Purpose: The purpose of this rule making is to adopt chapter 173-407 WAC. The purpose of this chapter is to recover permitting authority costs related to implementing the mitigation program, to clarify CO₂ emissions calculations, and to integrate mitigation program plans into the air quality permits using the order of approval process.

     Statutory Authority for Adoption: RCW 70.94.892 and chapter 80.70 RCW.

      Adopted under notice filed as WSR 04-21-070 on October 19, 2004.

     Changes Other than Editing from Proposed to Adopted Version: 1. Change WAC 173-407-030(4) to: Modifying existing fossil-fueled thermal electric generating facilities.

     2. Change WAC 173-407-030 (4)(c) to read: (c) The increase to the facility or units is the greater of the following measures:

     (i) an increase of station-generating capability of more than 25 MWe; or (ii) an increase in CO₂ emissions output by 15% or more.

     3. Replace "or similar analysis" in 173-407-050 (1)(e) with "unless a differing analysis is necessary or appropriate for the electric generating process and type of equipment." Also, in 173-407- (1)(e): (1) Add notation to referring to the source of information (AP-42) for fuel chart; (2) add "fossil" to other fuels; (3) add nonfossil fuels category to chart with a corresponding value of 00.00.

     A final cost-benefit analysis is available by contacting David Reich, Department of Ecology, P.O. Box 47600, Olympia, WA 98504-7600, phone (360) 407-6865, fax (360) 407-6989, e-mail DAVR461@ecy.wa.gov.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 9, Amended 0, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 3, Amended 0, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Date Adopted: December 21, 2004.

Linda Hoffman

Director

OTS-7503.3

     (2) A fossil-fueled thermal electric generating facility is not subject to the requirements of chapter 173-401 WAC solely due to its emissions of CO₂.

     (a) Emissions of other regulated air pollutants must be a large enough quantity to trigger those requirements.

     (b) For fossil-fueled thermal electric generating facilities that are subject to chapter 173-401 WAC, the CO₂ mitigation requirements are an applicable requirement under that regulation.

     (3) A fossil-fueled thermal electric generating facility not subject to the requirements of chapter 173-401 WAC is subject to the requirements of the registration program in chapter 173-400 WAC.

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     (1) "Applicant" has the meaning provided in RCW 80.50.020 and includes an applicant for a permit for a fossil-fueled thermal electric generation facility subject to RCW 70.94.152 and 80.70.020 (1)(b) or (d).

     (2) "Authority" means any air pollution control agency whose jurisdictional boundaries are coextensive with the boundaries of one or more counties.

     (3) "Carbon credit" means a verified reduction in carbon dioxide or carbon dioxide equivalents that is registered with a state, national, or international trading authority or exchange that has been recognized by the council.

     (4) "Carbon dioxide equivalents" means a metric measure used to compare the emissions from various greenhouse gases based upon their global warming potential.

     (5) "Cogeneration credit" means the carbon dioxide emissions that the council, department, or authority, as appropriate, estimates would be produced on an annual basis by a stand-alone industrial and commercial facility equivalent in operating characteristics and output to the industrial or commercial heating or cooling process component of the cogeneration plant.

     (6) "Cogeneration plant" means a fossil-fueled thermal power plant in which the heat or steam is also used for industrial or commercial heating or cooling purposes and that meets federal energy regulatory commission standards for qualifying facilities under the Public Utility Regulatory Policies Act of 1978.

     (7) "Commercial operation" means the date that the first electricity produced by a facility is delivered for commercial sale to the power grid.

     (8) "Council" means the energy facility site evaluation council created by RCW 80.50.030.

     (9) "Department" means the department of ecology.

     (10) "Fossil fuel" means natural gas, petroleum, coal, or any form of solid, liquid, or gaseous fuel derived from such material to produce heat for the generation of electricity.

     (11) "Mitigation plan" means a proposal that includes the process or means to achieve carbon dioxide mitigation through use of mitigation projects or carbon credits.

