Section 326IAC24-1-8. CAIR NOx allowance allocations

   (a) The trading program budget allocated by the department under subsections (d) through (h) for each control period shall equal the CAIR NO_x allowances apportioned to the CAIR NO_x units under section 1 of this rule, as determined by the procedures in this section. The total number of CAIR NO_x allowances that are available for each control period for annual allocations of CAIR NO_x allowances under this rule are one hundred eight thousand nine hundred thirty-five (108,935) tons in 2009 through 2014 and ninety thousand seven hundred seventy-nine (90,779) in 2015 and thereafter, apportioned as follows:

(1) For existing units (that is, units that have a baseline heat input, as determined under subsection (c)(1)):

(A) one hundred three thousand four hundred eighty-eight (103,488) tons for CAIR NO_x units in 2009 through 2014; and

(B) eighty-eight thousand fifty-five (88,055) tons for CAIR NO_x units in 2015 and thereafter.

(2) For new unit allocation set-asides:

(A) four thousand nine hundred two (4,902) tons for CAIR NO_x units in 2009 through 2014; and

(B) two thousand two hundred seventy (2,270) tons for CAIR NO_x units in 2015 and thereafter.

(3) For the energy efficiency and renewable energy allocation set-asides:

(A) five hundred forty-five (545) tons for CAIR NO_x units in 2009 through 2014; and

(B) four hundred fifty-four (454) tons for CAIR NO_x units in 2015 and thereafter.

  (b) The department shall allocate CAIR NO_x allowances to CAIR NO_x units according to the following schedule:

(1) Within thirty (30) days of the effective date of this rule, the department shall submit to the U.S. EPA the CAIR NO_x allowance allocations, in a format prescribed by the U.S. EPA and in accordance with subsections (c) and (d), for the control periods in 2009, 2010, 2011, 2012, 2013, and 2014.

(2) By October 31, 2008, and October 31 every six (6) years thereafter, the department shall submit to the U.S. EPA the CAIR NO_x allowance allocations, in a format prescribed by the U.S. EPA and in accordance with subsections (c) and (d), for the control periods seven (7), eight (8), nine (9), ten (10), eleven (11), and twelve (12) years after the year of the allowance allocation.

(3) By October 31, 2009, and October 31 of each year thereafter, the department shall submit to the U.S. EPA the CAIR NO_x allowance allocations, in a format prescribed by the U.S. EPA and in accordance with subsections (c), (e), and (f), for the control period in the year of the applicable deadline for submission under this rule.

(4) The department shall make available for review to the public the CAIR NO_x allowance allocations under subdivision (2) on July 31 of each year allocations are made and shall provide a thirty (30) day opportunity for submission of objections to the CAIR NO_x allowance allocations. Objections shall be limited to addressing whether the CAIR NO_x allowance allocations are in accordance with this section. Based on any such objections, the department shall consider any objections and input from affected sources and, if appropriate, adjust each determination to the extent necessary to ensure that it is in accordance with this section.

  (c) The baseline heat input, in million British thermal units (MMBtu) used with respect to CAIR NO_x allowance allocations under subsection (d) for each CAIR NO_x unit shall be as follows:

(1) For units commencing operation before January 1, 2001:

(A) For a CAIR NO_x allowance allocation under subsection (b)(1), the average of the three (3) highest amounts of the unit's adjusted control period heat input for 1998 through 2005, with the adjusted control period heat input for each year calculated as follows:

(i) If the unit is coal-fired during the year, the unit's control period heat input for such year is multiplied by one hundred percent (100%).

(ii) If the unit is oil-fired during the year, the unit's control period heat input for such year is multiplied by sixty percent (60%).

(iii) If the unit is not subject to item (i) or (ii), the unit's control period heat input for such year is multiplied by forty percent (40%).

(B) For a CAIR NO_x allowance allocation under subsection (b)(2), the average of the three (3) highest amounts of the unit's adjusted control period heat input for the eight (8) years before when the CAIR NO_x allocation is being calculated, with the adjusted control period heat input for each year calculated as follows:

(i) If the unit is coal-fired during the year, the unit's control period heat input for such year is multiplied by one hundred percent (100%).

(ii) If the unit is oil-fired during the year, the unit's control period heat input for such year is multiplied by sixty percent (60%).

