Section 336.1810. Allowance allocations under oxides of nitrogen budget trading program.

 (1) The trading program budget allocated by the department under subrule

(3)   of this rule for an ozone control period shall equal the total number of tons of oxides of nitrogen emissions apportioned to the oxides of nitrogen budget units under R 336.1802 for the ozone control period, as determined by the procedures in this rule. The total number of tons of oxides of nitrogen emissions that are available for allocation as oxides of nitrogen allowances under this rule is as follows:

(a)   For electricity-generating units, 29,038 tons in 2004, 2005, and 2006, and 28,150 tons in each year thereafter.

(b)   For large affected units, 2,209 tons, distributed as follows:

(i)   For large affected units, 1,081 tons.

(ii)   For hardship purposes described in subrule (4)(f) of this rule, 564 tons.

(iii)    For new source set-aside purposes described in R 336.1811, 564 tons in 2004, 2005, and 2006, and 1,452 tons in each year thereafter.

(2)   The department shall allocate oxides of nitrogen allowances to oxides of nitrogen budget units according to the following schedule:

(a)   A 3-year allocation that is 3 years in advance of the ozone control period in which the allowances are to be used. the 3-year allocation shall be as follows:

(i)    Within 60 days of the effective date of this rule, the department shall submit, to the United States environmental protection agency, the oxides of nitrogen allowance allocations, in accordance with subrules (3) and (4) of this rule, for the ozone control periods in 2004, 2005, and 2006.

(ii)   By April 1, 2004, the department shall submit, to the United States environmental protection agency, the oxides of nitrogen allowance allocations, in accordance with subrules (3) and (4) of this rule, for the ozone control periods in 2007, 2008, and 2009.

(iii)       By April 1, 2007, the department shall submit, to the United States environmental protection agency, the oxides of nitrogen allowance allocations, in accordance with subrules (3) and (4) of this rule, for the ozone control periods in 2010, 2011, and 2012.

(iv)   By April 1, 2010, and thereafter April 1 of the year that is 3 years after the last year of allocations, the department shall submit, to the United States environmental protection agency, the oxides of nitrogen allowance allocations, in accordance with subrules (3) and (4) of this rule, for the ozone control periods 3, 4, and 5 years after the year of the allowance allocation.

(b)   If the department fails to submit the oxides of nitrogen allowance allocations in accordance with this subdivision to the United States environmental protection agency,

then the United States environmental protection agency will allocate, for the applicable ozone control period, the same number of oxides of nitrogen allowances as were allocated for the preceding ozone control period.

(c)   By April 1, 2005, and April 1 of each year thereafter, the department shall submit, to the United States environmental protection agency, the oxides of nitrogen allowance allocations remaining in the allocation set-aside for the prior ozone control period, in accordance with R 336.1811.

(3)   The heat input, in million Btu's, used for calculating oxides of nitrogen allowance allocations for each oxides of nitrogen budget unit under R 336.1805 shall be as follows:

(a)   For an oxides of nitrogen allowance allocation under subrule (2)(a)(i) of this rule, the following provisions apply, as applicable:

(i)   For an electric generating unit, the average of the 2 highest amounts of the unit's heat input for the ozone control periods in 1995 through 2000.

(ii)    For a large affected unit, the average of the 2 highest amounts of the unit's heat input for the ozone control periods in 1995 through 2000.

(iii)    For a unit that operated less than 2 ozone seasons in 1995 through 2000, the single highest heat input for 1 of these ozone seasons.

(b)    For an oxides of nitrogen allowance allocation under subrule (2)(a)(ii) through

(iv)   of this rule, the unit's average of the 2 highest heat inputs for the ozone control period in the 5 years immediately preceding the year in which the department is required to submit the oxides of nitrogen allocations. If a unit operated less than 2 ozone seasons in 1 of the 5-year time periods, then the unit's single highest heat input shall be used.

(c)    The unit's total heat input for the ozone control period in each year shall be determined in accordance with 40 C.F.R. part 75 if the oxides of nitrogen budget unit was otherwise subject to the requirements of 40 C.F.R. part 75 for the year, or shall be based on the best available data reported to the department for the unit if the unit was not otherwise subject to the requirements of 40 C.F.R. part 75 for the year. The owner or operator of an oxides of nitrogen budget unit shall submit heat input data within 30 days if requested by the department. Title 40 C.F.R. part 75 is adopted by reference in R 336.1801.