     (12) "Mitigation project" means one or more of the following:

     (a) Projects or actions that are implemented by the certificateholder or order of approval holder, directly or through its agent, or by an independent qualified organization to mitigate the emission of carbon dioxide produced by the fossil-fueled thermal electric generation facility. This term includes, but is not limited to, the use of energy efficiency measures, clean and efficient transportation measures, qualified alternative energy resources, demand side management of electricity consumption, and carbon sequestration programs;

     (b) Direct application of combined heat and power (cogeneration);

     (c) Verified carbon credits traded on a recognized trading authority or exchange; or

     (d) Enforceable and permanent reductions in carbon dioxide or carbon dioxide equivalents through process change, equipment shutdown, or other activities under the control of the applicant and approved as part of a carbon dioxide mitigation plan.

     (13) "Order of approval" means an order issued under RCW 70.94.152 with respect to a fossil-fueled thermal electric generation facility subject to RCW 80.70.020 (1)(b) or (d).

     (14) "Permanent" means that emission reductions used to offset emission increases are assured for the life of the corresponding increase, whether unlimited or limited in duration.

     (15) "Qualified alternative energy resource" has the same meaning as in RCW 19.29A.090.

     (16) "Station generating capability" means the maximum load a generator can sustain over a given period of time without exceeding design limits, and measured using maximum continuous electric generation capacity, less net auxiliary load, at average ambient temperature and barometric pressure.

     (17) "Total carbon dioxide emissions" means:

     (a) For a fossil-fueled thermal electric generation facility described under RCW 80.70.020 (1)(a) and (b), the amount of carbon dioxide emitted over a thirty-year period based on the manufacturer's or designer's guaranteed total net station generating capability, new equipment heat rate, an assumed sixty percent capacity factor for facilities under the council's jurisdiction or sixty percent of the operational limitations on facilities subject to an order of approval, and taking into account any enforceable limitations on operational hours or fuel types and use; and

     (b) For a fossil-fueled thermal electric generation facility described under RCW 80.70.020 (1)(c) and (d), the amount of carbon dioxide emitted over a thirty-year period based on the proposed increase in the amount of electrical output of the facility that exceeds the station generation capability of the facility prior to the applicant applying for certification or an order of approval pursuant to RCW 80.70.020 (1)(c) and (d), new equipment heat rate, an assumed sixty percent capacity factor for facilities under the council's jurisdiction or sixty percent of the operational limitations on facilities subject to an order of approval, and taking into account any enforceable limitations on operational hours or fuel types and use.

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     (2) Statutory carbon dioxide mitigation program applicability requirements. RCW 80.70.020 describes the applicability requirements and is reprinted below:

     (1) The provisions of this chapter apply to:

     (a) New fossil-fueled thermal electric generation facilities with station-generating capability of three hundred fifty thousand kilowatts or more and fossil-fueled floating thermal electric generation facilities of one hundred thousand kilowatts or more under RCW 80.50.020 (14)(a), for which an application for site certification is made to the council after July 1, 2004;

     (b) New fossil-fueled thermal electric generation facilities with station-generating capability of more than twenty-five thousand kilowatts, but less than three hundred fifty thousand kilowatts, except for fossil-fueled floating thermal electric generation facilities under the council's jurisdiction, for which an application for an order of approval has been submitted after July 1, 2004;

     (c) Fossil-fueled thermal electric generation facilities with station-generating capability of three hundred fifty thousand kilowatts or more that have an existing site certification agreement and, after July 1, 2004, apply to the council to increase the output of carbon dioxide emissions by fifteen percent or more through permanent changes in facility operations or modification or equipment; and

     (d) Fossil-fueled thermal electric generation facilities with station-generating capability of more than twenty-five thousand kilowatts, but less than three hundred fifty thousand kilowatts, except for fossil-fueled floating thermal electric generation facilities under the council's jurisdiction, that have an existing order of approval and, after July 1, 2004, apply to the department or authority, as appropriate, to permanently modify the facility so as to increase its station-generating capability by at least twenty-five thousand kilowatts or to increase the output of carbon dioxide emissions by fifteen percent or more, whichever measure is greater.

