§ 51.493 State program requirements.

Economic incentive programs shall be State and federally enforceable, nondiscriminatory, and consistent with the timely attainment of NAAQS, all applicable RFP and visibility requirements, applicable PSD increments, and all other applicable requirements of the Act. Programs in nonattainment areas for which credit is taken in attainment and RFP demonstrations shall be designed to ensure that the effects of the program are quantifiable and permanent over the entire duration of the program, and that the credit taken is limited to that which is surplus. Statutory programs shall be designed to result in quantifiable, significant reductions in actual emissions. The EIP's shall include the following elements, as applicable:

(a) Statement of goals and rationale. This element shall include a clear statement as to the environmental problem being addressed, the intended environmental and economic goals of the program, and the rationale relating the incentive-based strategy to the program goals.

(1) The statement of goals must include the goal that the program will benefit both the environment and the regulated entities. The program shall be designed so as to meaningfully meet this goal either directly, through increased or more rapid emissions reductions beyond those that would be achieved through a traditional regulatory program, or, alternatively, through other approaches that will result in real environmental benefits. Such alternative approaches include, but are not limited to, improved administrative mechanisms, reduced administrative burdens on regulatory agencies, improved emissions inventories, and the adoption of emission caps which over time constrain or reduce growth-related emissions beyond traditional regulatory approaches.

(2) The incentive-based strategy shall be described in terms of one of the following three strategies:

(i) Emission-limiting strategies, which directly specify limits on total mass emissions, emission-related parameters (e.g., emission rates per unit of production, product content limits), or levels of emissions reductions relative to a program baseline that affected sources are required to meet, while providing flexibility to sources to reduce the cost of meeting program requirements.

(ii) Market-response strategies, which create one or more incentives for affected sources to reduce emissions, without directly specifying limits on emissions or emission-related parameters that individual sources or even all sources in the aggregate are required to meet.

(iii) Directionally-sound strategies, for which adequate procedures to quantify emissions reductions are not defined.

(b) Program scope. (1) This element shall contain a clear definition of the sources affected by the program. This definition shall address:

(i) The extent to which the program is mandatory or voluntary for the affected sources.

(ii) Provisions, if any, by which sources that are not required to be in the program may voluntarily enter the program.

(iii) Provisions, if any, by which sources covered by the program may voluntarily leave the program.

(2) Any opt-in or opt-out provisions in paragraph (b)(1) of this section shall be designed to provide mechanisms by which such program changes are reflected in an area's attainment and RFP demonstrations, thus ensuring that there will not be an increase in the emissions inventory for the area caused by voluntary entry or exit from the program.

(3) The program scope shall be defined so as not to interfere with any other Federal requirements which apply to the affected sources.

(c) Program baseline. A program baseline shall be defined as a basis for projecting program results and, if applicable, for initializing the incentive mechanism (e.g., for marketable permits programs). The program baseline shall be consistent with, and adequately reflected in, the assumptions and inputs used to develop an area's RFP plans and attainment and maintenance demonstrations, as applicable. The State shall provide sufficient supporting information from the areawide emissions inventory and other sources to justify the baseline used in the EIP.

(1) For EIP's submitted in conjunction with, or subsequent to, the submission of any areawide progress plan due at the time of EIP submission (e.g., the 15 percent RFP plan and/or subsequent 3 percent plans) or an attainment demonstration, a State may exercise flexibility in setting a program baseline provided the program baseline is consistent with and reflected in all relevant progress plans or attainment demonstration. A flexible program baseline may be based on the lower of actual, allowable, or some other intermediate or lower level of emissions. For any EIP submitted prior to the submittal of an attainment demonstration, the State shall include the following with its EIP submittal: