[Congressional Record (Bound Edition), Volume 148 (2002), Part 11]
[Senate]
[Pages 15179-15212]
[From the U.S. Government Publishing Office, www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. SMITH of New Hampshire (for himself, Mr. Crapo, and Mr. 
        Inhofe):
  S. 2813. A bill to improve the financial and environmental 
sustainability of the water programs of the United States; to the 
Committee on Environment and Public Works.
  Mr. SMITH of New Hampshire. Mr. President, I am pleased to be joining 
my colleagues on the Environment and Public Works Committee to 
introduce the Water Quality Investment Act of 2002. When I because 
Chairman of the Committee in 1999, one of my top priorities was a 
renewed commitment to our Nation's water systems and the Americans 
served by them. Senator Crapo, as Chairman of the Fisheries, Wildlife 
and Water Subcommittee shared my commitment and made this issue a focus 
of his subcommittee.
  Earlier this year, I joined with Chairmen Jeffords and Graham, as 
well as Senator Crapo, to introduce S. 1961, the Water Investment Act. 
This was a strong bipartisan bill that took compromise by all four 
members to achieve. Unfortunately, the bill that was reported out of 
Committee was a partisan proposal that added several provisions that 
will prevent the bill from moving forward. Our majority colleagues 
insisted on changing the principled funding formula included in S. 1961 
for a politically driven one that has no hope of surviving the lengthy 
legislative process while also compromising the needs of the country's 
small States. Further, they added Davis Bacon, an onerous labor 
provision that continues to divide the Senate and only serves to cloud 
the future of an otherwise strong bill.
  While I can no longer support S. 1961, clean water remains one of my 
top priorities as the Ranking Republican on the EPW Committee. 
Therefore, I join Senators Inhofe and Crapo today in introducing a 
streamlined bill that is free of the controversies that now plague S. 
1961.
  I am a strong advocate of limited government and when it comes to 
water infrastructure, I do not believe the primary responsibility of 
financing local water needs lies with the Federal Government. I am 
equally adamant, however, that the Federal Government should not place 
unfunded mandates on our local communities. This bill strikes a 
responsible balance between meeting Federal obligations and maintaining 
local responsibility and state flexibility.
  So much of our Nation's water infrastructure is aging and in 
desperate need of replacement. Coupled with the aging problem is the 
cost burden that local communities face in order to comply with ever 
increasing State and Federal clean water mandates. This bill addresses 
these problems and makes structural changes to ensure that we avoid a 
national crisis now and in the future.
  The legislation authorizes $35 billion over the next 5 years in 
Federal contribution to the total water infrastructure need to help 
defray the cost of the mandates placed on communities. This is a 
substantial increase in Federal commitment, but not nearly as high as 
some would have preferred.
  This commitment does not come without additional responsibilities. 
When the Clean Water Act was amended by Congress in 1987, a debate I 
remember well, we set up a revolving fund so more Federal money would 
not be required. The fund would continually revolve providing a 
continual pool of money for water needs. Unfortunately, appropriations 
have not kept pace with the Federal share and the funds have not been 
able to revolve at levels necessary to meet the increasing need. 
Further, as more Federal mandates have been imposed on local 
communities, facilities have exhausted their useful life while local 
officials have found raising water rates unpalatable. Thus, what was 
not to be Federal responsibility became a Federal necessity. Now we are 
faced with a near crisis situation.
  This bill makes certain that we do not go down that road again. The 
Federal government will help to defray the costs of Federal mandates, 
but with the new money comes a new requirement that all utilities do a 
better job of managing their funds and plan for future costs. The bill 
requires utilities to assess the condition of their facility and pipes 
and develop a plan to pay for the long-term repair and replacement of 
these assets. That plan will include Federal assistance, but it will be 
limited assistance.
  We also make additional structural changes to the law both to address 
financial concerns and to help achieve improved management of these 
water systems. One such change to the Clean Water Act is to incorporate 
a Drinking Water Act provision that allows States, at their discretion, 
to provide principal forgiveness on loans and to extend the repayment 
period for loans to disadvantaged communities. This flexibility will 
provide help to communities struggling with high combined sewer 
overflow cost to secure additional financial help. This bill also 
promotes other important cost saving measures that many communities are 
already experimenting with throughout the country. It will also provide 
much needed information and planning tools to communities across the 
country who are experiencing a months-long drought.
  Again, I am disappointed I could not maintain my support for S. 1961, 
the Water Investment Act. However, the bill that passed the Committee 
took several steps in the wrong direction by including not only a 
formula but new mandates and regulatory requirements that will prevent 
the bill from moving forward. Clean water should be a priority for 
every member of the Senate. We need to come together around a bill that 
can go forward. S. 1961 is no longer that bill.
  I look forward to working with my colleagues to enact the Water 
Quality Investment Act this year and commemorate the 30th Anniversary 
of the Clean Water Act with a renewed commitment to the nation's 
waterways and the people who depend on them.
  Mr. CRAPO. Mr. President, I rise with my colleague, Senator Bob 
Smith, to introduce the Water Quality Investment Act of 2002. We are 
introducing this legislation to reinvigorate the debate on investing in 
our Nation's water and wastewater infrastructure.
  When I became Chairman of the Fisheries, Wildlife, and Water 
Subcommittee, I began the long process of assessing the performance of 
our water

[[Page 15180]]

and wastewater infrastructure statutes and exploring needed 
improvements to address outstanding problems. With the able partnership 
of Senator Smith, over the past 3 years, I convened many hearings and 
meeting with the stakeholders and agency officials to better understand 
how to address the problems of communities with unmet water and 
wastewater infrastructure needs.
  Earlier this year, Senator Smith and I joined with Senator Bob Graham 
and Senator Jim Jeffords to introduce S. 1961, the Water Investment 
Act. As introduced, this measure represented a strong and principled 
bipartisan measure. The major facets of the bill, heightened investment 
levels in our infrastructure, increased flexibility to states, and 
strong accountability by utilities, reflect the commonalities of need 
and recommendations by stakeholders, experts, and communities. I 
commend my colleagues for their hard work and the partnership we 
established in putting together a model bill, which was closely 
followed by our colleagues in the House of Representatives.
  I am proud of the overwhelming support that bill generated. As 
introduced, S. 1961 represented the collaboration and hard work of many 
who recognize that the goal of assisting communities should be our 
guiding principle. Too many communities are waiting for the assistance 
this bill will provide to see the legislation brought down by 
difficult, unnecessary proposals.
  While by no means perfect, I hoped the committee process would not 
turn this legislation into a vehicle for individual proposals and 
controversial concepts. Against my hope, S. 1961 started to unravel as 
some worked to undermine the compromise and the bipartisan nature of 
the legislation. As you are well aware, the markup for S. 1961 was 
contentious and divisive. It was unfortunate that S. 1961, which 
started out as a bipartisan effort between the four principals, ended 
up in partisan votes. Despite many warnings, some felt it necessary to 
bring this legislation down simply to advance narrow agendas.
  I have welcomed the opportunity to work again with committed 
stakeholders and others to craft this carefully-balanced measure. This 
new bill builds upon the foundations of S. 1961 as introduced and adds 
important refinements brought forward by the affected communities and 
stakeholders. It is a proposal that serves the critical needs of our 
nation's water and wastewater infrastructure in a cost-effective and 
responsible manner.
  I look forward to the Senate's consideration of a sound, balanced, 
and carefully-deliberated bill to address the water and wastewater 
needs of the Nation. I believe all of us share that goal and we should 
all rally around the Water Quality Investment Act as the means to 
achieve that goal.
                                 ______
                                 
      By Mr. DORGAN (for himself, Mr. Roberts, Mr. Conrad, Mr. Johnson, 
        and Mr. Brownback):
  S. 2814. A bill to amend the Farm Security and Rural Investment Act 
of 2002 to clarify the rates applicable to marketing assistance loans 
and loan deficiency payments for other oilseeds; to the Committee on 
Agriculture, Nutrition, and Forestry.
  Mr. DORGAN. Mr. President, today, along with Senators Roberts, 
Conrad, Johnson and Brownback, I am introducing legislation to clarify 
Congressional intent regarding minor oilseed loan rates in the Farm 
Security and Rural Investment Act, FSRIA, of 2002.
  In early June, the United States Department of Agriculture 
incorrectly interpreted the intent of the new farm bill when the Farm 
Service Agency arbitrarily announced a wide range of minor oilseed loan 
rates. For some crops, the loan rate increased substantially, while for 
others, the rates plunged.
  Not once during the farm bill debate was there ever discussion of 
splitting apart minor oilseed loan rates. In fact, the minor oilseed 
industry and farmers alike anticipated a county-level increase in loan 
rates from $9.30 to $9.60/cwt. The announcement by the Farm Service 
Agency caught virtually everyone in the agriculture community by 
surprise.
  This legislation is intended to correct this misinterpretation of the 
new farm bill, and to prevent what will certainly be extreme acreage 
shifts among these crops in the coming years should these rates be 
allowed to stand. These acreage shifts will destroy segments of the 
minor oilseed industry that have been painstakingly developed over a 
number of years.
  For instance, already, users of the oil derived from oil sunflowers 
anticipate supply shortages next year and have indicated they may 
remove sunflower oil from their product mix. Conversely, incentives 
caused by the much higher confectionery sunflower loan rate could 
deluge USDA with massive loan forfeitures of low quality confectionery 
sunflowers if farmers simply grow for the loan rate rather than a 
quality crop that has a market.
  The legislation amends the new farm bill by simply--and redundantly--
listing each minor oilseed's loan rate separately. The legislation also 
reinstates the crambe and sesame seed loan rates that were eliminated 
by USDA.
  This legislation should not be needed. USDA could easily repeal the 
current announcement of minor oilseed loan rates in favor of rates 
consistent with this legislation and the new farm bill, as I and my 
colleagues have asked in recent letters on this issue.
  I request unanimous consent that the text of the bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2814

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. MARKETING ASSISTANCE LOANS AND LOAN DEFICIENCY 
                   PAYMENTS FOR OTHER OILSEEDS.

       (a) Definition of Other Oilseed.--Section 1001(9) of the 
     Farm Security and Rural Investment Act of 2002 (7 U.S.C. 
     7901(9)) is amended by inserting ``crambe, sesame seed,'' 
     after ``mustard seed,''.
       (b) Loan Rates for Nonrecourse Marketing Assistance 
     Loans.--Section 1202 of the Farm Security and Rural 
     Investment Act of 2002 (7 U.S.C. 7932) is amended--
       (1) in subsection (a), by striking paragraph (10) and 
     inserting the following:
       ``(10) In the case of other oilseeds:
       ``(A) In the case of oil sunflower seed, confectionery 
     sunflower seed, and other types of sunflower seed, $.0960 per 
     pound, except that the Secretary shall establish a single 
     sunflower loan rate in each county for all seed described in 
     this subparagraph.
       ``(B) In the case of rapeseed, $.0960 per pound.
       ``(C) In the case of canola, $.0960 per pound.
       ``(D) In the case of safflower, $.0960 per pound.
       ``(E) In the case of flaxseed, $.0960 per pound.
       ``(F) In the case of mustard seed, $.0960 per pound.
       ``(G) In the case of crambe, $.0960 per pound.
       ``(H) In the case of sesame seed, $.0960 per pound.
       ``(I) In the case of another oilseed designated by the 
     Secretary, $.0960 per pound.''; and
       (2) in subsection (b), by striking paragraph (10) and 
     inserting the following:
       ``(10) In the case of other oilseeds:
       ``(A) In the case of oil sunflower seed, confectionery 
     sunflower seed, and other types of sunflower seed, $.0930 per 
     pound, except that the Secretary shall establish a single 
     sunflower loan rate in each county for all seed described in 
     this subparagraph.
       ``(B) In the case of rapeseed, $.0930 per pound.
       ``(C) In the case of canola, $.0930 per pound.
       ``(D) In the case of safflower, $.0930 per pound.
       ``(E) In the case of flaxseed, $.0930 per pound.
       ``(F) In the case of mustard seed, $.0930 per pound.
       ``(G) In the case of crambe, $.0930 per pound.
       ``(H) In the case of sesame seed, $.0930 per pound.
       ``(I) In the case of another oilseed designated by the 
     Secretary, $.0930 per pound.''.
       (c) Repayment of Loans.--Section 1204 of the Farm Security 
     and Rural Investment Act of 2002 (7 U.S.C. 7934) is amended--
       (1) in subsection (a), by striking ``and extra long staple 
     cotton'' and inserting ``extra long staple cotton, oil 
     sunflower seed, confectionery sunflower seed, or any other 
     type of sunflower seed'';
       (2) by redesignating subsection (f) as subsection (g); and
       (3) by inserting after subsection (e) the following:
       ``(f) Repayment Rates For Sunflower Seeds.--The Secretary 
     shall permit the producers on a farm to repay a marketing 
     assistance loan under section 1201 for oil sunflower seed, 
     confectionery sunflower seed, or any other type of sunflower 
     seed at a rate that is the lesser of--

[[Page 15181]]

       ``(1) the loan rate established for the commodity under 
     section 1202, plus interest (determined in accordance with 
     section 163 of the Federal Agriculture Improvement and Reform 
     Act of 1996 (7 U.S.C. 7283)); or
       ``(2) the repayment rate established (on the basis of the 
     prevailing market price) for oil sunflower seed.''.
                                 ______
                                 
      By Mr. SMITH of New Hampshire (by request):
  S. 2815. A bill to amend the Clean Air Act to reduce air pollution 
through expansion of cap and trade programs, to provide an alternative 
regulatory classification for units subject to the cap and trade 
programs, and for other purposes; to the Committee on Environment and 
Public Works.
  Mr. SMITH of New Hampshire. Mr. President, today, at the request of 
the President of the United States, I am introducing his proposal to 
address power plant pollution in the Nation. Introduction of his bill 
is an important step forward in the long progress of amending the Clean 
Air to ensure that we are both improving air quality and building upon 
the most successful environmental program in Federal law, the Acid Rain 
Program.
  One of the first goals that I announced when I became Chairman of the 
Environment and Public Works Committee in 1999 was to craft a multi-
emissions bill for the utility sector. It was a new idea at the time, 
and we have had to work hard since then to build support for the 
concept. Recently the Environment and Public Works Committee held a 
markup during which four separate legislative approaches to a multi-
pollutant system were considered, one of those was a complete 
substitute that I presented to my colleagues.
  Today the President offers us a fifth option for our consideration. 
Each of these legislative drafts contain worthy and groundbreaking 
ideas as to how we can move forward on the difficult area of reducing 
air pollution without harming our economy. None is exactly like the 
others, and there are some clear policy differences among them. I am 
obviously partial to my own approach, but all five should be discussed. 
I am confident that the Senate can, if we work together in a bipartisan 
fashion, find a consensus approach that will be acceptable to a 
majority of Senators.
  I look forward to that process, and I welcome the President to that 
debate.
  I ask unanimous consent to print in the Record a summary of the 
President's legislation that was provided by the Administration, and 
that the text of the bill also be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                   Summary of Clear Skies Act of 2002