     (3) New facilities. Any fossil-fueled thermal electric generating facility is required to mitigate CO₂ emissions as described in chapter 80.70 RCW, if the facility meets the following criteria:

     (a) An application was received after July 1, 2004;

     (b) The station-generating capability is below 350 MWe and above 25 MWe;

     (c) The facility is not a fossil-fueled floating thermal electric generation facility subject to regulation by the energy facility site evaluation council.

     (4) Modifiying existing fossil-fueled thermal electric generating facilities. A fossil-fueled thermal electric generating facility seeking to modify the facility or any electrical generating units is required to mitigate the increase of the emission of CO₂, as described in RCW 80.70.020, when the following occur:

     (a) The application was received after July 1, 2004;

     (b) The unmodified station generating capability is more than 25 MWe and less than 350 MWe;

     (c) The increase to the facility or units is the greater of the following measures:

     (i) An increase in station-generating capability of more than 25 MWe; or

     (ii) An increase in CO₂ emissions output by 15% or more;

     (d) The facility or the modification is not under the jurisdiction of the energy facility site evaluation council.

     (5) Examples of fossil-fueled thermal electric generation units. The following are some examples of fossil-fueled thermal electric generating units:

     (a) Coal, oil, natural gas, or coke fueled steam generating units (boilers) supplying steam to a steam turbine - electric generator;

     (b) Simple cycle combustion turbine attached to an electric generator;

     (c) Combined cycle combustion turbines (with and without duct burners) attached to an electric generator and supplying steam to a steam turbine - electric generator;

     (d) Coal gasification units, or similar devices, where the synthesis gas produced is used to fuel a combustion turbine, boiler or similar device used to power an electric generator;

     (e) Hydrocarbon reformer emissions where the hydrogen produced is used in a fuel cell.

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     (2) Fees. The fees for the carbon dioxide mitigation program are described in this section and listed in the table below. The fees listed are added to the fees established in chapters 173-400 and 173-401 WAC, when the carbon dioxide mitigation plan requirements are triggered.

Activity		Fee
a. Application Review		$65.00/hr1 not to exceed $500.00
b. Mitigation Plan approval
	i. Payment to third party	$1002
	ii. Purchase of CO2 credits	$65.00/hr3
	iii. Direct investment	$65.00/hr4
c. Routine Compliance Monitoring
	i. Payment to third party	$1005 annually until full amount paid
	ii. Purchase of CO2 credits	$65.00/hr6
	iii. Applicant Controlled Project	$65.00/hr7

	1Estimated using an EE3 per hour rate with a cap.
	2Small fee primarily to check math and that the source is using an EFSEC approved qualified organization.
	3Estimated EE3 per hour rate to check that the credits purchased will be verifiable and from a reputable trading or marketing organization.
	4Estimated using an EE3 per hour rate.
	5Same as rationale for 2 above.
	6Verify and confirm credits with the trading or marketing organization.

     (3) The department or authority may use RCW 70.94.085 to structure a cost-reimbursement agreement with the applicant.

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CO2rate	=	Fs x Ks	x Ts +	F1 x K1	x T1 +	F2 x K2	x T2 +	F3 x K3	x T3. . . +	Fn x Kn	x Tn
		2204.6		2204.6		2204.6		2204.6		2204.6

CO2 rate	=	Maximum potential emissions in metric tons per year
F1 - n	=	Maximum design fuel firing rate in MMBtu/hour calculated as manufacturer/designer's guaranteed total net station generating capability in MWe times the new equipment heat rate in Btu/MWe
K1 - n	=	Conversion factor for the fuel(s) being evaluated in lb CO2/mmBtu for fuel Fn
T1 - n	=	Hours per year fuel Fn is allowed to be used. The default is 8760 hours unless there is a limitation on hours in an order of approval
Fs	=	Maximum design supplemental fuel firing rate in MMBtu/hour
Ks	=	Conversion factor for the supplemental fuel being evaluated in lb CO2/MMBtu for fuel Fn given fuel
Ts	=	Hours per year supplemental fuel Fn is allowed. The default is 8760 hours unless there is a limitation on hours in an order of approval

     (a) When there are multiple new fossil-fueled electric generating units, the above calculation will be performed for each unit and the total CO₂ emissions of all units will be summed.