(iii) If the unit is not subject to item (i) or (ii), the unit's control period heat input for such year is multiplied by forty percent (40%).

(2) For units commencing operation on or after January 1, 2001, and operating each calendar year during a period of three (3) or more consecutive calendar years, the average of the three (3) highest amounts of the unit's total converted control period heat input for the years before when the CAIR NO_x allocation is being calculated, not to exceed (8).

(3) A unit's control period heat input, and a unit's status as coal-fired or not coal-fired, for a calendar year under subdivision (1), and a unit's total tons of NO_x emissions during a control period in calendar year under subsection (e), shall be determined in accordance with 40 CFR 75*, to the extent the unit was otherwise subject to the requirements of 40 CFR 75* for the year, or shall be based on the best available data reported to the department for the unit, to the extent the unit was not otherwise subject to the requirements of 40 CFR 75* for the year.

(4) A unit's converted control period heat input for a calendar year under subdivision (2) equals one (1) of the following:

(A) The control period gross electrical output of the generator or generators served by the unit multiplied by eight thousand nine hundred (8,900) British thermal units per kilowatt hour (Btu/kWh) for coal-fired units or seven thousand six hundred (7,600) British thermal units per kilowatt hour (Btu/kWh) for a unit that is not coal-fired divided by one million (1,000,000) British thermal units per million British thermal units (Btu/MMBtu), provided that if a generator is served by two (2) or more units, then the gross electrical output of the generator shall be attributed to each unit in proportion to the unit's share of the total control period heat input of such units for the year.

(B) For a unit that has equipment used to produce electricity and useful thermal energy for industrial, commercial, heating, or cooling purposes through the sequential use of energy, the control period gross electrical output of the unit multiplied by eight thousand nine hundred (8,900) British thermal units per kilowatt hour (Btu/kWh) plus the useful energy, in British thermal units (Btu), produced during the control period divided by eight-tenths (0.8), and with the sum divided by one million (1,000,000) British thermal units per million British thermal units (Btu/MMBtu).

  (d) For each control period in 2009 and thereafter, the department shall allocate to all CAIR NO_x units that have a baseline heat input, as determined under subsection (c), a total amount of CAIR NO_x allowances as listed in subsection (a)(1), except as provided in subsection (f). The department shall allocate CAIR NO_x allowances to each CAIR NO_x unit in an amount determined by multiplying the total amount under subsection (a)(1) by the ratio of the baseline heat input of such CAIR NO_x unit to the total amount of baseline heat input of all such CAIR NO_x units and rounding to the nearest whole allowance as appropriate.

  (e) For each control period in 2009 and thereafter, the department shall allocate CAIR NO_x allowances to CAIR NO_x units that commenced operation on or after January 1, 2001, and do not yet have a baseline heat input, as determined under subsection (c), in accordance with the following procedures:

(1) The department shall establish a new unit set-aside for each control period equal to the following:

(A) Four thousand nine hundred two (4,902) tons for a control period during 2009 through 2014.

(B) Two thousand two hundred seventy (2,270) tons for CAIR NO_x units for a control period during 2015 and thereafter.

(2) The CAIR designated representative of such a CAIR NO_x unit may submit to the department a request, in a format specified by the department, to be allocated CAIR NO_x allowances, starting with the later of the control period in 2009 or the first control period after the control period in which the CAIR NO_x unit commences commercial operation and until the first control period for which the unit is allocated CAIR NO_x allowances under subsection (d). A separate CAIR NO_x allowance allocation request for each control period for which CAIR NO_x allowances are sought must be submitted on or before May 1 of such control period and after the date on which the CAIR NO_x unit commences commercial operation.

(3) In a CAIR NO_x allowance allocation request under subdivision (2), the CAIR designated representative may request for a control period CAIR NO_x allowances in an amount not exceeding the CAIR NO_x unit's total tons of NO_x emissions during the calendar year immediately before such control period.

(4) The department shall review each CAIR NO_x allowance allocation request under subdivision (2) and shall allocate CAIR NO_x allowances for each control period pursuant to such request as follows:

(A) The department shall accept an allowance allocation request only if the request meets, or is adjusted by the department as necessary to meet, the requirements of subdivisions (2) and (3).