       The Clear Skies Act of 2002 (Clear Skies Act) amends Title 
     IV of the Clean Air Act to establish new cap-and-trade 
     programs requiring reductions of sulfur dioxide, nitrogen 
     oxides, and mercury emissions from electric generating 
     facilities and amends Title I of the Clean Air Act to provide 
     an alternative regulatory classification for units subject to 
     the cap and trade programs.
       Common Provisions: The Clear Skies Act establishes a new 
     Part A, which contains the program elements shared by the 
     sulfur dioxide, nitrogen oxides, and mercury programs. A cap-
     and-trade program will be implemented for each pollutant. 
     Common definitions, allowance system procedures, monitoring, 
     permitting and compliance requirements, penalties for non-
     compliance, and auction procedures apply to the new trading 
     programs and are modeled largely after the existing Acid Rain 
     Program.
       Under Section 403, the Administrator must establish an 
     allowance system for sulfur dioxide, nitrogen oxide, and 
     mercury that is essentially the same as in the existing Acid 
     Rain Program but that provides for safety valve, i.e., a 
     direct sale of allowances by the Administrator at a fixed 
     price for use in meeting the requirement to hold allowances 
     at least equal to annual emissions.
       Under Section 404, the new trading programs must be 
     reflected in Title V permits. This is similar to the 
     permitting provisions of the existing Acid Rain Program.
       Under Section 405, affected units must meet essentially the 
     same type of continuous emission monitoring and reporting 
     requirements under the new trading programs as under the Acid 
     Rain Program.
       Under Section 406, a graduated, automatic excess emissions 
     penalty replaces the existing single, automatic penalty under 
     the Acid Rain Program.
       Under Section 407, fossil-fuel fired boilers, turbines, and 
     integrated gasification combined cycle plants that are not 
     otherwise subject to the new sulfur dioxide, nitrogen oxides, 
     and mercury trading programs may opt into these program if 
     certain requirements are met. Once a unit opts into the new 
     trading programs, it cannot withdraw.
       Section 409 requires the Administrator to promulgate 
     regulations for auctions of allowances under the new sulfur 
     dioxide, nitrogen oxides, and mercury trading programs. All 
     auction proceeds will go to the general Treasury.
       Section 410 establishes criteria and the process by which 
     the Administrator may recommend to Congress adjustment of the 
     total amounts of allowances available (whether through 
     allocation or auction) starting in 2018 under the new sulfur 
     dioxide, nitrogen oxides, and mercury trading programs.
       Sulfur Dioxide Emissions Reductions: The Clear Skies Act 
     establishes Part B, which retains in Sections 411-419, with 
     few changes, the relevant requirements of the existing Acid 
     Rain Program through December 31, 2009 and contains in 
     Sections 421-434 the new, lower annual caps on total sulfur 
     dioxide emissions and new allocation procedures starting 
     January 1, 2010.
       Under Section 421, the new sulfur dioxide trading program 
     covers units in the U.S. and its territories. The program 
     includes existing fossil fuel-fired electricity generating 
     boilers and turbines and integrated gasification combined 
     cycle plants with generators having a nameplate capacity of 
     greater than 25 MW with certain exceptions for cogeneration 
     units. The program also includes new fossil fuel-fired 
     electricity generating boilers and turbines and integrated 
     gasification combined cycle plants regardless of size, except 
     for gas-fired units serving one or more generators with total 
     nameplate capacity of 25 MW of less and certain new 
     cogeneration units. In addition, solid waste incineration 
     units and units for treatment, storage, or disposal of 
     hazardous waste are exempted.
       Under Section 422, compliance with the requirement to hold 
     allowances covering sulfur dioxide emissions in the new 
     trading program will be determined on a facility-wide basis. 
     The owner or operator must hold allowances for all the 
     affected units at a facility at least equal to the total 
     sulfur dioxide emissions for those units during the year.
       Under Section 423, annual sulfur dioxide emissions for 
     affected units are capped at 4.5 million tons starting in 
     2010 and 3.0 million tons starting in 2018. During the first 
     year of the program, 99 percent of the allowances will be 
     allocated to affected units with an auction for the remaining 
     1 percent. Each subsequent year, an additional 1 percent of 
     the allowances for twenty years, and then an additional 2.5 
     percent thereafter, will be auctioned until eventually all 
     the allowances are auctioned.
       Under Section 424, allowances are allocated to affected 
     units previously receiving allowances under the Acid Rain 
     Program based on their proportion of the total post-2009 Acid 
     Rain sulfur dioxide allowances currently recorded in their 
     Acid Rain Program allowance accounts. Units that received no 
     allocations under the Acid Rain Program are allocated 
     allowances based on the product of their baseline heat input 
     and a standard emission rate reflective of fuel type. If the 
     Administrator does not promulgate final allocations on a 
     timely basis a default provision takes effect that allocates 
     allowances to Acid Rain Program units based on heat input 
     data collected under that program and auctions other 
     allowances.
       Under Section 425, once the Administrator places sulfur 
     dioxide allowances under the new trading program into 
     accounts in the Allowance Tracking System, all year 2010 and 
     later allowances allocated under the Acid Rain Program will 
     be removed from the accounts. All pre-2010 allowances under 
     the Acid Rain Program that have not been used will remain in 
     accounts and may be used to meet the requirement to hold 
     allowances in the new trading program.
       Under Section 426, a reserve of 250,000 allowances is 
     established for affected units that combusted bituminous and 
     that, before 2008, install and operate sulfur dioxide control 
     technology and continue to combust such coal. The procedure 
     established for submission of applications by owners and 
     operators and approval of applications and award of 
     allowances by the Administrator is designed to ensure that 
     approval of those projects will result in the largest amount 
     of sulfur dioxide emission reductions achieved per allowance 
     awarded.
       Under Sections 431-434, a separate emission limitation and 
     cap-and-trade program are provided for the States in the 
     Western Regional Air Partnership (WRAP). The cap-and-trade 
     program for the WRAP States goes into effect the third year 
     after the year 2018 or later when sulfur dioxide emissions 
     for these units exceed 271,000 tons. This cap-and-trade 
     program is analogous to the new nation-wide sulfur dioxide 
     trading program but establishes a second sulfur dioxide 
     emission limitation only for these WRAP units, which will be 
     subject to both the regional and the nationwide programs.
       Nitrogen Oxides Emissions Reductions: The Clear Skies Act 
     establishes Part C, which retains in Sections 431-432 the 
     requirements of the existing Acid Rain Program for nitrogen 
     oxides and in Sections 461-465 the

[[Page 15182]]

     requirements of the existing NOX State 
     Implementation (SIP) call under Section 110 of the Clean Air 
     Act through December 31, 2007; and contains in Sections 451-
     454 the new, annual caps on total allowances and new, 
     allocation procedures starting January 1, 2008.
       Under Section 451, the new nitrogen oxides trading program 
     covers the same units in the U.S. and its territories as the 
     new sulfur dioxide trading program, but separate cap-and-
     trade systems are established for Zone 1 (largely the eastern 
     and part of the central portions of the U.S.) and Zone 2 (the 
     remainder of the U.S. and territories).
       Under Section 452, compliance with the requirement to hold 
     allowances covering nitrogen oxides emissions will be 
     determined on a facility-wide basis, analogous to the way 
     compliance is determined under the new sulfur dioxide trading 
     programs. Only allowances issued for the zone in which the 
     facility is located can be used for compliance for that 
     facility.
       Under Section 453, annual NOX emissions for 
     affected units in Zone 1 are capped at 1.562 million tons 
     starting in 2008 and 1.162 million tons starting in 2010. 
     Zone 2 annual emissions are capped at 538,000 tons. Each 
     year, the percentages of allowances allocated and auctioned 
     each year are the same as under the new sulfur trading 
     program.
       Under Section 454, allowances are allocated to affected 
     units based on the proportionate share of their baseline heat 
     input to total heat input of the units in their respective 
     zone. If the Administrator does not promulgate final 
     allocations on a timely basis, a default provision, like that 
     under the new sulfur dioxide trading program, takes effect.
       Sections 461-456 contains provisions that codify the 
     emission reduction requirements of the NOX SIP 
     Call that covers the eastern U.S. The SIPs are required to be 
     consistent with the NOX emission budgets 
     established under the NOX SIP Call. SIPs must be 
     submitted for certain full States and for certain portions of 
     some States as determined proposed by the Administrator in 
     the rulemaking that commenced February 22, 2002.
       Mercury Emission Reductions: The Clear Skies Act 
     establishes Part D, which contains the new, annual caps on 
     total mercury allowances and new, allocation procedures 
     starting January 1, 2010.
       Under Section 471, the new mercury trading program covers 
     coal-fired units that are covered by the new sulfur dioxide 
     and nitrogen oxides trading programs.
       Under Section 472, compliance with the requirement to hold 
     allowances covering mercury emissions will be determined on a 
     facility-wide basis, analogous to the way compliance is 
     determined under the new sulfur dioxide and nitrogen oxides 
     trading programs.
       Under Section 473, annual mercury emission are capped at 26 
     tons starting in 2010 and 15 tons starting in 2018. Each 
     year, the percentages of allowances allocated and auctioned 
     each year are the same as under the new sulfur and nitrogen 
     oxides trading programs.
       Under Section 474, allowances are allocated to affected 
     units based on the proportionate share of their baseline heat 
     input to total heat input of all affected units. For purposes 
     of allocating the allowances, each unit's baseline heat input 
     is adjusted to reflect the types of coal combusted by the 
     unit during the baseline period. If the Administrator does 
     not promulgate final allocations on a timely basis, a default 
     provision, like that under the new sulfur dioxide and 
     nitrogen oxides trading programs, takes effect.
       Performance Standards for New Sources: To ensure that all 
     new affected units have appropriate controls, Part E 
     establishes, in section 481, performance standards for all 
     new boilers, combustion turbines, and integrated gasification 
     combined cycle plants (IGCCs) covered under the Act.
       ``New'' units are those that commence construction or 
     reconstruction after the date of enactment. The standards 
     also apply to ``modified'' units that opt to meet the 
     applicable performance standard in lieu of case-specific 
     BACT.
       These statutory performance standards include emission 
     limits for four pollutants: nitrogen oxides (NOX); 
     sulfur dioxide (SO2); mercury (Hg); and 
     particulate matter (PM). The Hg emission limit applies only 
     to coal. In addition, a PM emission limit is established for 
     existing oil-fired boilers to ensure reductions of nickel 
     from such units. All units subject to a performance standard 
     must monitor emissions using CEMS and use averaging times 
     similar to current NSPS.
       Boilers and IGCCs are subject to a SO2 emission 
     limit of 2.0 lb/MWh; a NOX emission limit of 1.0 
     lb/MWh; and a PM emission limit of 0.20 lb/MWh. Coal-fired 
     boilers and IGCCs are subject to a Hg emission limit of 0.015 
     lb/GWh; however, alternative standards would apply in some 
     circumstances. Coal-fired combustion turbines are subject to 
     the same NOX, SO2, PM, and Hg emission 
     limits as boilers and IGCCs. Oil-fired combustion turbines 
     are subject to NOX emission limits ranging from 
     0.289 lb/MWh to 1.01 lb/MWh, an SO2 emission limit 
     of 2.0 lb/MWh, and a PM emission limit of 0.20 lb/MWh. Gas-
     fired combustion turbines are subject to NOX 
     emission limits ranging from 0.084 lb/MWh to 0.56 lb/MWh. 
     Existing oil-fired boilers are subject to a PM emission limit 
     of 0.30 lb/MWh.
       Research, Environmental Monitoring, and Assessment: Section 
     482 contains provisions for evaluating and reporting the 
     efficacy of the new sulfur dioxide, nitrogen oxides, and 
     mercury trading programs; and providing information 
     concerning whether the total amounts of allowances under 
     these programs starting in 2018 should be adjusted under 
     Section 410.
       Exemption from Major Source Reconstruction Review 
     Requirements and Best Available Retrofit Control Technology 
     Requirements: Section 483 exempts units from the requirements 
     of New Source Review (NSR). The section also exempts these 
     sources from the requirement to install best available 
     retrofit technology (BART). These exemptions are created by 
     excluding affected sources from being ``major stationary 
     sources'' for purposes of Part C and D of the Clean Air Act.
       Affected units constructed after enactment of the Clear 
     Skies Act must meet the performance standards for 
     NOX, SO2, PM, and CO specified in 
     Section 481, but a case-by-case review of the appropriate 
     control technology such as BACT or LAER is no longer 
     required. Similarly, modifications at existing affected units 
     must either comply with the performance standards for 
     NOX, SO2, PM, and CO established in 
     section 481 or comply with BACT. However, to qualify for this 
     exemption from NSR, an existing sources must either commit 
     within three years to meet the existing NSPS limit for PM of 
     0.03 lb/MMbtu in the future, or have begun to properly 
     operate any existing control technology to reduce PM 
     emissions or otherwise minimize PM emissions according to 
     best operational practices. To qualify for the exemption, an 
     existing source must also use good combustion practices to 
     minimize emissions of carbon monoxide. Permits issued in the 
     past to comply with the requirements of Parts C and D, 
     however, will remain in effect.
       To ensure that national parks and other Class I areas are 
     protected, affected units located within 50 km of such an 
     area will remain subject to the requirements in Part C for 
     the protection of such areas.
       States must ensure that the construction of new or modified 
     affected units will not cause or contribute to a violation of 
     the NAAQS or interfere with the programs to assure that the 
     NAAQS are met. States also must provide the public with an 
     opportunity to comment on the impact of the affected unit on 
     the NAAQS, or on any Class I areas within 50 km of the 
     facility.
       For affected units, the definition of modification is 
     defined to mean changes that increases the hourly emissions 
     of any air pollutant.

                                S. 2815

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Clear 
     Skies Act of 2002''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:
Sec. 1. Short title, table of contents.
Sec. 2. Emission Reduction Programs.

                ``TITLE IV--EMISSION REDUCTION PROGRAMS

                      ``Part A--General Provisions

``Sec. 401. (Reserved)
``Sec. 402. Definitions.
``Sec. 403. Allowance system.
``Sec. 404. Permits and compliance plans.
``Sec. 405. Monitoring, reporting, and recordkeeping requirements.
``Sec. 406. Excess emissions penalty; general compliance with other 
              provisions; enforcement.
``Sec. 407. Election of additional units.
``Sec. 408. Clean coal technology regulatory incentives.
``Sec. 409. Auctions.
``Sec. 410. Evaluation of limitations on total sulfur dioxide, nitrogen 
              oxides, and mercury emissions that start in 2018.

              ``Part B--Sulfur Dioxide Emission Reductions

                     ``Subpart 1--Acid Rain Program

``Sec. 411. Definitions.
``Sec. 412. Allowance allocations.
``Sec. 413. Phase I sulfur dioxide requirements.
``Sec. 414. Phase II sulfur dioxide requirements.
``Sec. 415. Allowances for states with emission rates at or below .8 
              lbs/mmbtu.
``Sec. 416. Election for additional sources.
``Sec. 417. Auctions, Reserve.
``Sec. 418. Industrial sulfur dioxide emissions.
``Sec. 419. Termination.

