
26.2
10.5%
NC
59.8
59.2
56.0
62.2
11.1%
61.2
48.9
46.7
51.8
11.1%
IN
233.8
121.5
97.8
108.9
11.4%
233.3
79.4
81.5
90.8
11.4%
OH
263.8
91.1
97.1
108.7
12.0%
274.4
90.0
80.9
90.6
12.0%
TN
106.4
37.3
45.5
51.0
12.0%
105.6
27.2
37.9
42.5
12.0%
KY
175.8
99.3
74.2
83.2
12.1%
176.2
74.2
61.8
69.3
12.1%
IA
75.9
45.1
29.1
32.7
12.3%
81.3
47.4
24.3
27.2
12.3%
WV
179.1
61.7
65.9
74.2
12.6%
175.8
39.5
54.9
61.9
12.6%

Total
2,731.9
1,503.5
1,504.9
1,504.9
0.0%
2,746.4
1,254.1
1,254.1
1,254.1
0.0%
*
Numeric
value
is
based
on
2010
projections.

Table
3
summarizes,
for
the
CAIR
region,
the
State­
by­

State
projected
emissions
in
2009
and
2015
(
for
both
the
Basecase
and
CAIR
program
scenarios),
Statewide
budgets
for
each
approach,
and
the
percent
change
in
each
State's
budget
from
using
the
fuel
factor
approach.
Table
3
illustrates
that
most
CAIR
States
will
not
see
a
significant
impact
on
their
Statewide
annual
NOx
Budgets.
3
(
See
the
"
CAIR
Statewide
NOx
Budget
Calculations
Technical
Support
Document,
EPA
2005,
for
additional
discussion
of
the
analysis.)
As
discussed
above,
the
States
which
do
see
a
change
in
their
Statewide
budgets
(
i.
e.,
DC,
FL,
LA,
MS,

NY,
and
TX,)
are
States
that
receive
a
smaller,
but
sufficient,
amount
of
allowances
because
they
a
have
a
significant
amount
of
generation
that
combusts
fossil
fuels
other
than
coal.
With
little
or
no
significant
impact
resulting
from
the
use
of
the
fuel
factor
approach,
this
State­
by­
State
analysis
demonstrates
that
the
use
of
the
fuel
factor
approach
is
reasonable.

Analysis
of
Potential
Delaware
and
New
Jersey
Impacts
The
analyses
described
above
were
conducted
for
the
States
in
the
CAIR
PM2.5
region
only.
EPA
has
proposed
to
add
Delaware
and
New
Jersey
to
the
CAIR
region
for
PM2.5
("
Inclusion
of
Delaware
and
New
Jersey
in
the
Clean
Air
Interstate
Rule",
EPA,
May
10,
2005),
but
has
not
yet
taken
final
action
on
this
proposal.
EPA
proposed
a
separate
2­

3
Changes
of
less
than
10
percent
were
considered
insignificant
because
of
factors
that
could
impact
the
analysis
results
(
e.
g.,
States
may
choose
to
allocate
allowances
to
sources
using
methods
that
do
not
exactly
mirror
the
fuel
factor
State
budget,
and
uncertainty
in
the
model
projections.)
State
"
regional"
budget
for
Delaware
and
New
Jersey
of
just
over
14,000
tons.
EPA's
analysis,
presented
in
Table
4,

shows
that
apportioning
this
budget
between
the
two
States
based
on
a
fuel
factor
method
instead
of
a
simple
heat
input
method,
is
reasonable.
("
Inclusion
of
Delaware
and
New
Jersey
in
the
Clean
Air
Interstate
Rule",
EPA,
May
10,

2005)

Table
4:
Comparison
of
Projected
NOx
Emissions
and
State
Budgets
for
New
Jersey
and
Delaware
(
thousand
tons)

Projected
2009*
Emissions
and
Allowance
Allocation
Projected
2015
Emissions
and
Allowance
Allocation
State
Base
Case
CAIR
Simple
Heat
Input
Fuel
Factor
Adjusted
Percent
Change
Base
Case
CAIR
Simple
Heat
Input
Fuel
Factor
Adjusted
Percent
Change
NJ
16.8
8.5
13.4
12.7
­
5.6%
17.9
12.8
11.2
10.6
­
5.6%
DE
9.4
12.0
3.4
4.2
22.1%
10.7
9.5
2.8
3.5
22.2%
*
Numeric
value
is
based
on
2010
projections.

Other
Considerations
EPA
notes
that
the
analyses
above
were
conducted
for
State
annual
NOx
budgets
established
in
the
CAIR.
CAIR
also
establishes
seasonal
NOx
budgets
using
the
fuel
factor
approach.
EPA
did
not
conduct
a
similar
analysis
of
the
seasonal
NOx
budgets.
EPA
modeling
indicates
that
the
ozone
season
program
is
likely
to
function
as
a
backstop
to
the
annual
NOx
program,
and
that
the
annual
NOx
program
is
likely
to
impose
the
binding
constraint
on
NOx
emissions.
Finally,
to
ensure
that
our
estimates
appropriately
reflect
the
distribution
of
emissions
in
the
case
of
higher
electricity
demand
and
increased
gas
and
oil
prices,
EPA
conducted
a
sensitivity
run
using
EIA's
forecast
of
higher
electricity
demand
and
gas
and
oil
prices.
This
run
produced
very
similar
emissions
results
to
the
original
NOx
analysis,
showing
that
EPA's
original
analysis
is
robust
enough
to
support
the
fuel
adjusted
heat
input
approach
finalized
in
CAIR.
(
See
the
"
CAIR
Statewide
NOx
Budget
Calculations
Technical
Support
Document,
EPA
2005,
for
additional
discussion
of
the
analysis.)