(B) On or after May 1 of the control period, the department shall determine the sum of the CAIR NO_x allowances requested, as adjusted under clause (A), in all allowance allocation requests accepted under clause (A) for the control period.

(C) If the amount of CAIR NO_x allowances in the new unit set-aside for the control period is greater than or equal to the sum under clause (B), then the department shall allocate the amount of CAIR NO_x allowances requested, as adjusted under clause (A), to each CAIR NO_x unit covered by an allowance allocation request accepted under clause (A).

(D) If the new unit set-aside for the control period for which NO_x allowances are requested has an amount of NO_x allowances less than the number requested, as adjusted under clause (A), but the energy efficiency and renewable energy allocation set-aside is under-subscribed, the department shall allocate the amount of the NO_x allowances requested with the difference allocated from the energy efficiency and renewable energy allocation set-aside.

(E) If the amount of CAIR NO_x allowances in the new unit set-aside for the control period is less than the sum under clause (B), and the energy efficiency and renewable energy allocation set-aside is over subscribed, then the department shall allocate to each CAIR NO_x unit covered by an allowance allocation request accepted under clause (A) the amount of the CAIR NO_x allowances requested, as adjusted under clause (A), multiplied by the amount of CAIR NO_x allowances in the new unit set-aside for the control period, divided by the sum determined under clause (B), and rounded to the nearest whole allowance as appropriate.

(F) The department shall notify each CAIR designated representative that submitted an allowance allocation request of the amount of CAIR NO_x allowances, if any, allocated for the control period to the CAIR NO_x unit covered by the request and submit the CAIR NO_x allowances to U.S. EPA according to subsection (b)(3).

  (f) If, after completion of the procedures under subsection (e)(4) for a control period, any unallocated CAIR NO_x allowances remain in the new unit set-aside for the control period, the department shall allocate to each CAIR NO_x unit that was allocated CAIR NO_x allowances under subsection (d) an amount of CAIR NO_x allowances equal to the total amount of such remaining unallocated CAIR NO_x allowances, multiplied by the unit's allocation under subsection (d), divided by one hundred three thousand four hundred eighty-eight (103,488) for a control period during 2009 through 2014, and eighty-eight thousand fifty-five (88,055) for a control period during 2015 and thereafter, rounding to the nearest whole allowance as appropriate.

  (g) In addition to the CAIR NO_x allowances allocated under subsections (c) through (f), the department shall allocate for the control period in 2009 up to twenty thousand one hundred fifty-five (20,155) compliance supplement pool NO_x allowances to CAIR NO_x units, in accordance with this section. First, the department shall reserve allowances for eligible units and assign the reserved allowances in accordance with subdivisions (2) and (3). Then, the department will allocate earned CAIR NO_x allowances and surplus CAIR NO_x allowances in accordance with subdivision (5):

(1) The following terms and meanings apply to this section:

(A) "Baseline emission rate" means the heat input weighted average NO_x emission rate for 2003 through 2005 (excluding May 1 through September 30 of each year).

(B) "Eligible unit" or "eligible units" means a CAIR NO_x unit that:

(i) is a coal-fired unit that will be required to comply with CAIR annual NO_x emission limitations beginning January 1, 2009;

(ii) has or will have:

(AA) post-combustion NO_x control equipment, or shares a common stack with a unit that has or will have post-combustion NO_x control equipment installed before December 31, 2008; or

(BB) for all other units be able to achieve a NO_x emissions rate that is at least ten percent (10%) lower than the heat input weighted average NO_x emission rate for 2003 through 2005 (excluding May 1 through September 30 of each year);

(iii) has an established baseline emissions rate;

(iv) for which the department has approved its application in accordance with subdivision (2); and

(v) for which the unit in item (ii)(BB) achieves in 2007 or 2008, or both (excluding May 1 through September 30 of each year), a NO_x emissions rate at least ten percent (10%) lower than the baseline emissions rate.

(C) "Emission reduction" or "emission reductions" will be calculated, in tons per year, in accordance with the following formula:

Emission reductions = [eligible unit's actual heat input for 2007 or 2008, or both (excluding May 1 through September 30 of each year) × eligible unit's baseline emission rate] - [eligible unit's actual heat input for 2007 or 2008, or both (excluding May 1 through September 30 of each year) × actual NO_x emission rate (excluding May 1 through September 30 of each year)]/2000.