             ``Subpart 2--Sulfur Dioxide Allowance Program

``Sec. 421. Definitions.
``Sec. 422. Applicability.
``Sec. 423. Limitations on total emissions.
``Sec. 424. Allocations.
``Sec. 425. Disposition of sulfur dioxide allowances allocated under 
              subpart 1.
``Sec. 426. Incentives for sulfur dioxide emission control technology.

             ``Subpart 3--Western Regional Air Partnership

``Sec. 431. Definitions.

[[Page 15183]]

``Sec. 432. Applicability.
``Sec. 433. Limitations on total emissions.
``Sec. 434. Allocations.

             ``Part C--Nitrogen Oxides Emissions Reductions

                     ``Subpart 1--Acid Rain Program

``Sec. 441. Nitrogen Oxides Emission Reduction Program.
``Sec. 442. Termination.

             ``Subpart 2--Nitrogen Oxides Allowance Program

``Sec. 451. Definitions.
``Sec. 452. Applicability.
``Sec. 453. Limitations on total emissions.
``Sec. 454. Allocations.

        ``Subpart 3--Ozone Season NOX Budget Program

``Sec. 461. Definitions.
``Sec. 462. General Provisions.
``Sec. 463. Applicable Implementation Plan.
``Sec. 464. Termination of Federal Administration of NOX 
              Trading Program.
``Sec. 465. Carryforward of Pre-2008 Nitrogen Oxides Allowances.

                 ``Part D--Mercury Emission Reductions

``Sec. 471. Definitions.
``Sec. 472. Applicability.
``Sec. 473. Limitations on total emissions.
``Sec. 474. Allocations.

    ``Part E--National Emission Standards; Research; Environmental 
Accountability; Major Source Preconstruction Review and Best Available 
                Retrofit Control Technology Requirements

``Sec. 481. National emission standards for affected units.
``Sec. 482. Research, environmental monitoring, and assessment.
``Sec. 483. Major source preconstruction review and best availability 
              retrofit control technology requirements.''
Sec. 3. Other amendments.
       Sec. 2. Emission Reduction Programs.
       Title IV of the Clean Air Act (relating to acid deposition 
     control) (42 U.S.C. 7651, et seq.) is amended to read as 
     follows:
                ``TITLE IV--EMISSION REDUCTION PROGRAMS

                      Part A.--General Provisions

     SEC. 401. (RESERVED)

     SEC. 402. DEFINITIONS.

       As used in this title--
       (1) The term ``affected EGU'' shall have the meaning set 
     forth in section 421, 431, 451, or 471, as appropriate.
       (2) The term ``affected facility'' or ``affected source'' 
     means a facility or source that includes one or more affected 
     units.
       (3) The term ``affected unit'' means--
       (A) Under this part, a unit that is subject to emission 
     reduction requirements or limitations under part B, C, or D 
     or, it applicable, under a specified part or subpart or
       (B) Under subpart 1 of part B or subpart 1 of part C, a 
     unit that is subject to emission reduction requirements or 
     limitations under that subpart.
       (4) The term ``allowance'' means--
       (A) an authorization, by the Administrator under this 
     title, to emit one ton of sulfur dioxide, one ton of nitrogen 
     oxides, or one ounce of mercury; or
       (B) under subpart 1 of part B, an authorization by the 
     Administrator under this title, to emit one ton of sulfur 
     dioxide.
       (5)(A) The term ``baseline heat input'' means, except under 
     subpart 1 of part B and section 407, the average annual heat 
     input used by a unit during the three years in which the unit 
     had the highest heat input for the period 1997 through 2001.
       (B) Notwithstanding subparagraph (A),
       (i) if a unit commenced operation during 2000, then 
     ``baseline heat input'' means the average annual heat input 
     used by the unit during 2000-2001; and
       (ii) if a unit commenced or commences operation during 
     2001-2004, then ``baseline heat input'' means the 
     manufacturer's design heat input capacity for the unit 
     multiplied by eighty percent for coal-fired units, fifty for 
     combined cycle combustion turbines, and five percent for 
     simple cycle combustion turbines.
       (C) A unit's heat input for a year shall be the heat 
     input--
       (i) required to be reported under section 405 for the unit, 
     if the unit was required to report heat input during the year 
     under that section;
       (ii) reported to the Energy Information Administration for 
     the unit, if the unit was not required to report heat input 
     under section 405;
       (iii) based on data for the unit reported to the State 
     where the unit is located as required by State law, if the 
     unit was not required to report heat input during the year 
     under section 405 and did not report to the Energy 
     Information Administration; or
       (iv) based on fuel use and fuel heat content data for the 
     unit from fuel purchase or use records, if the unit was not 
     required to report heat input during the year under section 
     405 and did not report to the Energy Information 
     Administration and the State.
       (D) By July 1, 2003, the Administrator shall promulgate 
     regulations, without notice and opportunity for comment, 
     specifying the format in which the information under 
     subparagraphs (B)(ii) and (C)(ii), (iii), or (iv) shall be 
     submitted. By January 1, 2004, the owner or operator of any 
     unit under subparagraph (B)(ii) or (C)(ii), (iii), or (iv) to 
     which allowances may be allocated under section 424, 434, 
     454, or 474 shall submit to the Administrator such 
     information. The Administrator is not required to allocate 
     allowances under such sections to a unit for which the owner 
     or operator fails to submit information in accordance with 
     the regulations promulgated under this subparagraph.
       (6) The term ``clearing price'' means the price at which 
     allowances are sold at an auction conducted by the 
     Administrator or, if allowances are sold at an auction 
     conducted by the Administrator at more than one price, the 
     lowest price at which allowances are sold at the auction.
       (7) The term ``coal'' means any solid fuel classified as 
     anthracite, bituminous, subbituminous, or lignite.
       (8) The term ``coal-derived fuel'' means any fuel (whether 
     in a solid, liquid, or gaseous state) produced by the 
     mechanical, thermal, or chemical processing of coal.
       (9) The term ``coal-fired'' with regard to a unit means, 
     except under subpart 1 of part B, subpart 1 of part C, and 
     sections 424 and 434, combusting coal or any coal-derived 
     fuel alone or in combination with any amount of any other 
     fuel in any year.
       (10) The term ``cogeneration unit'' means, except under 
     subpart 1 of part B and subpart 1 of part C, a unit that 
     produces through the sequential use of energy:
       (A) electricity; and
       (B) useful thermal energy (such as heat or steam) for 
     industrial, commercial, heating, or cooling purposes.
       (11) The term ``combustion turbine'' means any combustion 
     turbine that is not self-propelled. The term includes, but is 
     not limited to, a simple cycle combustion turbine, a combined 
     cycle combustion turbine and any duct burner or heat recovery 
     device used to extract heat from the combustion turbine 
     exhaust, and a regenerative combustion turbine. The term does 
     not include a combined turbine in an integrated gasification 
     combined cycle plant.
       (12) The term ``commence operation'' with regard to a unit 
     means start up the unit's combustion chamber.
       (13) The term ``compliance plan means either--
       (A) a statement that the facility will comply with all 
     applicable requirements under this title, or
       (B) under subpart 1 of part B or subpart 1 of part C, a 
     schedule and description of the method or methods for 
     compliance and certification by the owner or operator that 
     the facility is in compliance with the requirements of that 
     subpart.
       (14) The term ``continuous emission monitoring system'' 
     (CEMS) means the equipment as required by section 405, used 
     to sample, analyze, measure, and provide on a continuous 
     basis a permanent record of emissions and flow (expressed in 
     pounds per million British thermal units (lbs/mmBtu), pounds 
     per hour (lbs/hr) or such other form as the Administrator may 
     prescribe by regulations under section 405.
       (15) The term ``designated representative'' means a 
     responsible person or official authorized by the owner or 
     operator of a unit and the facility that includes the unit to 
     represent the owner or operator in matters pertaining to the 
     holding, transfer, or disposition of allowances, and the 
     submission of and compliance with permits, permit 
     applications, and compliance plans.
       (16) The term ``duct burner'' means a combustion device 
     that uses the exhaust from a combustion turbine to burn fuel 
     for heat recovery.
       (17) The term ``facility'' means all buildings, structures, 
     or installations located on one or more adjacent properties 
     under common control of the same person or persons.
       (18) The term ``fossil fuel'' means natural gas, petroleum, 
     coal, or any form of solid, liquid, or gaseous fuel derived 
     from such material.
       (19) The term ``fossil fuel-fired'' with regard to a unit 
     means combusting fossil fuel, alone or in combination with 
     any amount of other fuel or material.
       (20) The term ``fuel oil'' means a petroleum-based fuel, 
     including diesel fuel or petroleum derivatives.
       (21) The term ``gas-fired'' with regard to a unit means, 
     except under subpart 1 of part B and subpart 1 of part C, 
     combusting only natural gas or fuel oil, with natural gas 
     comprising at least ninety percent, and fuel oil comprising 
     no more than ten percent, of the unit's total heat input in 
     any year.
       (22) The term ``gasify'' means to convert carbon-containing 
     material into a gas consisting primarily of carbon monoxide 
     and hydrogen.
       (23) The term ``generator'' means a device that produces 
     electricity and, under subpart 1 of part B and subpart 1 of 
     part C, that is reported as a generating unit pursuant to 
     Department of Energy Form 860.
       (24) The term ``heat input'' with regard to a specific 
     period of time means the product (in mmBtu/time) of the gross 
     calorific value of the fuel (in mmBtu/lb) and the fuel feed 
     rate into a unit (in lb of fuel/time) and does not include 
     the heat derived from preheated combustion air, recirculated 
     flue gases, or exhaust.

[[Page 15184]]

       (25) The term ``integrated gasification combined cycle 
     plant'' means any combination of equipment used to gasify 
     fossil fuels (with or without other material) and then burn 
     the gas in a combined cycle combustion turbine.
       (26) The term ``oil-fired'' with regard to a unit means, 
     except under section 424 and 434, combusting fuel oil for 
     more than ten percent of the unit's total heat input, and 
     combusting no coal or coal-derived fuel, in any year.
       (27) The term ``owner or operator'' with regard to a unit 
     or facility means, except for subpart 1 of part B and subpart 
     1 of part C, any person who owns, leases, operates, controls, 
     or supervises the unit or the facility.
       (28) The term ``permitting authority'' means the 
     Administrator, or the State or local air pollution control 
     agency, with an approved permitting program under title V of 
     the Act.
       (29) The term ``potential electrical output'' with regard 
     to a generator means the nameplate capacity of the generator 
     multiplied by 8,760 hours.
       (30) The term ``source'' means, except for sections 410, 
     481, and 482, all buildings, structures, or installations 
     located on one or more adjacent properties under common 
     control of the same person or persons.
       (31) The term ``State'' means--
       (A) one of the 48 contiguous States, Alaska, Hawaii, the 
     District of Columbia, the Commonwealth of Puerto Rico, the 
     Virgin Islands, Guam, Amercian Samoa, or the Commonwealth of 
     the Northern Mariana Islands; or
       (B) under subpart 1 of part B and subpart 1 of part C, one 
     of the 48 contiguous States or the District of Columbia; or
       (C) under subpart 3 of part B, Arizona, California, 
     Colorado, Idaho, Nevada, New Mexico, Oregon, Utah, and 
     Wyoming.
       (32) The term ``unit'' means--
       (A) a fossil fuel-fired boiler, combustion turbine, or 
     integrated gasification combined cycle plan; or
       (B) under subpart 1 of part B and subpart 1 of part C, a 
     fossil fuel-fired combustion device.
       (33) The term ``utility unit'' shall have the meaning set 
     forth in section 411.
       (34) The term ``year'' means calendar year.

     SEC. 403. ALLOWANCE SYSTEM.

