Today, the U.S. Environmental Protection Agency (EPA) released the final rule replacing the court-vacated Clean Air Interstate Rule (CAIR).  The rule, which the EPA originally designated as the Clean Air Transport Rule (CATR), is now known as the Cross-State Air Pollution Rule (CSAPR). 

The structure of the rule is predominantly what was proposed last July in the proposed rule.  CSAPR sets up 4 new interstate trading markets, Annual NOx, Seasonal NOx, a group for states that require stringent reductions in annual SO2  (Group 1), and a group of states that require moderate reductions in annual SO2 (Group 2).  Because of the court decision, Title IV and CAIR allowances will be unrelated to the new markets. 

There are, however, several important differences between the proposed rule and the final rule.  The EPA updated their modeling and analysis tools and has made new conclusions of which states are included in the final rule. 

For example, Texas must now control for SO2 emissions, whereas the state was previously only regulated for NOx emissions. Florida, on the other hand, will only have to comply with seasonal NOx limits, whereas the draft rule required the state to comply with SO2 limits, as well as annual and seasonal controls. Also, the EPA has determined that emissions from Massachusetts do not sufficiently impact other states, and the state has been pulled from the program.

The unit level allowance allocations and new-unit set asides have been updated, in addition to updating their state level emission budgets and variability limits.  The assurance provisions, which prevent states from exceeding their emission budget plus the variability limit are set to begin in 2012, instead of the proposed start date of 2014.  There is now only a 1-year variability limit, and no longer a 3-year variability limit.  EPA has eliminated opt-in provision for non-EGU sources from entering the market. 

Evolution Markets will provide a more detailed analysis of the rules and their impact on U.S. emissions trading markets in the coming days.  In the interim, should you have any questions regarding CSAPR or to transact in emissions markets, please contact our Emissions Markets desk at: +1 914.323.0255 or emissionsdesk@evomarkets.com.