(4)   For each ozone control period under subrule (2) of this rule, the department shall allocate to all oxides of nitrogen budget units that commenced operation before May 1 of the most recent year of the 5-year period used to calculate heat input under subrule (3) of this rule, a total of 29,038 tons of allowances for electric generating units in 2004, 2005, and 2006; 28,150 tons in each year thereafter; and 1,081 tons of allowances for large affected units, apportioned in accordance with the following procedures:

(a)    The department shall allocate oxides of nitrogen allowances to each electricity- generating unit in an amount equaling 0.15 pound per million Btu's or the allowable emission rate, whichever is more stringent, multiplied by the heat input determined under subrule (3) of this rule, divided by 2,000 pounds per ton, and rounded to the nearest whole oxides of nitrogen allowance, as appropriate.

(b)     If the initial total number of oxides of nitrogen allowances allocated to all electricity-generating units for an ozone control period under subdivision (a) of this subrule does not equal 29,038 tons in 2004, 2005, and 2006, and 28,150 tons in each year thereafter, then the department shall adjust up or down the total number of oxides of nitrogen allowances allocated to all oxides of nitrogen budget units for the ozone control

period under subdivision (a) of this subrule so that the total number of oxides of nitrogen allowances allocated equals 29,038 tons in 2004, 2005, and 2006, and 28,150 tons in each year thereafter. The adjustment shall be made by multiplying each unit's allocation determined in subdivision (a) by a correction factor determined by dividing the total number of the budget tons being allocated by the sum of all units' allocations in subdivision (a).

(c)   The department shall allocate oxides of nitrogen allowances to each large affected unit in an amount equaling 0.17 pound per million Btu's or the allowable emission rate, whichever is more stringent, multiplied by the heat input determined under subrule (3) of this rule, divided by 2,000 pounds per ton, and rounded to the nearest whole oxides of nitrogen allowance, as appropriate.

(d)   If the initial total number of oxides of nitrogen allowances allocated to all large affected units for an ozone control period under subdivision (c) of this subrule does not equal 1,081 tons, then the department shall adjust the total number of oxides of nitrogen allowances allocated to all oxides of nitrogen budget units for the ozone control period under subdivision (c) of this subrule so that the total number of oxides of nitrogen allowances allocated equals 1,081 tons. The adjustment shall be made multiplying each unit's allocation determined in subdivision (c) by a correction factor determined by dividing the total number of the budget tons being allocated by the sum of all units' allocations in subdivision (c).

(e)    The authorized account representative of an electric generating unit or a large affected unit that has not been capable of operating for 2 complete ozone control periods, because it recently received its air use permit, may elect to abandon its allowance allocation for the 3-year allocation period, be considered a new source, and obtain an oxides of nitrogen allowance allocation as provided for by R 336.1811. A written notification of the election shall be provided to the department 1 or more months before the allocation dates identified in subrule (2)(a) or (c) of this rule. The abandoned allocation returns to the appropriate oxides of nitrogen trading budget in subrule (1)(a) or

(b)   of this rule.

(f) After the provisions of subdivisions (a) through (d) of this subrule have been followed, an owner or operator may pursue the following:

(i)   The allocation determined by subdivisions (a) through (d) of this subrule may be revised for a given budget source if the budget source is a large affected unit or a small business as defined in chapter 3 of 1969 pa 306, MCL 24.240 et seq. The owner or operator shall demonstrate to the department that the control level in subdivision (a) or

(c)      of this subrule results in excessively costly or prohibitive compliance. The demonstration shall include all of the following:

(A)   An engineering study analyzing all control options that are technically available for the unit, including control options that would achieve a level of control meeting, at a minimum, a 0.3 pound per million Btu emission rate.

(B)   The annualized cost associated with each control option. An annualized cost of more than $4,000.00 per ton of oxide of nitrogen reduced will generally be considered to be an excessive cost for compliance with this rule.

(C)  Other considerations contributing to prohibitive compliance.

(ii)    Notwithstanding the available allocations of subrule (1)(b) of this rule, the total number of additional allocations available for all budget sources receiving department

approval for paragraph (i) demonstrations shall not be more than 564 tons per ozone season.

(iii)    The department shall determine how revised allocations are distributed among those budget sources meeting the criteria in paragraph

(i)   of this subdivision.

(iv)   Upon approval by the department, a source that undertakes an innovative control program for compliance with these rules may receive allocations under the provisions of this subdivision. The allocations shall be available for use during only 1 allocation period, as needed, and shall not be more than 75 tons.

(v)   The provisions of this subdivision shall only apply for the time period beginning with the effective date of this rule and ending on September 30, 2012. Beginning with the 3-year allocation in 2010, 95% of the allocations listed in paragraph (ii) of this subdivision shall be added to the electric generating unit budget in subrule (1) of this rule and 5% shall be added to the large affected unit budget in subrule (1) of this rule and will, therefore, be available to all existing sources beginning in the 2013 ozone season.

History: 2002 MR 22, Eff. Dec. 4, 2002.