       (a) Allocation in General.--(1) For the emission limitation 
     programs under this title, the Administrator shall allocate 
     annual allowances for an affected unit, to be held or 
     distributed by the designated representative of the owner or 
     operator in accordance with this title as follows--
       (A) sulfur dioxide allowances in an amount equal to the 
     annual tonnage emission limitation calculated under section 
     413, 414, 415, or 416 except as otherwise specifically 
     provided elsewhere in subpart 1 of part B, or in an amount 
     calculated under section 424 or 434.
       (B) nitrogen oxides allowances in an amount calculated 
     under section 454, and
       (C) mercury allowances in an amount calculated under 
     section 474.
       (2) Notwithstanding any other provision of law to the 
     contrary, the calculation of the allocation for any unit, and 
     the determination of any values used in such calculation, 
     under sections 424, 434, 454, and 474 shall not be subject to 
     judicial review.
       (3) Allowances shall be allocated by the Administrator 
     without cost to the recipient, and shall be auctioned or sold 
     by the Administrator, in accordance with this title.
       (b) Allowance Transfer System.--Allowances allocated, 
     auctioned, or sold by the Administrator under this title may 
     be transferred among designated representatives of the owners 
     or operators of affected facilities under this title and any 
     other person, as provided by the allowance system regulations 
     promulgated by the Administrator. With regard to sulfur 
     dioxide allowances, the Administrator shall implement this 
     subsection under 40 CFR part 73 (2001), amended as 
     appropriate by the Administrator. With regard to nitrogen 
     oxides allowances and mercury allowances, the Administrator 
     shall implement this subsection by promulgating regulations 
     not later than twenty-four months after the date of enactment 
     of the Clear Skies Act of 2002. The regulations under this 
     subsection shall establish the allowance system prescribed 
     under this section, including, but not limited to, 
     requirements for the allocation, transfer, and use of 
     allowances under this title. Such regulations shall prohibit 
     the use of any allowance prior to the calendar year for which 
     the allowance was allocated or auctioned and shall provide, 
     consistent with the purposes of this title, for the 
     identification of unused allowances, and for such unused 
     allowances to be carried forward and added to allowances 
     allocated in subsequent years, except as otherwise provided 
     in section 425. Such regulations shall provide, or shall be 
     amended to provide, that transfers of allowances shall not be 
     effective until certification of the transfer, signed by a 
     responsible official of the transferor, is received and 
     recorded by the Administrator.
       (c) Allowance Tracking System.--The Administrator shall 
     promulgate regulations establishing a system for issuing, 
     recording, and tracking allowances, which shall specify all 
     necessary procedures and requirements for an orderly and 
     competitive functioning of the allowance system. Such system 
     shall provide, by January 1, 2008, for one or more facility-
     wide accounts for holding sulfur dioxide allowances, nitrogen 
     oxides allowances, and, if applicable, mercury allowances for 
     all affected units at an affected facility. With regard to 
     sulfur dioxide allowances, the Administrator shall implement 
     this subsection under 40 CFR part 73 (2001), amended as 
     appropriate by the Administrator. With regard to nitrogen 
     oxides allowances and mercury allowances, the Administrator 
     shall implement this subsection by promulgating regulations 
     not later than twenty-four months after the date of enactment 
     of the Clear Skies Act of 2002. All allowance allocations and 
     transfers shall, upon recordation by the Administrator, be 
     deemed a part of each unit's or facility's permit 
     requirements pursuant to section 404, without any further 
     permit review and revision.
       (d) Nature of Allowances.--A sulfur dioxide allowance, 
     nitrogen oxides allowance, or mercury allowance allocated, 
     auctioned, or sold by the Administrator under this title is a 
     limited authorization to emit one ton of sulfur dioxide, one 
     ton of nitrogen oxides, or one ounce of mercury, as the case 
     may be, in accordance with the provisions of this title. Such 
     allowance does not constitute a property right. Nothing in 
     this title or in any other provision of law shall be 
     construed to limit the authority of the United States to 
     terminate or limit such authorization. Nothing in this 
     section relating to allowances shall be construed as 
     affecting the application of, or compliance with, any other 
     provision of this Act to an affected unit or facility, 
     including the provisions related to applicable National 
     Ambient Air Quality Standards and State implementation plans. 
     Nothing in this section shall be construed as requiring a 
     change of any kind in any State law regulating electric 
     utility rates and charges or affecting any State law 
     regarding such State regulation or as limiting State 
     regulation (including any prudency review) under such a State 
     law. Nothing in this section shall be construed as modifying 
     the Federal Power Act or as affecting the authority of the 
     Federal Energy Regulatory Commission under that Act. Nothing 
     in this title shall be construed to interfere with or impair 
     any program for competitive bidding for power supply in a 
     State in which such program is established. Allowances, once 
     allocated or auctioned to a person by the Administrator, may 
     be received, held, and temporarily or permanently transferred 
     in accordance with this title and the regulations of the 
     Administrator without regard to whether or not a permit is in 
     effect under title V or section 404 with respect to the unit 
     for which such allowance was originally allocated and 
     recorded.
       (e) Prohibition.--(1) It shall be unlawful for any person 
     to hold, use, or transfer any allowance allocated, auctioned, 
     or sold by the Administrator under this title, except in 
     accordance with regulations promulgated by the Administrator.
       (2) It shall be unlawful for any affected unit or for the 
     affected units at a facility to emit sulfur dioxide, nitrogen 
     oxides, and mercury, as the case may be, during a year in 
     excess of the number of allowances held for that unit or 
     facility for that year by the owner or operator as provided 
     in sections 412(c), 422, 432, 452, and 472.
       (3) The owner or operator of a facility may purchase 
     allowances directly from the Administrator to be used only to 
     meet the requirements of sections 422, 432, 452, and 472, as 
     the case may be, for a specified year. Not later than thirty-
     six months after the date of enactment of the Clear Skies Act 
     of 2002, the Administrator shall promulgate regulations 
     providing for direct sales of sulfur dioxide allowances, 
     nitrogen oxides allowances, and mercury allowances to an 
     owner or operator of a facility. The regulations shall 
     provide that--
       (A) such allowances may be used only to meet the 
     requirements of section 422, 432, 452, and 472, as the case 
     may be, for such facility and for a year specified by the 
     Administrator,
       (B) each such sulfur dioxide allowance shall be sold for 
     $4,000, each such nitrogen oxides allowance shall be sold for 
     $4,000, and each such mercury allowance shall be sold for 
     $2,187.50, with such prices adjusted for inflation based on 
     the Consumer Price Index on the date of enactment of the 
     Clear Skies Act of 2002 and annually thereafter,
       (C) the proceeds from any sales of allowances under 
     subparagraph (B) shall be deposited in the United States 
     Treasury.
       (D) the allowances directly purchased for use for a 
     specified year shall be taken from, and reduce, the amount of 
     sulfur dioxide allowances, nitrogen oxides allowances, or 
     mercury allowances, as the case may be, that would otherwise 
     be auctioned under section 423, 453, or 473 starting for the 
     year after the specified year and continuing for each 
     subsequent year as necessary.
       (E) if an owner or operator does not use any such allowance 
     in accordance with paragraph (A),
       (i) the owner or operator shall hold the allowance for 
     deduction by the Administrator and
       (ii) the Administrator shall deduct the allowance, without 
     refund or other form of recompense, and offer it for sale in 
     the auction from which it was taken under subparagraph

[[Page 15185]]

     (D) or a subsequent relevant auction as necessary.
       (F) if the direct sales of allowances result in the removal 
     of all sulfur dioxide allowances, nitrogen oxides allowances, 
     or mercury allowances, as the case may be, from auctions 
     under section 423, 453, or 473 for three consecutive years, 
     the Administrator shall conduct a study to determine whether 
     revisions to the relevant allowance trading program are 
     necessary and shall report the results to the Congress.
       (4) Allowances may not be used prior to the calendar year 
     for which they are allocated or auctioned. Nothing in this 
     section or in the allowance system regulations shall relieve 
     the Administrator of the Administrator's permitting, 
     monitoring and enforcement obligations under this Act, nor 
     relieve affected facilities of their requirements and 
     liabilities under the Act.
       (f) Competitive Bidding for Power Supply.--Nothing in this 
     title shall be construed to interfere with or impair any 
     program for competitive bidding for power supply in a State 
     in which such program is established.
       (g) Applicability of the Antitrust Laws.--
       (1) Nothing in this section affects--
       (A) the applicability of the antitrust laws to the 
     transfer, use, or sale of allowances, or
       (B) the authority of the Federal Energy Regulatory 
     Commission under any provision of law respecting unfair 
     methods of competition or anticompetitive acts or practices.
       (2) As used in this section, ``antitrust laws'' means those 
     Acts set forth in section 1 of the Clayton Act (15 U.S.C. 
     12), as amended.
       (h) Public Utility Holding Company Act.--The acquisition or 
     disposition of allowances pursuant to this title including 
     the issuance of securities or the undertaking of any other 
     financing transaction in connection with such allowances 
     shall not be subject to the provisions of the Public Utility 
     Holding Company Act of 1935.
       (i) Interpollutant Trading.--Not later than July 1, 2009, 
     the Administrator shall furnish to the Congress a study 
     evaluating the environmental and economic consequences of 
     amending this title to permit trading sulfur dioxide 
     allowances for nitrogen oxides allowances.
       (j) International Trading.--Not later than 24 months after 
     the date of enactment of the Clear Skies Act of 2002, the 
     Administrator shall furnish to the Congress a study 
     evaluating the feasibility of international trading of sulfur 
     dioxide allowances, nitrogen oxides allowances, and mercury 
     allowances.

     SEC. 404. PERMITS AND COMPLIANCE PLANS.

       (a) Permit Program.--The provisions of this title shall be 
     implemented, subject to section 403, by permits issued to 
     units and facilities subject to this title and enforced in 
     accordance with the provisions of title V, as modified by 
     this title. Any such permit issued by the Administrator, or 
     by a State with an approved permit program, shall prohibit--
       (1) annual emissions of sulfur dioxide, nitrogen oxides, 
     and mercury in excess of the number of allowances required to 
     be held in accordance with sections 412(c), 422, 432, 452, 
     and 472,
       (2) exceedances of applicable emissions rates under section 
     441.
       (3) the use of any allowance prior to the year for which it 
     was allocated or auctioned, and
       (4) contravention of any other provision of the permit. No 
     permit shall be issued that is inconsistent with the 
     requirements of this title, and title V as applicable.
       (b) Compliance Plan.--Each initial permit application shall 
     be accompanied by a compliance plan for the facility to 
     comply with its requirements under this title. Where an 
     affected facility consists of more than one affected unit, 
     such plan shall cover all such units, and such facility shall 
     be considered a ``facility'' under section 502(c). Nothing in 
     this section regarding compliance plans or in title V shall 
     be construed as affecting allowances.
       (1) submission of a statement by the owner or operator, or 
     the designated representative of the owners and operators, of 
     a unit subject to the emissions limitation requirements of 
     sections 412(c), 413, 414, and 441, that the unit will meet 
     the applicable emissions limitation requirements of such 
     sections in a timely manner or that, in the case of the 
     emissions limitation requirements of sections 412(c), 413, 
     and 414, the owners and operators will hold sulfur dioxide 
     allowances in the amount required by section 412(c), shall be 
     deemed to meet the proposed and approved compliance planning 
     requirements of this section and title V, except that, for 
     any unit that will meet the requirements of this title by 
     means of an alternative method of compliance authorized under 
     section 413 (b), (c), (d), or (f), section 416, and section 
     441 (d) or (e), the proposed and approved compliance plan, 
     permit application and permit shall include, pursuant to 
     regulations promulgated by the Administrator, for each 
     alternative method of compliance a comprehensive description 
     of the schedule and means by which the unit will rely on one 
     or more alternative methods of compliance in the manner and 
     time authorized under subpart 1 of part B or subpart 1 of 
     part C.
       (2) Submission of a statement by the owner or operator, or 
     the designated representative, of a facility that includes a 
     unit subject to the emissions limitation requirements of 
     sections 422, 432, 452, and 472 that the owner or operator 
     will hold sulfur dioxide allowances, nitrogen oxide 
     allowances, and mercury allowances, as the case may be, in 
     the amount required by such sections shall be deemed to meet 
     the proposed and approved compliance planning requirements of 
     this section and title V with regard to subparts A through D.
       (3) Recordation by the Administrator of transfers of 
     allowances shall amend automatically all applicable proposed 
     or approved permit applications, compliance plans and 
     permits.
       (c) Permits.--The owner or operator of each facility under 
     this title that includes an affected unit subject to title V 
     shall submit a permit application and compliance plan with 
     regard to the applicable requirements under sections 412(c), 
     422, 432, 441, 452, and 472 for sulfur dioxide emissions, 
     nitrogen oxide emissions, and mercury emissions from such 
     unit to the permitting authority in accordance with the 
     deadline for submission of permit applications and compliance 
     plans under title V. The permitting authority shall issue a 
     permit to such owner or operator, or the designated 
     representative of such owner or operator, that satisfies the 
     requirements of title V and this title.
       (d) Amendment of Application and Compliance Plan.--At any 
     time after the submission of an application and compliance 
     plan under this section, the applicant may submit a revised 
     application and compliance plan, in accordance with the 
     requirements of this section.
       (e) Prohibition.--It shall be unlawful for an owner or 
     operator, or designated representative, required to submit a 
     permit application or compliance plan under this title to 
     fail to submit such application or plan in accordance with 
     the deadlines specified in this section or to otherwise fail 
     to comply with regulations implementing this section.
       (2) It shall be unlawful for any person to operate any 
     facility subject to this title except in compliance with the 
     terms and requirements of a permit application and compliance 
     plan (including amendments thereto) or permit issued by the 
     Administrator or a State with an approved permit program. For 
     purposes of this subsection, compliance, as provided in 
     section 504(f), with a permit issued under title V which 
     complies with this title for facilities subject to this title 
     shall be deemed compliance with this subsection as well as 
     section 502(a).
       (3) In order to ensure reliability of electric power, 
     nothing in this title or title V shall be construed as 
     requiring termination of operations of a unit serving a 
     generator for failure to have an approved permit or 
     compliance plan under this section, except that any such unit 
     may be subject to the applicable enforcement provisions of 
     section 113.
       (f) Certificate of Representation.--No permit shall be 
     issued under this section to an affected unit or facility 
     until the designated representative of the owners or 
     operators has filed a certificate of representation with 
     regard to matters under this title, including the holding and 
     distribution of allowances and the proceeds of transactions 
     involving allowances.

     SEC. 405. MONITORING, REPORTING, AND RECORDKEEPING 
                   REQUIREMENTS.

       (a) Applicability.--(1)(A) The owner and operator of any 
     facility subject to this title shall be required to install 
     and operate CEMS on each affected unit subject to subpart 1 
     of part B or subpart 1 of part C at the facility, and to 
     quality assure the data, for sulfur dioxide, nitrogen oxides, 
     opacity, and volumetric flow at each such unit.
       (B) The Administrator shall, by regulations, specify the 
     requirements for CEMS under subparagraph (A), for any 
     alternative monitoring system that is demonstrated as 
     providing information with the same precision, reliability, 
     accessibility, and timelines as that provided by CEMS, and 
     for recordkeeping and reporting of information from such 
     systems. Such regulations may include limitations on the use 
     of alternative compliance methods by units equipped with an 
     alternative monitoring system as may be necessary to preserve 
     the orderly functioning of the allowance system, and which 
     will ensure the emissions reductions contemplated by this 
     title. Where 2 or more units utilize a single stack, a 
     separate CEMS shall not be required for each unit, and for 
     such units the regulations shall require that the owner or 
     operator collect sufficient information to permit reliable 
     compliance determinations for each such unit.
       (2)(A) The owner and operator of any facility subject to 
     this title shall be required to install and operate CEMS to 
     monitor the emissions from each affected unit at the 
     facility, and to quality assure the data for--
       (i) sulfur doxide, opacity, and volumetric flow for all 
     affected units subject to subpart 2 of part B at the 
     facility,
       (ii) nitrogen oxides for all affected units subject to 
     subpart 2 of part C at the facility, and
       (iii) mercury for all affected units subject to part D at 
     the facility.
       (B)(i) The Administrator shall, by regulations, specify the 
     requirements for CEMS under subparagraph (A), for any 
     alternative