(D) "Reserved allowance" means an allowance from the compliance supplement pool that the department reserves for an eligible unit. Reserved allowances have no independent value and cannot be traded until after they are earned and allocated as CAIR NO_x allowances to an eligible unit.

(E) "Unit's excess emissions reductions" means one (1) of the following:

(i) The eligible unit's tons of NO_x emission reductions in excess of its reserved allowances × 1.5 for units with all of the following control equipment installed:

(AA) Electrostatic precipitator.

(BB) Selective catalytic reduction.

(CC) Flue gas desulfurization.

(ii) The eligible unit's tons of NO_x emission reductions in excess of its reserved allowances × 1.0 for all other units.

(2) To receive reserved allowances, the designated representative for a CAIR NO_x unit must submit an application to the department, in a format specified by the department, within thirty (30) days of the effective date of this rule, demonstrating that it satisfies subdivision (1)(B)(i) through (1)(B)(iii). The department shall approve or deny the application within one hundred twenty (120) days after receipt of the application and designate the amount of allowances it has reserved for that unit at that time.

(3) The department shall assign reserved allowances to each eligible unit, based on the following formula:

Amount of reserved allowances, in tons per year = (eligible unit's baseline heat input as defined in subsection (c) ÷ sum of baseline heat input from all eligible units as defined in subsection (c)) × (95% × 20,155). The amount of reserved allowances shall be determined separately each year, 2007 and 2008, depending upon the number of approved applications for eligible units each year. No more than fifty percent (50%) of the compliance supplement pool shall be reserved for eligible units in 2007. The remainder of the compliance supplement pool shall be reserved for eligible units in 2008 and any demonstrations of need.

(4) In order to receive CAIR NO_x allowances from the compliance supplement pool the following conditions must be met:

(A) The owners and operators of an eligible unit shall monitor and report the NO_x emissions rate and the heat input of the unit in accordance with section 11 of this rule in each control period for which early reduction credit is requested.

(B) The CAIR designated representative of an eligible unit shall submit to the department by May 1, 2009, a request, in a format specified by the department, for allocation of an amount of CAIR NO_x allowances from the compliance supplement pool identifying the amount of tons of emissions reductions it has achieved and demonstrating that it has satisfied subdivision (1).

(C) The actual NO_x emission rate used in the emissions reduction calculation in subdivision (1)(C) shall be the monitored NO_x emission rate for 2007 or 2008, respectively.

(D) Units that share a common stack shall meet the following requirements:

(i) For each eligible unit that is part of a common stack group the restriction in subdivision (1)(B)(ii)(BB) is applied to the entire common stack group except as provided in item (ii).

(ii) For a common stack group that has a least one (1) unit with post-combustion NO_x control equipment, the restriction in subdivision (1)(B)(ii)(AA) for post-combustion NO_x control equipment shall apply to the entire common stack group.

(E) No more than fifty percent (50%) of the compliance supplement pool shall be reserved or allocated for emission reductions or excess emission reductions implemented in 2007. The remainder of the compliance supplement pool shall be allocated for emission reductions or excess emission reductions implemented in 2008 and demonstrations of need.

(5) The department shall review each request under subdivision (4) and shall allocate CAIR NO_x allowances from the compliance supplement pool for the control period in 2009 to CAIR NO_x units, in accordance with the following procedures:

(A) Upon receipt of each such request, the department shall make any necessary adjustments to the request to ensure that the amount of the CAIR NO_x allowances requested meets the requirements of subdivisions (3) and (4). If an eligible unit achieved emission reductions less than or equivalent to the reserved allowances assigned to it under subdivision (3), the department shall allocate CAIR NO_x allowances from the compliance supplement pool to the eligible unit equal to the actual emission reductions achieved by the eligible unit. Any reserved allowances not earned by an eligible unit shall remain in the compliance supplement pool to be distributed in accordance with clause (C).

(B) To the extent an eligible unit achieved emission reductions in excess of the reserved allowances assigned to it under subdivision (3), the department shall allocate CAIR NO_x allowances to the eligible unit equal to the amount of its reserved allowances, plus additional CAIR NO_x allowances, if any, from the compliance supplement pool in accordance with clause (C).