     (b) When a unit or facility is allowed to use multiple fuels, the maximum allowed hours on the highest CO₂ producing fuels will be utilized for each fuel until the total of all hours per fuel add up to the allowable annual hours.

     (c) When a new unit or facility is allowed to use multiple fuels without restriction in its approval order(s), this calculation will be performed assuming that the fuel with the highest CO₂ emission rate is used 100% of the time.

     (d) When the annual operating hours are restricted for any reason, the total of all T_{1 - n} hours equals the annual allowable hours of operation in the Order of Approval.

     (e) Fuel to CO₂ conversion factors (derived from the EPA's AP-42, Compilation of Air Pollutant Emmission Factors):

Fuel	Kn lb/MMBtu
#2 oil	158.16
#4 oil	160.96
#6 oil	166.67
Lignite	328.57
Sub-bituminous coal	282.94
Bituminous coal, low volatility	312.50
Bituminous coal, medium volatility	274.55
Bituminous coal, high volatility	306.11
Natural gas	117.6
Propane	136.61
Butane	139.38
Petroleum coke	242.91
Coal coke	243.1
Other fossil-fuels	Calculate based on carbon content of the fossil fuel and application of the gross heat content (higher heating value) of the fuel
Nonfossil-fuels	00.00

     (2) Step 2 - Insert the annual CO₂ rate to determine the total carbon dioxide emissions to be mitigated. The formula below includes specifications that are part of the total carbon dioxide definition:

Total CO2 Emissions = CO2rate x 30 x 0.6

     (3) Step 3 - Determine and apply the cogeneration credit (if any). Where the cogeneration unit or facility qualifies for cogeneration credit, the cogeneration credit is the annual CO₂ emission rate (in metric tons per year) and is calculated as shown below or similar method:

CO2credit	=	Hs	(Ka) ÷ .35
		2204.6

Where cogeneration credit	=	The annual CO2 credit for cogeneration in metric tons/year.
Hs	=	Annual heat energy supplied by the cogeneration plant to the "steam host" per the contract or other binding obligation/agreement between the parties in MMBtu/yr as substantiated by an engineering analysis.
Ka	=	The time weighted average CO2 emission rate constant for the cogeneration plant in lb CO2/MMBtu supplied. The time weighted average is calculated similarly to the above method described in subsection (1) of this section.

Cogeneration Credit = CO2credit x 30

     (4) Step 4 - Apply the mitigation factor.

     (a) RCW 80.70.020(4) states that "Fossil-fueled thermal electric generation facilities that receive site certification approval or an order of approval shall provide mitigation for twenty percent of the total carbon dioxide emissions produced by the facility."

     (b) The CO₂ emissions mitigation quantity is determined by the following formula:

Mitigation Quantity = Total CO2 Emissions x 0.2 - Cogeneration Credit

Mitigation quantity	=	The total CO2 emissions to be mitigated in metric tons
CO2rate	=	The annual maximum CO2 emissions from the generating facility in tons/year
0.2	=	The mitigation factor in RCW 80.70.020(4)

     (5) Additional restrictions for modifications to an existing facility not involving installation of new generating units. The quantity of CO₂ to be mitigated is calculated by the same methods used for the new generating units with the following restrictions:

     (a) The quantity of CO₂ subject to mitigation is only that resulting from the modification and does not include the CO₂ emissions occurring prior to the modification.

     (b) An increase in operating hours or other operational limitations established in an order of approval is not an exempt modification under this regulation. However, only emissions related to the increase in operating hours are subject to the CO₂ mitigation program requirements.

     (c) The annual emissions (CO_{2 rate}) is the difference between the premodification condition and the postmodification condition, but using the like new heat rate for the combustion equipment.

     (d) The cogeneration credit may be used, but only if it is a new cogeneration credit, not a cogeneration agreement or arrangement established prior to July 1, 2004, or used in a prior CO₂ mitigation evaluation.

7Review reports and document project progress.