[[Page 15186]]

     monitoring system that is demonstrated as providing 
     information with the same precision, reliability, 
     accessibility, and timeliness as that provided by CEMS, for 
     recordkeeping and reporting of information from such systems, 
     and if necessary under section 474, for monitoring, 
     recordkeeping, and reporting of the mercury content of fuel.
       (ii) Notwithstanding the requirements of clause (i), the 
     regulations under clause (i) may specify an alternative 
     monitoring system for determining mercury emissions to the 
     extent that the Administrator determines that CEMS for 
     mercury with appropriate vendor guarantees are not 
     commercially available.
       (iii) The regulations under clause (i) may include 
     limitation on the use of alternative compliance methods by 
     units equipped with an alternative monitoring system as may 
     be necessary to preserve the orderly functioning of the 
     allowance system, and which will ensure the emissions 
     reductions contemplated by this title.
       (iv) Except as provided in clausse (v), the regulations 
     under clause (i) shall not require a separate CEMS for each 
     unit where two or more units utilize a single stack and shall 
     require that the owner or operator collect sufficient 
     information to permit reliable compliance determinations for 
     such units.
       (v) The regulations under clause (i) may require a separate 
     CEMS for each unit where two or more units utilize a single 
     stack and another provision of the Act requires data under 
     subparagraph (A) for an individual unit.
       (b) Deadlines.--(1). Upon commencement of commercial 
     operation of each new utility unit under subpart I of part B, 
     the unit shall comply with the requirements of subsection 
     (a)(1).
       (2) By the later of January 1, 2009 or the date on which 
     the unit commences operation, the owner or operator of each 
     affected unit under subpart 2 of part B shall install and 
     operate CEMS, quality assure the data, and keep records and 
     reports in accordance with the regulations issued under 
     paragraph (a)(2) with regard to sulfur dioxide, opacity, and 
     volumetric flow.
       (3) By the later of January 1 of the year before the first 
     covered year or the date on which the unit commences 
     operation, the owner or operator of each affected unit under 
     subpart 3 of part B shall install and operate CEMS, quality 
     assure the data, and keep records and reports in accordance 
     with the regulations issued under paragraph (a)(2) with 
     regard to sulfur dioxide and volumetric flow.
       (4) By the later of January 1, 2007 or the date on which 
     the unit commences operation, the owner or operator of each 
     affected unit under subpart 2 of part C shall install and 
     operate CEMS, quality assure the data, and keep records and 
     reports in accordance with the regulations issued under 
     paragraph (a)(2) with regard to nitrogen oxides, and
       (5) By the later of January 1, 2009 or the date on which 
     the unit commences operation, the owner or operator of each 
     affected unit under part D shall install and operate CEMS, 
     quality assure the data, and keep records and reports in 
     accordance with the regulations issued under paragraph (a)(2) 
     with regard to mercury.
       (c) Unavailability of Emissions Data.--If CEMS data or data 
     from an alternative monitoring system approved by the 
     Administrator under subsection (a) is not available for any 
     affected unit during any period of a calendar year in which 
     such data is required under this title, and the owner or 
     operator cannot provide information, satisfactory to the 
     Administrator, on emissions during that period, the 
     Administrator shall deem the unit to be operating in an 
     uncontrolled manner during the entire period for which the 
     data was not available and shall, by regulation, prescribe 
     means to calculate emissions for that period. The owner or 
     operator shall be liable for excess emissions fees and 
     offsets under section 406 in accordance with such 
     regulations. Any fee due and payable under this subsection 
     shall not diminish the liability of the unit's owner or 
     operator for any fine, penalty, fee or assessment against the 
     unit for the same violation under any other section of this 
     Act.
       (d) With regard to sulfur dioxide, nitrogen oxides, 
     opacity, and volumetric flow, the Administrator shall 
     implement subsections (a) and (c) under 40 CFR part 75 
     (2001), amended as appropriate by the Administrator. With 
     regard to mercury, the Administrator shall implement 
     subsections (a) and (c) by issuing regulations not later than 
     January 1, 2008.
       (e) Prohibition.--It shall be unlawful for the owner or 
     operator of any facility subject to this title to operate a 
     facility without complying with the requirements of this 
     section, and any regulations implementing this section.

     SEC. 406. EXCESS EMISSIONS PENALTY; GENERAL COMPLIANCE WITH 
                   OTHER PROVISIONS; ENFORCEMENT

       (a) Excess Emissions Penalty.--(1) The owner or operator of 
     any unit subject to the requirements of section 441 that 
     emits nitrogen oxides for any calendar year in excess of the 
     unit's emissions limitation requirement shall be liable for 
     the payment of an excess emissions penalty, except where such 
     emission were authorized pursuant to section 110(f). That 
     penalty shall be calculated on the basis of the number of 
     tons emitted in excess of the unit's emissions limitation 
     requirement multiplied by $2,000.
       (2) The owner or operator of any unit subject to the 
     requirements of section 412(c) that emits sulfur dioxide for 
     any calendar year before 2008 in excess of the sulfur dioxide 
     allowances the owner or operator holds for use for the unit 
     for that calendar year shall be liable for the payment of an 
     excess emissions penalty, except where such emissions were 
     authorized pursuant to section 110(f). That penalty shall be 
     calculated as follows:
       (A) the product of the unit's excess emissions (in tons) 
     multiplied by the clearing price of sulfur dioxide allowances 
     sold at the most recent auction under section 417, if within 
     thirty days after the date on which the owner or operator was 
     required to hold sulfur dioxide allowances--
       (i) the owner or operator offsets the excess emissions in 
     accordance with paragraph (b)(1); and
       (ii) the Administrator receives the penalty required under 
     this subparagraph.
       (B) if the requirements of clause (A)(i) or (A)(ii) are not 
     met, three hundred percent of the product of the unit's 
     excess emissions (in tons) multiplied by the clearing price 
     of sulfur dioxide allowances sold at the most recent auction 
     under section 417.
       (3) If the units at a facility that are subject to the 
     requirements of section 412(c) emit sulfur dioxide for any 
     calendar year after 2007 in excess of the sulfur dioxide 
     allowances that the owner or operator of the facility holds 
     for use for the facility for that calendar year, the owner or 
     operator shall be liable for the payment of an excess 
     emissions penalty, except where such emissions were 
     authorized pursuant to section 110(f). That penalty shall be 
     calculated under paragraph (4)(A) or (4)(B).
       (4) If the units at a facility that are subject to the 
     requirements of section 422, 432, 452, or 472 emit sulfur 
     dioxide, nitrogen oxides, or mercury for any calendar year in 
     excess of the sulfur dioxide allowances, nitrogen oxides 
     allowances, or mercury allowances, as the case may be, that 
     the owner or operator of the facility holds for use for the 
     facility for that calendar year, the owner or operator shall 
     be liable for the payment of an excess emissions penalty, 
     except where such emissions were authorized pursuant to 
     section 110(f). That penalty shall be calculated as follows:
       (A) the product of the units' excess emissions (in tons or, 
     for mercury emissions, in ounces) multiplied by the clearing 
     price of sulfur dioxide allowances, nitrogen oxides 
     allowances, or mercury allowances, as the case may be, sold 
     at the most recent auction under section 423, 453, or 473, if 
     within thirty days after the date on which the owner or 
     operator was required to hold sulfur dioxide, nitrogen oxides 
     allowance, or mercury allowances as the case may be--
       (i) the owner or operator offsets the excess emissions in 
     accordance with paragraph (b)(1); and
       (ii) the Administrator receives the penalty required under 
     this subparagraph.
       (B) if the requirements of clause (A)(i) or (A)(ii) are not 
     met, three hundred percent of the product of the units' 
     excess emissions (in tons or, for mercury emissions, in 
     ounces) multiplied by the clearing price of sulfur dioxide 
     allowances, nitrogen oxides allowances, or mercury 
     allowances, as the case may be, sold at the most recent 
     auction under section 423, 453, or 473.
       (5) Any penalty under paragraph 1, 2, 3, or 4 shall be due 
     and payable without demand to the Administrator as provided 
     in regulations issued by the Administrator. With regard to 
     the penalty under paragraph 1, the Administrator shall 
     implement this paragraph under 40 CFR 77 (2001), amended as 
     appropriate by the administrator. With regard to the penalty 
     under paragraphs 2, 3, and 4, the Administrator shall 
     implement this paragraph by issuing regulations no later than 
     twenty-four months after the date of enactment of the Clear 
     Skies Act of 2002. Any such payment shall be deposited in the 
     United States Treasury. Any penalty due and payable under 
     this section shall not diminish the liability of the unit's 
     owner or operator for any fine, penalty or assessment against 
     the unit for the same violation under any other section of 
     this Act.
       (b) Excess Emissions Offset.--(1) The owner or operator of 
     any unit subject to the requirements of section 412(c) that 
     emits sulfur dioxide during any calendar year before 2008 in 
     excess of the sulfur dioxide allowances held for the unit for 
     the calendar year shall be liable to offset the excess 
     emissions by an equal tonnage amount in the following 
     calendar year, or such longer period as the Administrator may 
     prescribe. The Administrator shall deduct sulfur dioxide 
     allowances equal to the excess tonnage from those held for 
     the facility for the calendar year, or succeeding years 
     during which offsets are required, following the year in 
     which the excess emissions occurred.
       (2) If the units at a facility that are subject to the 
     requirements of section 412(c) emit sulfur dioxide for a year 
     after 2007 in excess of the sulfur dioxide allowances that 
     the owner or operator of the facility holds for use for the 
     facility for that calendar year, the owner or operator shall 
     be liable to offset

[[Page 15187]]

     the excess emissions by an equal amount of tons in the 
     following calendar year, or such longer period as the 
     Administrator may prescribe. The Administrator shall deduct 
     sulfur dioxide allowances equal to the excess emissions in 
     tons from those held for the facility for the year, or 
     succeeding years during which offsets are required, following 
     the year in which the excess emissions occurred.
       (3) If the units at a facility that are subject to the 
     requirements of section 422, 432, 452, or 472 emit sulfur 
     dioxide, nitrogen oxides, or mercury for any calendar year in 
     excess of the sulfur dioxide allowances, nitrogen oxides 
     allowances, or mercury allowances, as the case may be, that 
     the owner or operator of the facility holds for use for the 
     facility for that calendar year, the owner or operator shall 
     be liable to offset the excess emissions by an equal amount 
     of tons or, for mercury, ounces in the following calendar 
     year, or such longer period as the Administrator may 
     prescribe. The Administrator shall deduct sulfur dioxide 
     allowances, nitrogen oxide allowances, or mercury allowances, 
     as the case may be, equal to the excess emissions in tons or, 
     for mercury, ounces from those held for the facility for the 
     year, or succeeding years during which offsets are required, 
     following the year in which the excess emissions occurred.
       (c) Penalty Adjustment.--The Administrator shall, by 
     regulation, adjust the penalty specified in subsection (a)(1) 
     for inflation, based on the Consumer Price Index, on November 
     15, 1990 and annually thereafter.
       (d) Prohibition.--It shall be unlawful for the owner or 
     operator of any unit or facility liable for a penalty and 
     offset under this section to fail--
       (1) to pay the penalty under subsection (a) or
       (2) to offset excess emissions as required by subsection 
     (b).
       (e) Savings Provision.--Nothing in this title shall limit 
     or otherwise affect the application of section 113, 114, 120, 
     or 304 except as otherwise explicitly provided in this title.
       (f) Except as expressly provided, compliance with the 
     requirements of this title shall not exempt or exclude the 
     owner or operator of any facility subject to this title from 
     compliance with any other applicable requirements of this 
     Act. Notwithstanding any other provision of the Act, no State 
     or political subdivision thereof shall restrict or interfere 
     with the transfer, sale, or purchase of allowances under this 
     title.
       (g) Violation by any person subject to this title of any 
     prohibition of, requirement of, or regulation promulgated 
     pursuant to this title shall be a violation of this Act. In 
     addition to the other requirements and prohibitions provided 
     for in this title, the operation of any affected unit or the 
     affected units at a facility to emit sulfur dioxide, nitrogen 
     oxides, or mercury in violation of section 412(c), 422, 432, 
     452, and 472, as the case may be, shall be deemed a 
     violation, with each ton or, in the case of mercury, each 
     ounce emitted in excess of allowances held constituting a 
     separate violation.

     SEC. 407. ELECTION FOR ADDITIONAL UNITS.

       (a) Applicability.--The owner or operator of any unit that 
     is not an affected EGU under subpart 2 of part B and subpart 
     2 of part C and whose emissions of sulfur dioxide and 
     nitrogen oxides are vented only through a stack or duct may 
     elect to designate such unit as an affected unit under 
     subpart 2 of part B and subpart 2 of part C. If the owner or 
     operator elects to designate a unit that is coal-fired and 
     emits mercury vented only through a stack or duct, the owner 
     or operator shall also designate the unit as an affected unit 
     under part D.
       (b) Application.--The owner or operator making an election 
     under subsection (a) shall submit an application for the 
     election to the Administrator for approval.
       (c) Approval.--If an application for an election under 
     subsection (b) meets the requirements of subsection (a), the 
     Administrator shall approve the designation as an affected 
     unit under subpart 2 of part B and subpart 2 of part C and, 
     if applicable, under part D, subject to the requirements in 
     subsections (d) through (g).
       (d) Establishment of Baseline.--(1) After approval of the 
     designation under subsection (c), the owner or operator shall 
     install and operate CEMS on the unit, and shall quality 
     assure the data, in accordance with the requirements of 
     paragraph (a)(2) and subsections (c) through (e) of section 
     405, except that, where two or more units utilize a single 
     stack, separate monitoring shall be required for each unit.
       (2) The baselines for heat input and sulfur dioxide, 
     nitrogen oxides, and mercury emission rates, as the case may 
     be, for the unit shall be the unit's heat input and the 
     emission rates of sulfur dioxide, nitrogen oxides, and 
     mercury for a year starting after approval of the designation 
     under subsection (c). The Administrator shall issue 
     regulations requiring all the unit's baselines to be based on 
     the same year and specifying minimum requirements concerning 
     the percentage of the unit's operating hours for which 
     quality assured CEMS data must be available during such year.
       (e) Emission Limitations.--After approval of the 
     designation of the unit under paragraph (c), the unit shall 
     become:
       (1) an affected unit under subpart 2 of part B, and shall 
     be allocated sulfur dioxide allowances under paragraph (f), 
     starting the later of January 1, 2010 or January 1 of the 
     year after the year on which the unit's baselines are based 
     under subsection (d);
       (2) an affected unit under subpart 2 of part C, and shall 
     be allocated nitrogen oxides allowances under paragraph (f), 
     starting the later of January 1, 2008 or January 1 of the 
     year after the year on which the unit's baselines are based 
     under subsection (d); and
       (3) if applicable, an affected unit under part D, and shall 
     be allocated mercury allowances, starting the later of 
     January 1, 2010 or January 1 of the year after the year on 
     which the unit's baselines are based under subsection (d).
       (f) Allocations and Auction Amounts.--(1) The Administrator 
     shall promulgate regulations determining the allocations of 
     sulfur dioxide allowances, nitrogen oxides allowances, and, 
     if applicable, mercury allowances for each year during which 
     a unit is an affected unit under subsection (e). The 
     regulations shall provide for allocations equal to fifty 
     percent of the following amounts, as adjusted under paragraph 
     (2):
       (A) the lesser of the unit's baseline heat input under 
     subsection (d) or the unit's heat input for the year before 
     the year for which the Administrator is determining the 
     allocations; multiplied by
       (B) the lesser of--
       (i) the unit's baseline sulfur dioxide emission rate, 
     nitrogen oxides emission rate, or mercury emission rate, as 
     the case may be,
       (ii) the unit's sulfur dioxide emission rate, nitrogen 
     oxides emission rate, or mercury emission rate, as the case 
     may be, during 2002, as determined by the Administrator 
     based, to the extent available, on information reported to 
     the State where the unit is located; or
       (iii) the unit's most stringent State or federal emission 
     limitation for sulfur dioxide, nitrogen oxides, or mercury 
     applicable to the year on which the unit's baseline heat 
     input is based under subsection (d).
       (2) the Administrator shall reduce the allocations under 
     paragraph (1) by 1.0 percent in the first year for which the 
     Administrator is allocating allowances to the unit, by an 
     additional 1.0 percent of the allocations under paragraph (1) 
     each year starting in the second year through the twentieth 
     year, and by an additional 2.5 percent of the allocations 
     under paragraph (1) each year starting in the twenty-first 
     year and each year thereafter. The Administrator shall make 
     corresponding increases in the amounts of allowances 
     auctioned under sections 423, 453, and 473.
       (g) Withdrawal.--The Administrator shall promulgate 
     regulations withdrawing from the approved designation under 
     subsection (c) any unit that qualifies as an affected EGU 
     under subpart 2 of part B, subpart 2 of part C, or part D 
     after the approval of the designation of the unit under 
     subsection (c).
       (h) The Administrator shall promulgate regulations 
     implementing this section within 24 months of the date of 
     enactment of the Clear Skies Act of 2003.