(C) Any CAIR NO_x allowances that remain in the compliance supplement pool following allocation required by clauses (A) and (B) shall be allocated to eligible units that achieved emission reductions in excess of their reserved allowances. The department shall make allocations of the remaining CAIR NO_x allowances in accordance with the following formula:

An eligible unit's additional CAIR NO_x allowances from the compliance supplement pool = (unit's excess emissions reductions/ the total tons of adjusted excess NO_x emissions reductions achieved by all eligible units) × the total of remaining CAIR NO_x allowances in the compliance supplement pool following allocation under clauses (A) and (B). In no case shall the actual amount of additional CAIR NO_x allowances awarded in this clause exceed the number of actual emission reductions achieved in excess of the reservation under subdivision (3).

(6) For any CAIR NO_x unit whose compliance with CAIR NO_x emissions limitation for the control period in 2009 would create an undue risk to the reliability of electricity supply during such control period, the CAIR designated representative of the unit may request the allocation of CAIR NO_x allowances from the compliance supplement pool in accordance with the following:

(A) The CAIR designated representative of such CAIR NO_x unit shall submit to the department by May 1, 2009, a request, in a format specified by the department, for allocation of an amount of CAIR NO_x allowances from the compliance supplement pool not exceeding the minimum amount of CAIR NO_x allowances necessary to remove such undue risk to the reliability of electricity supply.

(B) In the request under clause (A), the CAIR designated representative of such CAIR NO_x unit shall demonstrate that, in the absence of allocation to the unit of the amount of CAIR NO_x allowances requested, the unit's compliance with CAIR NO_x emissions limitation for the control period in 2009 would create an undue risk to the reliability of electricity supply during such control period. This demonstration must include a showing that it would not be feasible for the owners and operators of the unit to:

(i) obtain a sufficient amount of electricity from other electricity generation facilities, during the installation of control technology at the unit for compliance with the CAIR NO_x emissions limitation, to prevent such undue risk; or

(ii) obtain under subdivisions (5) and (7), or otherwise obtain, a sufficient amount of CAIR NO_x allowances to prevent such undue risk.

(7) The department shall review each request under subdivision (6) and shall allocate CAIR NO_x allowances, not to exceed one thousand eight (1,008) allowances, for the control period in 2009 to CAIR NO_x units covered by such request. If no requests for allowances are received under subdivision (6), the allowances shall be available for allocation under subdivision (5)(C).

(8) By November 30, 2009, the department shall determine, and submit to the U.S. EPA the allocations of CAIR NO_x allowances from the compliance supplement pool under subdivisions (5) and (7).

(9) By January 1, 2010, the U.S. EPA will record the allocations under subdivision (8).

  (h) For projects that reduce NO_x emissions through the implementation of energy efficiency or renewable energy measures, or both, implemented during a control period beginning January 1, 2009, the department shall allocate NO_x allowances in accordance with the following procedures:

(1) The energy efficiency and renewable energy allocation set-aside shall be allocated NO_x allowances equal to the following:

(A) Five hundred forty-five (545) tons for a control period during 2009 through 2014.

(B) Four hundred fifty-four (454) tons for a control period during 2015 and thereafter.

(2) Any person may submit to the department a request, in writing, or in a format specified by the department, for NO_x allowances as follows:

(A) Sponsors of energy efficiency or renewable energy projects in section 2(39)(A) through 2(39)(H) of this rule may request the reservation of NO_x allowances, for one (1) control period in which the project is implemented. Project sponsors may reapply each year, not to exceed five (5) control periods for energy efficiency projects in sections 2(39)(A), 2(39)(B), 2(39)(E), and 2(39)(F) of this rule and for an unlimited number of years for projects in sections 2(39)(C), 2(39)(D), and 2(39)(H) of this rule. Requests for allowances may be made for projects implemented two (2) years before the effective date of this rule. Projects must equal at least one (1) ton of NO_x emissions and multiple projects may be aggregated into one (1) allowance allocation request to equal one (1) or more tons of NO_x emissions.

(B) The NO_x allowance allocation request must be submitted by May 1 of the calendar year for which the NO_x allowance allocation is requested.