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     (2) What are the mitigation plan options? The options are identified in RCW 80.70.020(3), which states that "An applicant for a fossil-fueled thermal electric generation facility shall include one or a combination of the following carbon dioxide mitigation options as part of its mitigation plan:

     (a) Payment to a third party to provide mitigation;

     (b) Direct purchase of permanent carbon credits; or

     (c) Investment in applicant-controlled carbon dioxide mitigation projects, including combined heat and power (cogeneration)."

     (3) What are the requirements of the payment to a third party option? The payment to a third party option requirements are found in RCW 80.70.020 (5) and (6). Subsection (5) identifies the mitigation rate for this option and describes the process for changing the mitigation rate. Subsection (6) describes the payment options.

     The initial mitigation rate is $1.60 per metric ton of carbon dioxide to be mitigated. If there is a cogeneration plant, the monetary amount is based on the difference between twenty percent of the total carbon dioxide emissions and the cogeneration credit. This rate will change when the energy facility site evaluation council adjusts it through the process described in RCW 80.70.020 (5)(a) and (b). The total payment amount = mitigation rate x mitigation quantity.

     An applicant may choose between a lump sum payment or partial payment over a period of five years. The lump sum payment is described in RCW 80.70.020 (6)(a) and (b). The payment amount is the mitigation quantity multiplied by the per ton mitigation rate. The entire payment amount is due to the independent qualified organization no later than one hundred twenty days after the start of commercial operation.

     The alternative to a one-time payment is a partial payment described in RCW 80.70.020 (6)(c). Under this alternative, twenty percent of the total payment is due to the independent qualified organization no later than one hundred twenty days after the start of commercial operation. A payment of the same amount (or an adjusted amount if the rate is changed under RCW 80.70.020 (5)(a)) is due on the anniversary date of the initial payment for the next four consecutive years. In addition, the applicant is required to provide a letter of credit or comparable security for the remaining 80% at the time of the first payment. The letter of credit (or comparable security) must also include possible rate changes.

     (4) What are the requirements of the permanent carbon credits option? RCW 80.70.030 identifies the criteria and specifies that these credits cannot be resold without approval from the local air authority having jurisdiction or ecology where there is no local air authority. The permanent carbon credit criteria of RCW 80.70.030(1) is as follows:

     (a) Credits must derive from real, verified, permanent, and enforceable carbon dioxide or carbon dioxide equivalents emission mitigation not otherwise required by statute, regulation, or other legal requirements;

     (b) The credits must be acquired after July 1, 2004; and

     (c) The credits may not have been used for other carbon dioxide mitigation projects.

     (5) What are the requirements for the applicant controlled mitigation projects option? RCW 80.70.040 identifies the requirements for applicant controlled mitigation projects. Subsections (1) through (5) specify the criteria. Subsection (6) specifies that if federal requirements are adopted for carbon dioxide mitigation for fossil-fueled thermal electric generation facilities, ecology or the local air authority may deem the federal requirements equivalent and replace RCW 80.70.040 with the federal requirements.

     The applicant controlled mitigation project must be:

     (a) Implemented through mitigation projects conducted directly by, or under the control of, order of approval holder. (Section 1);

     (b) Approved by the authority having jurisdiction or the department where there is no local air authority and incorporated as a condition of the proposed order of approval. (Section 2);

     (c) Fully in place within a reasonable time after the start of commercial operation. Failure to implement an approved mitigation plan is subject to enforcement under chapter 70.94 RCW. (Section 3)

     In addition, an order of approval holder may not use more than twenty percent of the total funds for the selection, monitoring, and evaluation of mitigation projects and the management and enforcement of contracts. (Section 4)

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     (2) Applicants choosing to use the payment to a third party or the permanent carbon credit option must provide the department or the authority, as appropriate, with the documentation to show how the requirements will be satisfied before an order or approval will be issued.

     (3) Applicants seeking to use the applicant controlled mitigation projects option must submit the entire mitigation plan to the department or the authority. The department or authority having jurisdiction will review the plan. Under RCW 70.94.892 (2)(b), the review criteria is based on whether the mitigation plan is consistent with the requirements of chapter 80.70 RCW.

     (4) Upon completing the review phase, the department or the authority having jurisdiction must approve or deny the mitigation plan.

     (5) Approved mitigation plans become part of the order of approval.

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