     SEC. 408. CLEAN COAL TECHNOLOGY REGULATORY INCENTIVES.

       (a) Definition.--For purposes of this section, ``clean coal 
     technology'' means any technology, including technologies 
     applied at the precombustion, combustion, or post combustion 
     stage, at a new or existing facility which will achieve 
     significant reductions in air emissions of sulfur dioxide or 
     oxides of nitrogen associated with the utilization of coal in 
     the generation of electricity, process steam, or industrial 
     products, which is not in widespread use as of the date of 
     enactment of this title.
       (b) Revised Regulations for Clean Coal Technology 
     Demonstrations.--
       (1) Applicability.--This subsection applies to physical or 
     operational changes to existing facilities for the sole 
     purpose of installation, operation, cessation, or removal of 
     a temporary or permanent clean coal technology demonstration 
     project. For the purposes of this section, a clean coal 
     technology demonstration project shall mean a project using 
     funds appropriated under the heading ``Department of Energy--
     Clean Coal Technology'', up to a total amount of 
     $2,500,000,000 for commercial demonstration of clean coal 
     technology, or similar projects funded through appropriations 
     for the Environmental Protection Agency. the Federal 
     contribution for qualifying project shall be at least 20 
     percent of the total cost of the demonstration project.
       (2) Temporary projects.--Installation, operation, 
     cessation, or removal of a temporary clean coal technology 
     demonstration project that is operated for a period of five 
     years or less, and which complies with the State 
     implementation plans for the State in which the project is 
     located and other requirements necessary to attain and 
     maintain the national ambient air quality standards during 
     and after the project is terminated, shall not subject such 
     facility to the requirements of section 111 or part C or D of 
     title I.
       (3) Permanent projects.--For permanent clean coal 
     technology demonstration projects that constitute repowering 
     as defined in section 411, any qualifying project shall not 
     be subject to standards of performance under section 111 or 
     to the review and permitting requirements of part C for any 
     pollutant the potential emissions of which will not increase 
     as a result of the demonstration project.

[[Page 15188]]

       (4) EPA regulations.--Not later than 12 months after 
     November 15, 1990, the Administrator shall promulgate 
     regulations or interpretive rulings to revise requirements 
     under section 111 and parts C and D, as appropriate, to 
     facilitate projects consistent in this subsection. With 
     respect to parts C and D, such regulations or rulings shall 
     apply to all areas in which EPA is the permitting authority. 
     In those instances in which the State is the permitting 
     authority under part C or D, any State may adopt and submit 
     to the Administrator for approval revisions to its 
     implementation plan to apply the regulations or rulings 
     promulgated under this subsection.
       (c) Exemption for Reactivation of Very Clean Units.--
     Physical changes or changes in the method of operation 
     associated with the commencement of commercial operations by 
     a coal-fired utility unit after a period of discontinued 
     operation shall not subject the unit to the requirements of 
     section 111 or part C of the Act where the unit (1) has not 
     been in operation for the two-year period prior to November 
     15, 1990, and the emissions from such unit continue to be 
     carried in the permitting authority's emissions inventory on 
     November 15, 1990, (2) was equipped prior to shut-down with a 
     continuous system of emissions control that achieves a 
     removal efficiency for sulfur dioxide of no less than 85 
     percent and a removal efficiency for particulates of no less 
     than 98 percent, (3) is equipped with low-NOX 
     burners prior to the time of commencement, and (4) is 
     otherwise in compliance with the requirements of this Act.

     SEC. 409. AUCTIONS.

       (a) Commencing in 2005 and in each year thereafter, the 
     Administrator shall conduct auctions, as required under 
     sections 423, 424, 426, 453, 454, 473, and 474, at which 
     allowances shall be offered for sale in accordance with 
     regulations promulgated by the Administrator no later than 
     twenty-four months after the date of enactment of the Clear 
     Skies Act of 2002. Such regulations may provide allowances to 
     be offered for sale before or during the year for which such 
     allowances may be used to meet the requirement to hold 
     allowances under section 422, 452, and 472. Such regulations 
     shall specify the frequency and timing of auctions and may 
     provide for more than one auction of sulfur dioxide 
     allowances, nitrogen oxides allowances, or mercury allowances 
     during a year. Each auction shall be open to any person. A 
     person wishing to bid for allowances in the auction shall 
     submit to the Administrator (by a date set, and on a bid 
     schedule provided, by the Administrator) offers to purchase 
     specified numbers of allowances at specified prices. 
     Allowances purchased at the auction may be used for any 
     purpose and at any time after the auction, subject to the 
     provisions of this title.
       (b) Default Auction Procedures.--If the Administrator is 
     required to conduct an auction of allowances under subsection 
     (a) before regulations have been promulgated under that 
     subsection, such auction shall be conducted as follows--
       (1) The auction shall be held on the first business day in 
     October of the year in which the auction is required or, in 
     the absence of such a requirement, of the year before the 
     first year for which the allowances may be used to meet the 
     requirements of section 403(e)(2).
       (2) The auction shall be open to any person.
       (3) In order to bid for allowances included in the auction, 
     a person shall submit, and the Administrator must receive by 
     the date three business days before the auction, one or more 
     offers to purchase a specified amount of such allowances at a 
     specified price on a sealed bid schedule to be provided by 
     the Administrator. The bidder shall state in the bid schedule 
     that the bidder is willing to purchase at the specified price 
     fewer allowances than the specified amount and shall identify 
     the account in the Allowance Tracking System under section 
     403(c) in which the allowances purchased are to be placed. 
     Each bid must include a certified check or, using a form to 
     be provided by the Administrator, a letter of credit for the 
     specified amount of allowances multiplied by the bid price 
     payable to the U.S. EPA. The bid schedule, and check or 
     letter of credit, shall be sent to the address specified on 
     the bid schedule.
       (4) The Administrator shall auction the allowances by:
       (A) determining whether each bid meets the requirements of 
     paragraph (3);
       (B) listing the bids (including the specified amounts of 
     allowances and the specified bid prices) meeting the 
     requirements of paragraph (3) in order, from highest to 
     lowest bid price;
       (C) for each bid price, summing the amounts of allowances 
     specified in the bids listed under subparagraph (B) with the 
     same or a higher bid price;
       (D) identifying the bid price with the highest sum of 
     allowances under subparagraph (C) that does not exceed the 
     total amount of allowances available for auction;
       (E) setting as the sales price in the auction:
       (i) the bid price identified under subparagraph (D) if that 
     bid price has a sum of allowances under subparagraph (C) 
     equal to the total amount of allowances available for 
     auction; or
       (ii) the next lowest bid price after the bid price 
     identified under subparagraph (D), if the bid price 
     identified under subparagraph (D) has a sum of allowances 
     under subparagraph (C) less than the total amount of 
     allowances available for auction; and
       (F) starting with the first bid listed under subparagraph 
     (B) and ending with the bid listed immediately before the bid 
     with a bid price equal to the sales price, selling the 
     amounts of allowances specified in each bid to the person who 
     submitted the bid.
       (i) If the amount of remaining allowances available for 
     auction equals or is less than the amount of allowances 
     specified in the bid with a bid price equal to the sales 
     price, the Administrator shall sell the amount of remaining 
     allowances to the person who submitted that bid.
       (ii) If there is more than one bid with a bid price equal 
     to the sales price and the amount of remaining allowances 
     available for auction is less than the total of the amounts 
     of allowances specified in such bids, the Administrator shall 
     sell the amount of the remaining allowances to the persons 
     who submitted those bids on a pro rata basis.
       (5) After the auction, the Administrator will publish the 
     names of winning and losing bidders, their bids, and the 
     sales price. The Administrator will provide the successful 
     bidders notice of the allowances that they have purchased 
     within thirty days after payment is collected by the 
     Administrator. After the conclusion of the auction, the 
     Administrator will return payment to unsuccessful bidders and 
     the appropriate portion of payment to successful bidders who 
     offered to purchase a larger amount of allowances than the 
     amount that they are sold or to pay a bid price exceeding the 
     sales price and will add any unsold allowances to the next 
     relevant auction.
       (c) The Administrator may by delegation or contract provide 
     for the conduct of auctions under the Administrator's 
     supervision by other departments or agencies of the United 
     States Government or by nongovernmental agencies, groups, or 
     organizations.
       (d) The proceeds from any auction conducted under this 
     title shall be deposited in the United States Treasury.

     SEC. 410. EVALUATION OF LIMITATIONS ON TOTAL SULFUR DIOXIDE, 
                   NITROGEN OXIDES, AND MERCURY EMISSIONS THAT 
                   START IN 2018.

       (a) Evaluation.--(1) The Administrator, in consultation 
     with the Secretary of Energy, shall study whether the 
     limitations on the total annual amounts of allowances 
     available starting in 2018 for sulfur dioxide under section 
     423, nitrogen oxides under section 453, and mercury under 
     section 473 should be adjusted.
       (2) As part of the study, the Administrator shall address 
     the following factors concerning the pollutants under 
     paragraph (a)(1):
       (A) the need for further emission reductions from affected 
     EGUs under subpart 2 of part B, subpart 2 of part C, or part 
     D and other sources to attain or maintain the national 
     ambient air quality standards;
       (B) whether the benefits of the limitations on the total 
     annual amounts of allowances available starting in 2018 
     justify the costs and whether adjusting any of the 
     limitations would provide additional benefits which justify 
     the costs of such adjustment, taking into account both 
     quantifiable and non-quantifiable factors;
       (C) the marginal cost effectiveness of reducing emissions 
     for each pollutant;
       (D) the relative marginal cost effectiveness of reducing 
     sulfur dioxide and nitrogen oxide emissions from affected 
     EGUs under subpart 2 of part B and subpart 2 of part C, as 
     compared to the marginal cost effectiveness of controls on 
     other sources of sulfur dioxide, nitrogen oxides and other 
     pollutants that can be controlled to attain or maintain 
     national ambient air quality standards;
       (E) the feasibility of attaining the limitations on the 
     total annual amounts of allowances available starting in 2018 
     given the available control technologies and the ability to 
     install control technologies by 2018, and the feasibility of 
     attaining alternative limitations on the total annual amounts 
     of allowances available starting in 2018 under paragraph 
     (a)(1) for each pollutant, including the ability to achieve 
     alternative limitations given the available control 
     technologies, and the feasibility of installing the control 
     technologies needed to meet the alternative limitation by 
     2018;
       (F) the results of the most current research and 
     development regarding technologies and strategies to reduce 
     the emissions of one or more of these pollutants from 
     affected EGUs under subpart 2 of part B, subpart 2 of part C, 
     or part D, as applicable and the results of the most current 
     research and development regarding technologies for other 
     sources of the same pollutants;
       (G) the projected impact of the limitations on the total 
     annual amounts of allowances available starting in 2018 and 
     the projected impact of adjusting any of the limitations on 
     the total annual amounts of allowances available starting in 
     2018 under paragraph (a)(1) on the safety and reliability of 
     affected EGUs under subpart 2 of part B, subpart 2 of part C, 
     or part D and on fuel diversity within the power generation 
     section;

[[Page 15189]]

       (H) the most current scientific information relating to 
     emissions, transformation and deposition of these pollutants, 
     including studies evaluating:
       (i) the role of emissions of affected EGUs under subpart 2 
     of part B, subpart 2 of part C, or part D in the atmospheric 
     formation of pollutants for which national ambient air 
     quality standards exist;
       (ii) the transformation, transport, and fate of these 
     pollutants in the atmosphere, other media, and biota;
       (iii) the extent to which effective control programs in 
     other countries would prevent air pollution generated in 
     those countries from contributing to nonattainment, or 
     interfering with the maintenance of any national ambient air 
     quality standards;
       (iv) whether the limitations starting in 2010 or 2018 will 
     result in an increase in the level of any other pollutant and 
     the level of any such increase; and
       (v) speciated monitoring data for particulate matter and 
     the effect of various elements of fine particulate matter on 
     public health;
       (I) the most current scientific information relating to 
     emissions, transformation and deposition of mercury, 
     including studies evaluating:
       (i) known and potential human health and environmental 
     effects of mercury;
       (ii) whether emissions of mercury from affected EGUs under 
     part D contribute significantly to elevated levels of mercury 
     in fish;
       (iii) human population exposure to mercury;
       (iv) the relative marginal cost effectiveness of reducing 
     mercury emissions from affected EGUs under part D, as 
     compared to the marginal cost effectiveness of controls on 
     other sources of mercury.
       (J) a comparison of the extent to which sources of mercury 
     not located in the United States contributed to adverse 
     affects on terrestrial or aquatic systems as opposed to the 
     contribution from affected EGUs under part D, and the extent 
     to which effective mercury control programs in other 
     countries could minimize such impairment; and
       (K) an analysis of the effectiveness and efficiency of the 
     sulfur dioxide allowance program under subpart 2 of part B, 
     the nitrogen oxides allowance program under subpart 2 of part 
     C, and the mercury allowance program under part D.
       (3) As part of the study, the Administrator shall take into 
     account the most current information available pursuant to 
     the review of the air quality criteria for particulate matter 
     under section 108.
       (b) Peer Review Procedures.--The draft results of the study 
     under subsection (a) and related technical documents shall be 
     subject to an independent and external peer review in 
     accordance with this section. Any documents that are to be 
     considered by the Administrator in the study must be 
     independently peer reviewed no later than July 1, 2008. The 
     peer review required under this section shall not be subject 
     to the Federal Advisory Committee Act (5 U.S.C. App.). The 
     Administrator shall:
       (1) conduct the peer review in an open manner. Such peer 
     review shall
       (A) be conducted through a formal panel that is broadly 
     representative and involves qualified specialists who
       (i) are selected primarily on the basis of their technical 
     expertise relevant to the analyses required under this 
     section and to the decision whether or not to adjust the 
     total annual amounts of allowances available starting in 2018 
     under paragraph (a)(1);
       (ii) are independent of the agency;
       (iii) disclose to the agency prior technical or policy 
     positions they have taken on the issues under consideration; 
     and
       (iv) disclose to the agency their sources of personal and 
     institutional funding from the private or pubic sectors;
       (B) contain a balanced presentation of all considerations, 
     including minority reports;
       (C) provide adequate protections for confidential business 
     information and trade secrets, including requiring panel 
     members or participants to enter into confidentiality 
     agreements;
       (D) afford an opportunity for public comment; and
       (E) be complete by no later than January 1, 2009.
       (2) respond, in writing, to all significant peer review and 
     public comments;
       (3) certify that
       (A) each peer review participant has the expertise an 
     independence required under this section; and
       (B) the agency has adequately responded to the peer review 
     comments as requires under this section.
       (c) Recommendaiton to Congress.--The Administrator, in 
     consultation with the Secretary of Energy, should submit to 
     Congress no later than July 1, 2009, a recommendation whether 
     to revise the limitations on the total annual amounts of 
     allowances available starting in 2018 under paragraph (a)(1). 
     The recommendation shall include the final results of the 
     study under subsections (a) and (b) and shall address the 
     factors described in paragraph (a)(2). The Administrator may 
     submit separate recommendations addressing sulfur dioxide, 
     nitrogen oxides, or mercury at any time after the study has 
     been completed under paragraph (a)(2) and the peer review 
     process has been completed under subsection (b).