(C) The NO_x allowance allocation request for an integrated gasification combined cycle project under section 2(39)(G) of this rule must be submitted by May 1 of the calendar year for which the NO_x allowance allocation is requested and after the date on which the department issues a permit to construct the CAIR NO_x unit. For integrated gasification combined cycle projects, project sponsors may request the reservation of NO_x allowances, based on the number of kilowatt hours of electricity generated based on an eighty-five percent (85%) capacity factor and expected heat rate of the unit. Project sponsors may reapply each year, not to exceed five (5) control periods. Requests for allowances may be made only for integrated gasification combined cycle projects which first start commercial operations in 2009 and beyond.

(3) In a NO_x allowance allocation request made under this subsection, the project sponsor may request for a control period, NO_x allowances not to exceed the following:

(A) Projects in section 2(39)(A) of this rule that claim allowances based upon reductions in the consumption of electricity and that are sponsored by end-users or nonutility third parties receive allowances based upon the number of kilowatt hours of electricity saved during a control period and the following formula:

Allowances = (kWS × 0.0015)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	kWS	=	The number of kilowatt hours of electricity saved during a control period by the project.

(B) Projects in section 2(39)(A) of this rule that claim allowances based upon reductions in the consumption of electricity and that are sponsored by electric generating units shall be awarded allowances according to the following formula:

Allowances = (kWS × 0.00075/2,000)

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	kWS	=	The number of kilowatt hours of electricity saved during a control period by the project.

(C) Projects in section 2(39)(A) of this rule that claim allowances based upon reductions in the consumption of energy other than electricity and that are not CAIR NO_x units shall be awarded allowances according to the following formula:

Allowances = (((Et1/Pt1) - (Et2/Pt2)) × Pt2 × NPt2 × (NPt1/NPt2))/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	Et1	=	Energy consumed per control period before project implementation.
	Pt1	=	Units of product produced per control period before project implementation.
	Et2	=	Energy consumed in the most recent control period.
	Pt2	=	Units of product produced in the most recent control period.
	NPt1	=	NOx produced during the consumption of energy, measured in pounds per million British thermal units before project implementation.
	NPt2	=	NOx produced during the consumption of energy, measured in pounds per million British thermal units in the most recent control period.

(D) Projects in section 2(39)(A) of this rule that claim allowances based upon reductions in the consumption of energy other than electricity and that are CAIR NO_x units shall be awarded allowances according to the following formula:

Allowances = (((Et1/Pt1) - (Et2/Pt2)) × Pt2 × NPt2 × (NPt1/NPt2) × 0.5)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	Et1	=	Energy consumed per control period before project implementation.
	Pt1	=	Units of product produced per control period before project implementation.
	Et2	=	Energy consumed in the most recent control period.
	Pt2	=	Units of product produced in the most recent control period.
	NPt1	=	NOx produced during the production process, measured in pounds per million British thermal units before project implementation.
	NPt2	=	NOx produced during the production process, measured in pounds per million British thermal units in the most recent control period.

Product produced, as used in the formulas in this clause and clause (C), may include manufactured items; raw, intermediate, or final materials; or other products measured in discrete units and produced as a result of the consumption of energy in a specific process or piece of equipment. Claims for allowances must include documentation of NO_x emissions per British thermal unit both before and after implementation of the project for the energy-consuming process for which energy savings are claimed.

(E) Projects in section 2(39)(B) of this rule that claim allowances based upon highly efficient electricity generation using systems such as combined cycle, microturbines, and fuel cell systems for the predominant use of a single end user, that meet the thresholds specified in section 2(39)(B) of this rule, that are not CAIR NO_x units under section 1 of this rule, and that are sponsored by end-users or nonutility third parties, receive allowances based upon the net amount of electricity generated during a control period and the following formula:

Allowances = (kWG × (0.0015-NO_x ))/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	kWG	=	The number of net kilowatt hours of electricity generated during a control period by the project.
	NOx	=	The amount of NOx produced during the generation of electricity, measured in pounds per kilowatt hour.

(F) Projects in section 2(39)(B) of this rule that claim allowances based upon highly efficient combined heat and power systems for the predominant use of a single end user, that meet the thresholds specified in section 2(39)(B) of this rule, that are not CAIR NO_x units under section 1 of this rule, and that are sponsored by end-users or nonutility third parties, receive allowances based upon the net amount of energy generated and used during a control period and the following formula:

Allowances = (NO_x conventional - NO_x CHP)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	NOx conventional	=	[(0.15 × 3,412 × kWG / 0.34) + (0.17 × HeatOut / 0.8)] / 1,000,000
	NOx CHP	=	(BtuIn × NOxRate)/1,000,000
	Where:		kWG = The number of net kilowatt hours of electricity generated during a control period by the project.
			HeatOut = The number of British thermal units (Btu) of heat or steam effectively used for space, water, or industrial process heat during a control period by the project.
			NOxRate = NOx emitted during normal system operation by the project, measured in pounds per million Btu of fuel input.
			BtuIn = The number of British thermal units (Btu) of fuel used to produce electricity, heat, or steam during a control period by the project.

(G) Projects in section 2(39)(B) and 2(39)(G) of this rule receive allowances based upon the number of kilowatt hours of electricity each project generates during a control period. Highly efficient electricity generation projects using systems such as combined cycle, microturbines, and fuel cell systems for the predominant use of a single end user, that meet a rated energy efficiency threshold of sixty percent (60%) for combined cycle systems and forty percent (40%) for microturbines and fuel cells; or integrated gasification combined cycle, and that are sponsored by NO_x allowance account holders that own or operate units that produce electricity and are subject to the emission limitations of this rule shall receive allowances based upon the net amount of electricity generated during a control period and the following formula:

Allowances = (kWG × (0.0015 - NO_x) × 0.5)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	kWG	=	The number of net kilowatt hours of electricity generated during a control period by the project.
	NOx	=	The amount of NOx produced during the generation of electricity, measured in pounds per kilowatt hour.

(H) Projects in subdivision (2) and specified in section 2(39)(C) and 2(39)(D) of this rule receive allowances based upon the number of kilowatt hours of electricity each project generates during a control period and according to the following formula:

Allowances = (kWG × 0.0015)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	kWG	=	The number of kilowatt hours of electricity generated during a control period by the project.

(I) Projects in subdivision (2) and specified in section 2(39)(E) through 2(39)(G) of this rule receive allowances based upon the difference in emitted NO_x per megawatt hour of operation for units before and after replacement or improvement and according to the following formula:

Allowances = ((Et1 - Et2) × h) × 0.5)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	Et1	=	The emission rate in pounds per megawatt hour of NOx of the unit before improvement or replacement.
	Et2	=	The emission rate in pounds per megawatt hour of NOx of the unit after improvement or replacement.
	h	=	The number of megawatt hours of operation during the control period.

(J) Projects in section 2(39)(A) of this rule based upon energy efficiency other than electricity savings shall be awarded allowances according to the following formula:

Allowances = (NO_x Rate × HeatOut / 0.8)/1,000,000/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	NOx Rate	=	0.17 lb/MMBtu or the actual NOx emission rate, whichever is greater.
	HeatOut	=	The number of British thermal units (Btu) of heat or steam effectively used for space, water, or industrial process heat during a control period by the project.

(K) Projects in section 2(39)(H) of this rule using renewable energy to displace coal, natural gas, or oil combustion and reduce NO_x emissions shall be awarded allowances according to the following formula:

Allowances = ((0.17 × Fuel-Input)/1,000,000)/2,000

Where:	Allowances	=	The number of allowances awarded to a project sponsor.
	Fuel-Input	=	The amount of heat input, in Btu, from the renewable energy.

(4) The department shall review, reserve, and allocate CAIR NO_x allowances pursuant to, each allowance allocation request by July 31 each year as follows:

(A) Upon receipt of the NO_x allowance allocation request, the department shall make any necessary adjustments to the request to ensure that the number of allowances specified in the request is consistent with the requirements of subdivision (3).

(B) If the energy efficiency and renewable energy allocation set-aside for the control period for which NO_x allowances are requested has an amount of NO_x allowances greater than or equal to the number requested, as adjusted under clause (A), the department shall reserve the amount of the NO_x allowances requested, as adjusted under clause (A), to the energy efficiency and renewable energy projects.

(C) If the energy efficiency and renewable energy allocation set-aside for the control period for which NO_x allowances are requested has an amount of NO_x allowances less than the number requested, as adjusted under clause (A), but the new unit set-aside is under-subscribed, the department shall reserve the amount of the NO_x allowances requested with the difference reserved from the new unit set-aside.