               Part B. Sulfur Dioxide Emission Reductions

                     Subpart 1. Acid Rain Program.

     SEC. 411. DEFINITIONS.

       For purposes of this subpart--
       (1) the term ``actual 1985 emission rate'', for electric 
     utility units means the annual sulfur dioxide or nitrogen 
     oxides emission rate in pounds per million Btu as reported in 
     the NAPAP Emissions Inventory, Version, 2 National Utility 
     reference File. For nonutility units, the term ``actual 1985 
     emission rate'' means the annual sulfur dioxide or nitrogen 
     oxides emission rate in pounds per million Btu as reported in 
     the NAPAP Emission Inventory, Version 2.
       (2) The term ``allowable 1985 emissions rate'' means a 
     federally enforceable emissions limitation for sulfur dioxide 
     or oxides of nitrogen, applicable to the unit in 1985 or the 
     limitation applicable in such other subsequent year as 
     determined by the Administrator if such a limitation for 1985 
     does not exist. Where the emissions limitation for a unit is 
     not expressed in pounds of emissions per million Btu, or the 
     averaging period of that emissions limitation is not 
     expressed on an annual basis, the Administrator shall 
     calculate the annual equivalent of that emissions
       (3) The term ``alternative method of compliance'' means a 
     method of compliance in accordance with one or more of the 
     following authorities:
       (A) a substitution plan submitted and approved in 
     accordance with subsections 413(b) and (c); or
       (B) a Phase I extension plan approved by the Administrator 
     under section 413(d), using qualifying phase I technology as 
     determined by the Administrator in accordance with that 
     section.
       (4) The term ``baseline'' means the annual quantity of 
     fossil fuel consumed by an affected unit, measured in 
     millions of British Thermal Units (``mmBtu's''), calculated 
     as follows:
       (A) For each utility unit that was in commercial operation 
     prior to January 1, 1985, the baseline shall be the annual 
     average quantity of mmBtu's consumed in fuel during calendar 
     years 1985, 1986, and 1987, as recorded by the Department of 
     Energy pursuant to Form 767. For any utility unit for which 
     such form was not filed, the baseline shall be the level 
     specified for such unit in the 1985 National Acid 
     Precipitation Assessment Program (NAPAP) Emissions Inventory, 
     Version 2, National Utility Reference File (NURF) or in a 
     corrected data base as established by the Administrator 
     pursuant to paragraph (3). For non-utility units, the 
     baseline in the NAPAP Emissions Inventory, Version 2. The 
     Administrator, in the Administrator's sole discretion, may 
     exclude periods during which a unit is shutdown for a 
     continuous period of four calendar months or longer, and make 
     appropriate adjustments under this paragraph. Upon petition 
     of the owner or operator of any unit, the Administrator may 
     make appropriate baseline adjustments for accidents that 
     caused prolonged outages.
       (B) For any other nonutility unit that is not included in 
     the NAPAP Emissions Inventory, Version 2, or a corrected data 
     base as established by the Administrator pursuant to 
     paragraph (3), the baseline shall be the annual average 
     quantity, in mmBtu consumed in fuel by that unit, as 
     calculated pursuant to a method which the Administrator shall 
     prescribe by regulation to be promulgated not later than 
     eighteen months after November 15, 1990.
       (C) The Administrator shall, upon application or on his own 
     motion, by December 31, 1991, supplement data needed in 
     support of this subpart and correct any factual errors in 
     data from which affected Phase II units' baselines or actual 
     1985 emission rates have been calculated. Corrected data 
     shall be used for purposes of issuing allowances under this 
     subpart. Such corrections shall not be subject to judicial 
     review, nor shall the failure of the Administrator to correct 
     an alleged factual error in such reports be subject to 
     judicial review.
       (5) The term ``basic Phase II allowance allocations'' 
     means:
       (A) For calendar years 2000 through 2009 inclusive, 
     allocations of allowances made by the Administrator pursuant 
     to section 412 and subsections (b)(1), (3), and (4); (c)(1), 
     (2), (3), and (5); (d)(1), (2), (4), and (5); (e); (f); (g) 
     (1), (2), (3), (4), and (5); (h)(1); (i) and (j) of section 
     414.
       (B) For each calendar year beginning in 2010, allocations 
     of allowances made by the Administrator pursuant to section 
     412 and subsections (b)(1), (3), and (4); (c)(1), (2), (3), 
     and (5); (d)(1), (2), (4) and (5); (e); (f); (g)(1), (2), 
     (3), (4), and (5); (h)(1) and (3); (i) and (j) of section 
     414.
       (6) The term ``capacity factor'' means the ratio between 
     the actual electric output from a unit and the potential 
     electric output from that unit.
       (7) The term ``commenced'' as applied to construction of 
     any new electric utility unit means that an owner or operator 
     has undertaken a continuous program of construction or that 
     an owner or operator has entered into a contractual 
     obligation to undertake and complete, within a reasonable 
     time, a continuous program of construction.

[[Page 15190]]

       (8) The term ``commenced commercial operation'' means to 
     have begun to generate electricity for sale.
       (9) The term ``construction'' means fabrication, erection, 
     or installation of an affected unit.
       (10) The term ``existing unit'' means a unit (including 
     units subject to section 111) that commenced commercial 
     operation before November 15, 1990. Any unit that commenced 
     commercial operation before November 15, 1990 which is 
     modified, reconstructed, or repowered after November 15, 1990 
     shall continue to be an existing unit for the purposes of 
     this subpart. For the purposes of this subpart, existing 
     units shall not include simple combustion turbines, or units 
     which serve a generator with a nameplate capacity of 25 MWe 
     or less.
       (11) The term ``independent power producer'' means any 
     person who owns or operates, in whole or in part, one or more 
     new independent power production facilities.
       (12) The term ``new'' independent power production 
     facility'' means a facility that--
       (A) is used for the generation of electric energy, 80 
     percent or more of which is sold at wholesale;
       (B) in nonrecourse project-financed (as such term is 
     defined by the Secretary of Energy within 3 months of the 
     date of the enactment of the Clean Air Act Amendments of 
     1990); and
       (C) is a new unit required to hold allowances under this 
     subpart.
       (13) The term ``industrial source'' means a unit that does 
     not serve a generator that produces electricity, a ``non-
     utility unit'' as defined in this section, or a process 
     source.
       (14) The term ``life-of-the-unit, firm power contractual 
     arrangement'' means a unit participation power sales 
     agreement under which a utility or industrial customer 
     reserves, or is entitled to receive, a specified amount or 
     percentage of capacity and associated energy generated by a 
     specified generating unit (or units) and pays its 
     proportional amount of such unit's total costs, pursuant to a 
     contract either--
       (A) for the life of the unit;
       (B) for a cumulative term of no less than 30 years, 
     including contracts that permit an election for early 
     termination; or
       (C) for a period equal to or greater than 25 years or 70 
     percent of the economic useful life of the unit determined as 
     of the time the unit was built, with option rights to 
     purchase or release some portion of the capacity and 
     associated energy generated by the unit (or units) at the end 
     of the period.
       (15) The term ``new unit'' means a unit that commences 
     commercial operation on or after November 15, 1990.
       (16) The term ``nonutility unit'' means a unit other than a 
     utility unit.
       (17) The term ``Phase II bonus allowance allocations'' 
     means, for calendar year 2000 through 2009, inclusive, and 
     only for such years, allocations made by the Administrator 
     pursuant to section 412, subsections (a)(2), (b)(2), (c)(4), 
     (d)(3) (except as otherwise provided therein), and (h)(2) of 
     section 414, and section 415.
       (18) The term ``qualifying phase I technology'' means a 
     technological system of continuous emission reduction which 
     achieves a 90 percent reduction in emissions of sulfur 
     dioxide from the emissions that would have resulted from the 
     use of fuels which were not subject to treatment prior to 
     combustion.
       (19) The term ``repowering'' means replacement of an 
     existing coal-fired boiler with one of the following clean 
     coal technologies: atmospheric or pressurized fluidized bed 
     combustion, integrated gasification combined cycle, magneto-
     hydrodynamics, direct and indirect coal-fired turbines, 
     integrated gasification fuel cells, or as determined by the 
     Administrator, in consultation with the Secretary of Energy, 
     a derivative of one or more of these technologies, and any 
     other technology capable of controlling multiple combustion 
     emissions simultaneously with improved boiler or generation 
     efficiency and with significantly greater waste reduction 
     relative to the performance of technology in widespread 
     commercial use as of November 15, 1990.
       (2)) The term ``reserve'' means any bank of allowances 
     established by the Administrator under this subpart.
       (21)(A) The term ``utility unit'' means--
       (i) a unit that serves a generator in any State that 
     produces electricity for sale, or
       (ii) a unit that, during 1985, served a generator in any 
     State that produced electricity for sale.
       (B) Notwithstanding subparagraph (A), a unit described in 
     subparagraph (A) that--
       (i) was in commercial operations during 1985, but
       (ii) did not during 1985, serve a generator in any State 
     that produced electricity for sale shall not be a utility 
     unit for purposes of this subpart.
       (C) A unit that congenerates steam and electricity is not a 
     ``utility unit'' for purposes of this subpart unless the unit 
     is constructed for the purpose of supplying, or commences 
     construction after November 15, 1990 and supplies more than 
     one-third of its potential electric output capacity of more 
     than 25 megawatts electrical output to any utility power 
     distribution system for sale.

     SEC. 412. ALLOWANCE ALLOCATION.

       (a)(1) Except as provided in sections 414(a)(2), 415(a)(3), 
     and 416, beginning January 1, 2000, the Administrator shall 
     not allocate annual missions of sulfur dioxide from utility 
     units in excess of 8.90 million tons except that the 
     Administrator shall not to take into account unused 
     allowances carried forward by owners and operators of 
     affected units or by other persons holding such allowances, 
     following the year for which they were allocated. If 
     necessary to meeting he restrictions imposed in the preceding 
     sentence, he Administrator shall reduce, pro rata, the basic 
     Phase II allowance allocations for each unit subject tot he 
     requirements of section 414. Subject to the provisions of 
     section 417, the Administrator shall allocate allowances for 
     each affected until at an affected source annually, as 
     provided in paragraphs (2) and(3) and section 404. Except as 
     provided in sections 416, the removal of an existing affected 
     unit or source from commercial operation at any time after 
     November 15, 1990 (whether before or after January 1, 1995, 
     or January 1, 2000) shall not terminate or otherwise affect 
     the allocation of allowances pursuant to section 413 or 414 
     to which the unit is entitled. Prior to June 1, 1998, the 
     Administrator shall publish a revised final statement of 
     allowance allocations, subject to the provisions of section 
     414(a)(2).
       (b) New Utility Units.--(1) After January 1, 2000 and 
     through December 31, 2007, it shall be unlawful for a new 
     utility unit to emit an annual tonnage of sulfur dioxide in 
     excess of the number of allowances to emit held for the unit 
     by the unit's owner or operator.
       (2) Starting January 1, 2008, a new utility unit shall be 
     subject to the prohibition in subsection (c)(3).
       (3) New utility units shall not be eligible for an 
     allocation of sulfur dioxide allowances under subsection 
     (a)(1), unless the unit is subject to the provisions of 
     subsection (g)(2) or (3) of section 414. New utility units 
     may obtain allowances from any person, in accordance with 
     this title. The owner or operator of any new utility unit in 
     violation of subsection (b)(1) or subsection(c)(3) shall be 
     liable for fulfilling the obligations specified in section 
     406.
       (c) Prohibitions.--(1) It shall be unlawful for any person 
     to hold, use, or transfer any allowance allocated under this 
     subpart, except in accordance with regulations promulgated by 
     the Administrator.
       (2) For any year 1995 through 2007, it shall be unlawful 
     for any affected unit to emit sulfur dioxide in excess of the 
     number of allowances held for that unit for that year by the 
     owner or operator of the unit.
       (3) Starting January 1, 2008, it shall be unlawful for the 
     affected units at a source to emit a total amount of sulfur 
     dioxide during the year in excess of the number of allowances 
     held for the source for that year by the owner or operator of 
     the source.
       (4) Upon the allocation of allowances under this subpart, 
     the prohibition in paragraphs (2) and (3) shall supersede any 
     other emission limitation applicable under this subpart to 
     the units for which such allowances are allocated.
       (d) In order to insure electric reliability, regulations 
     establishing a system for issuing, recording, and tracking 
     allowances under section 403(b) and this subpart shall not 
     prohibit or affect temporary increases and decreases in 
     emissions within utility systems, power pools, or utilities 
     entering into allowance pool agreements, that result from 
     their operations, including emergencies and central dispatch, 
     and such temporary emissions increases and decreases shall 
     not require transfer of allowances among units nor shall it 
     require recordation. The owners or operators of such units 
     shall act through a designated representative. 
     Notwithstanding the preceding sentence, the total tonnage of 
     emissions in any calendar year (calculated at the end 
     thereof) from all units in such a utility system, power pool, 
     or allowance pool agreements shall not exceed the total 
     allowances for such units for the calendar year concerned, 
     including for calendar years after 2007, allowances held for 
     such units by the owner or operator of the sources where the 
     units are located.
       (e) Where there are multiple holders of a legal or 
     equitable title to, or a leasehold interest in, an affected 
     unit, or where a utility or industrial customer purchases 
     power from an affected unit (or units) under life-of-the-
     unit, firm power contractual arrangements, the certificate of 
     representation required under section 404(f) shall state (1) 
     that allowances under this subpart and the proceeds of 
     transactions involving such allowances will be deemed to be 
     held or distributed in proportion to each holder's legal, 
     equitable, leasehold, or contractual reservation or 
     entitlement, or (2) if such multiple holders have expressly 
     provided for a different distribution of allowances by 
     contract, that allowances under this subpart and the proceeds 
     of transactions involving such allowances will be deemed to 
     be held or distributed in accordance with the contract. A 
     passive lessor, or a person who has an equitable interest 
     through such lessor, whose rental payments are not based, 
     either directly or indirectly, upon the revenues or income 
     from the affected unit shall not be deemed to be a holder of 
     a legal, equitable, leasehold, or contractual interest for 
     the purpose of holding or distributing allowances as provided 
     in this

[[Page 15191]]

     subsection, during either the term of such leasehold or 
     thereafter, unless expressly provided for in the leasehold 
     agreement. Except as otherwise provided in this subsection, 
     where all legal or equitable title to or interest in an 
     affected unit is held by a single person, the certification 
     shall state that all allowances under this subpart received 
     by the unit are deemed to be held for that person.

     SEC. 413. PHASE I SULFUR DIOXIDE REQUIREMENTS.