(D) If the energy efficiency and renewable energy allocation set-aside for the control period for which NO_x allowances are requested has an amount of NO_x allowances less than the number requested, as adjusted under clause (A), and the new unit set-aside is over-subscribed, the department shall reserve the allocation set-aside on a pro rata basis, except that allowances requested for projects under section 2(39)(A), 2(39)(C), 2(39)(D), and 2(39)(H) of this rule shall be reserved first, reserved for projects under section 2(39)(B) and 2(39)(G) of this rule second, reserved for projects under section 2(39)(E) of this rule third, and reserved for projects under section 2(39)(F) of this rule fourth.

(E) Any unreserved allowances shall be distributed as follows:

(i) Fifty percent (50%) of the unreserved allowances shall be retained by the state to fund a grant program for energy efficiency and renewable energy projects. The grant program projects do not need to meet the one (1) ton of NO_x emissions for singular or aggregated projects under subdivision (2). The unreserved NO_x allowances shall be deposited in a general allowance account established in accordance with this rule by the Indiana office of energy and defense development in accordance with the allowance allocation requirements of this rule, subject to the following:

(AA) The Indiana office of energy and defense development shall deposit revenue from the sale of unreserved NO_x allowances in a dedicated general NO_x account established by this rule used exclusively to provide matching grant funds for energy efficiency and renewable energy projects, including, but not limited to, the purchase and installation of alternative energy systems and programs to support energy efficiency projects.

(BB) The Indiana office of energy and defense development shall hold the unreserved NO_x allowances in a general NO_x account until such time that project(s) are approved for grant funding, at which time NO_x allowances shall be sold to provide cash dollars for the grant funding.

(CC) Revenue from the sale of unreserved NO_x allowances held by the state of Indiana through the Indiana office of energy and defense development shall not revert to the state general fund, and shall only be used to provide matching grant funds for the installation of energy efficiency and renewable energy projects as defined in this subsection.

(DD) Effective November 1, 2009, and annually thereafter, the Indiana office of energy and defense development shall provide a report to the commissioner and the air pollution control board regarding the allowance transaction activity and the distribution and the balance of the matching grant funds for energy efficiency and renewable energy projects during that period. At a minimum, the report shall contain the following:

(aa) The number of NO_x allowances currently held in general NO_x account(s) by the Indiana office of energy and defense development.

(bb) A summary of transactions in the market, including the date(s) of transactions, the number of allowances transacted, and the distribution of proceeds from transactions (including brokerage fees).

(cc) The distribution of grant funding by recipient.

(dd) A full description of type of project(s) funded.

(ee) A summary of the benefits of each project.

(EE) If at any time after November 1, 2009, the total number of unreserved annual NO_x allowances held by the Indiana office of energy and defense development is greater than five hundred (500) tons, fifty percent (50%) of the total amount of NO_x allowances shall be returned to the department for redistribution to existing CAIR NO_x units on a pro rata basis.

(ii) Fifty percent (50%) of the unreserved allowances shall be allocated to CAIR NO_x units on a pro rata basis.

(5) After the completion of the control period for which CAIR NO_x allowances had been reserved, the project sponsor shall submit the results of the actual savings or generation by January 31 the following year. Allowances shall be awarded only after verification of project implementation and certification of energy, emission, or electricity savings, as appropriate. The department shall consult the Indiana office of energy and defense development concerning verification and certification.

(6) The department shall allocate the appropriate amount of CAIR NO_x allowances based on the review of the submittal of actual savings or generation results under subdivision (5) and notify the CAIR NO_x designated representative that submitted the request and the U.S. EPA of the number of NO_x allowances allocated for the control period by March 31 of each year. Any person to whom the department allocates NO_x allowances shall establish a general account under section 9(b) of this rule.

  *These documents are incorporated by reference. Copies may be obtained from the Government Printing Office, 732 North Capitol Street NW, Washington, D.C. 20401 or are available for review and copying at the Indiana Department of Environmental Management, Office of Air Quality, Indiana Government Center-North, Tenth Floor, 100 North Senate Avenue, Indianapolis, Indiana 46204. (Air Pollution Control Division; 326 IAC 24-1-8; filed Jan 26, 2007, 10:25 a.m.: 20070221-IR-326050117FRA; filed May 12, 2009, 11:16 a.m.: 20090610-IR-326080005FRA)