       (a) Emission Limitations.--(1) After January 1, 1995, each 
     source that includes one or more affected units listed in 
     table A is an affected source under this section. After 
     January 1, 1995, it shall be unlawful for any affected unit 
     (other than an eligible phase I unit under section 413(d)(2)) 
     to emit sulfur dioxide in excess of the tonnage limitation 
     stated as a total number of allowances in table A for phase 
     I, unless (A) the emissions reduction requirements applicable 
     to such unit have been achieved pursuant to subsection (b) or 
     (d), or (B) the owner or operator of such unit holds 
     allowances to emit not less than the unit's total annual 
     emissions, except that, after January 1, 2000, the emissions 
     limitations established in this section shall be superseded 
     by those established in section 414. The owner or operator of 
     any unit in violation of this section be fully liable for 
     such violation including, but not limited to, liability for 
     fulfilling the obligations specified in section 406.
       (2) Not later than December 31, 1991, the Administrator 
     shall determine the total tonnage of reductions in the 
     emissions of sulfur dioxide from all utility units in 
     calendar year 1995 that will occur as a result of compliance 
     with the emissions limitation requirements of this section, 
     and shall establish a reserve of allowances equal in amount 
     to the number of tons determined thereby not to exceed a 
     total of 3.50 million tons. In making such a determination, 
     the Administrator shall compute for each unit subject to the 
     emissions limitation requirements of this section the 
     difference between:
       (A) the product of its baseline multiplied by the lesser of 
     each unit's allowable 1985 emissions rate and its actual 1985 
     emissions rate, divided by 2,000, and
       (B) the product of each unit's baseline multiplied by 2.50 
     lbs/mmBtu divided by 2,000, and sum the computations. The 
     Administrator shall adjust the foregoing calculation to 
     reflect projected calendar year 1995 utilization of the units 
     subject to the emissions limitations of this subpart that the 
     Administrator finds would have occurred in the absence of the 
     imposition of such requirements. Pursuant to subsection (d), 
     the Administrator shall allocate allowances from the reserve 
     established hereinunder until the earlier of such time as all 
     such allowances in the reserve are allocated or December 31, 
     1999.
       (3) In addition to allowances allocated pursuant to 
     paragraph (1), in each calendar year beginning in 1995 and 
     ending in 1999, inclusive, the Administrator shall allocate 
     for each unit on Table A that is located in the States of 
     Illinois, Indiana, or Ohio (other than units at Kyger Creek, 
     Clifty Creek and Joppa Steam), allowances in an amount equal 
     to 200,000 multiplied by the unit's pro rata share of the 
     total number of allowances allocated for all units on Table A 
     in the 3 States (other than units at Kyger Creek, Clifty 
     Creek, and Joppa Steam) pursuant to paragraph (1). Such 
     allowances shall be excluded from the calculation of the 
     reserve under paragraph (2).
       (b) Substitutions.--The owner or operator of an affected 
     unit under subsection (a) may include in its section 404 
     permit application and proposed compliance plan a proposal to 
     reassign, in whole or in part, the affected unit's sulfur 
     dioxide reduction requirements to any other unit(s) under the 
     control of such owner or operator. Such proposal shall 
     specify--
       (1) the designation of the substitute unit or units to 
     which any part of the reduction obligations of subsection (a) 
     shall be required, in addition to, or in lieu of, any 
     original affected units designated under such subsection;
       (2) the original affected unit's baseline, the actual and 
     allowable 1985 emissions rate for sulfur dioxide, and the 
     authorized annual allowance allocation stated in table A;
       (3) calculation of the annual average tonnage for calendar 
     years 1985, 1986, and 1987, emitted by the substitute unit or 
     units, based on the baseline for each unit, as defined in 
     section 411(4), multiplied by the lesser of the unit's actual 
     or allowable 1985 emissions rate;
       (4) the emissions rates and tonnage limitations that would 
     be applicable to the original and substitute affected units 
     under the substitution proposal;
       (5) documentation, to the satisfaction of the 
     Administrator, that the reassigned tonnage limits will, in 
     total, achieve the same or greater emissions reduction than 
     would have been achieved by the original affected unit and 
     the substitute unit or units without such substitution; and
       (6) such other information as the Administrator may 
     require.
       (c) Administrator's Action on Substitution Proposals.--(1) 
     The Administrator shall take final action on such 
     substitution proposal in accordance with section 404(c) if 
     the substitution proposal fulfills the requirements of this 
     subsection. The Administrator may approve a substitution 
     proposal in whole or in part and with such modifications or 
     conditions as may be consistent with the orderly functioning 
     of the allowance system and which will ensure the emissions 
     reductions contemplated by this title. If a proposal does not 
     meet the requirements of subsection (b), the Administrator 
     shall disapprove it. The owner or operator of a unit listed 
     in table A shall not substitute another unit or units without 
     the prior approval of the Administrator.
       (2) Upon approval of a substitution proposal, each 
     substitute unit, and each source with such unit, shall be 
     deemed affected under this title, and the Administrator shall 
     issue a permit to the original and substitute affected source 
     and unit in accordance with the approved substitution plan 
     and section 404. The Administrator shall allocate allowances 
     for the original and substitute affected units in accordance 
     with the approved substitution proposal pursuant to section 
     412. It shall be unlawful for any source or unit that is 
     allocated allowances pursuant to this section to emit sulfur 
     dioxide in excess of the emissions limitation provided for in 
     the approved substitution permit and plan unless the owner or 
     operator of each unit governed by the permit and approved 
     substitution plan holds allowances to emit not less than the 
     unit's total annual emissions. The owner or operator of any 
     original or substitute affected unit operated in violation of 
     this subsection shall be fully liable for such violation, 
     including liability for fulfilling the obligations specified 
     in section 406. If a substitution proposal is disapproved, 
     the Administrator shall allocate allowances to the original 
     affected unit or units in accordance with subsection (a).
       (d) Eligible Phase I Extension Units.--(1) The owner or 
     operator of any affected unit subject to an emissions 
     limitation requirement under this section may petition the 
     Administrator in its permit application under section 404 for 
     an extension of 2 years of the deadline for meeting such 
     requirement, provided that the owner or operator of any such 
     unit holds allowances to emit not less than the unit's total 
     annual emissions for each of the 2 years of the period of 
     extension. To qualify for such an extension, the affected 
     unit must either employ a qualifying phase I technology, or 
     transfer its phase I emissions reduction obligation to a unit 
     employing a qualifying phase I technology. Such transfer 
     shall be accomplished in accordance with a compliance plan, 
     submitted and approved under section 404, that shall govern 
     operations at all units included in the transfer, and that 
     specifies the emissions reduction requirements imposed 
     pursuant to this title.
       (2) Such extension proposal shall--
       (A) specify the unit or units proposed for designation as 
     an eligible phase I extension unit;
       (B) provide a copy of an executed contract, which may be 
     contingent upon the Administrator approving the proposal, for 
     the design engineering, and construction of the qualifying 
     phase I technology for the extension unit, or for the unit or 
     units to which the extension unit's emission reduction 
     obligation is to be transferred;
       (C) specify the unit's or units' baseline, actual 1985 
     emissions rate, allowable 1985 emissions rate, and projected 
     utilization for calendar years 1995 through 1999;
       (D) require CEMS on both the eligible phase I extension 
     unit or units and the transfer unit or units beginning no 
     later than January 1, 1995; and
       (E) specify the emission limitation and number of 
     allowances expected to be necessary for annual operation 
     after the qualifying phase I technology has been installed.
       (3) The Administrator shall review and take final action on 
     each extension proposal in order of receipt, consistent with 
     section 404, and for an approved proposal shall designate the 
     unit or units as an eligible phase I extension unit. The 
     Administrator may approve an extension proposal in whole or 
     in part, and with such modifications or conditions as may be 
     necessary, consistent with the orderly functioning of the 
     allowance system, and to ensure the emissions reductions 
     contemplated by the subpart.
       (4) In order to determine the number of proposals eligible 
     for allocations from the reserve under subsection (a)(2) and 
     the number of the allowances remaining available after each 
     proposal is acted upon, the Administrator shall reduce the 
     total number of allowances remaining available in the reserve 
     by the number of allowances calculated according to 
     subparagraph (A), (B) and (C) until either no allowances 
     remain available in the reserve for further allocation or all 
     approved proposals have been acted upon. If no allowances 
     remain available in the reserve for further allocation before 
     all proposals have been acted upon by the Administrator, any 
     pending proposals shall be disapproved. The Administrator 
     shall calculate allowances equal to.
       (A) the difference between the lesser of the average annual 
     emissions in calendar years 1988 and 1989 or the projected 
     emissions tonnage for calendar year 1995 of each eligible 
     phase I extension unit, as designated under paragraph (3), 
     and the product of the unit's baseline multiplied by an 
     emission rate of 2.50 lbs/mmBtu, divided by 2,000;

[[Page 15192]]

       (B) the difference between the lesser of the average annual 
     emissions in calendar years 1988 and 1989 or the projected 
     emissions tonnage for calendar year 1996 of each eligible 
     phase I extension unit, as designated under paragraph (3), 
     and the product of the unit's baseline multiplied by an 
     emission rate of 2.50 lbs/mmBtu, divided by 2,000; and
       (C) the amount by which (i) the product of each unit's 
     baseline multiplied by an emission rate of 1.20 lbs/mmBtu, 
     divided by 2,000, exceeds (ii) the tonnage level specified 
     under subparagraph (E) of paragraph (2) of this subsection 
     multiplied by a factor of 3.
       (5) Each eligible Phase I extension unit shall receive 
     allowances determined under subsection (a)(1) or (c) of this 
     section. In addition, for calendar year 1995, the 
     Administrator shall allocate to each eligible Phase I 
     extension unit, from the allowance reserve created pursuant 
     to subsection (a)(2), allowances equal to the difference 
     between the lesser of the average annual emissions in 
     calendar years 1988 and 1989 or its projected emission 
     tonnage for calendar year 1995 and the product of the unit's 
     baseline multiplied by an emission rate of 2.50 lbs/mmBtu, 
     divided by 2,000. In calendar year 1996, the Administrator 
     shall allocate for each eligible unit, from the allowance 
     reserve created pursuant to subsection (a)(2), allowances 
     equal to the difference between the lesser of the average 
     annual emissions in calendar years 1988 and 1989 or its 
     projected emissions tonnage for calendar year 1996 and the 
     product of the unit's baseline multiplied by an emission rate 
     of 2.50 lbs/mmBtu, divided by 2,000. It shall be unlawful for 
     any source or unit subject to an approved extension plan 
     under this subsection to emit sulfur dioxide in excess of the 
     emissions limitations provided for in the permit and approved 
     extension plan, unless the owner or operator of each unit 
     governed by the permit and approved plan holds allowances to 
     emit not less than the unit's total annual emissions.
       (6) In addition to allowances specified in paragraph (4), 
     the Administrator shall allocate for each eligible Phase I 
     extension unit employing qualifying Phase I technology, for 
     calendar years 1997, 1998, and 1999, additional allowances, 
     from any remaining allowances in the reserve created pursuant 
     to subsection (a)(2), following the reduction in the reserve 
     provided for in paragraph (4), not to exceed the amount by 
     which (A) the product of each eligible unit's baseline times 
     an emission rate of 1.20 lbs/mmBtu, divided by 2,000 exceeds 
     (B) the tonnage level specified under subparagraph (E) of 
     paragraph (2) of this subsection.
       (7) After January 1, 1997, in addition to any liability 
     under this Act, including under section 406, if any eligible 
     phase I extension unit employing qualifying phase I 
     technology or any transfer unit under this subsection emits 
     sulfur dioxide in excess of the annual tonnage limitation 
     specified in the extension plan, as approved in paragraph (2) 
     of this subsection, the Administrator shall, in the calendar 
     year following such excess, deduct allowances equal to the 
     amount of such excess from such unit's annual allowance 
     allocation.
       (e)(1) In the case of a unit that receives authorization 
     from the Governor of the State in which such unit is located 
     to make reductions in the emissions of sulfur dioxide prior 
     to calendar year 1995 and that is part of a utility system 
     that meets the following requirements:
       (A) the total coal-fired generation within the utility 
     system as a percentage of total system generation decreased 
     by more than 20 percent between January 1, 1980, and December 
     31, 1985; and (B) the weighted capacity factor of all coal-
     fired units within the utility system averaged over the 
     period from January 1, 1985, through December 31, 1987, was 
     below 50 percent, the Administrator shall allocate allowances 
     under this paragraph for the unit pursuant to this 
     subsection. The Administrator shall allocate allowances for a 
     unit that is an affected unit pursuant to section 414 (but is 
     not also an affected unit under this section) and part of a 
     utility system that includes 1 or more affected units under 
     section 414 for reductions in the emissions of sulfur dioxide 
     made during the period 1995-1999 if the unit meets the 
     requirements of this subsection and the requirements of the 
     preceding sentence, except that for the purposes of applying 
     this subsection to any such unit, the prior year concerned as 
     specified below, shall be any year after January 1, 1995 but 
     prior to January 1, 2000.
       (2) In the case of an affected unit under this section 
     described in subparagraph (A), the allowances allocated under 
     this subsection for early reductions in any prior year may 
     not exceed the amount which (A) the product of the unit's 
     baseline multiplied by the unit's 1985 actual sulfur dioxide 
     emission rate (in lbs. per mmBtu), divided by 2,000 exceeds 
     (B) the allowances specified for such unit in Table A. In the 
     case of an affected unit under section 414 described in 
     subparagraph (A), the allowances awarded under this 
     subsection for early reductions in any prior year may not 
     exceed the amount by which (i) the product of the quality of 
     fossil fuel consumed by the unit (in mmBtu) in the prior year 
     multiplied by the lesser of 2.50 or the most stringent 
     emission rate (in lbs. per mmBtu) applicable to the unit 
     under the applicable implementation plan, divided by 2,000 
     exceeds (ii) the unit's actual tonnage of sulfur dioxide 
     emission for the prior year concerned. Allowances allocated 
     under this subsection for units referred to in subparagraph 
     (A) may be allocated only for emission reductions achieved as 
     a result of physical changes or changes in the method of 
     operation made after November 15, 1990, including changes in 
     the type or quality of fossil fuel consumed.
       (3) In no event shall the provisions of this paragraph be 
     interpreted as an event of force majeure or a commercial 
     impractibility or in any other way as a basis for excused 
     nonperformance by a utility system under a coal sales 
     contract in effect before November 15, 1990.

TABLE A.--AFFECTED SOURCES AND UNITS IN PHASE I AND THEIR SULFUR DIOXIDE
                            ALLOWANCES (TONS)
------------------------------------------------------------------------
                                                                Phase I
          State                  Plant name        Generator  allowances
------------------------------------------------------------------------
Alabama.................  Colbert................         1      13,570
                                                          2      15,310
                                                          3      15,400
                                                          4      15,410
                                                          5      37,180
                          E.C. Gaston............         1      18,100
                                                          2      18,540
                                                          3      18,310
                                                          4      19,280
                                                          5      59,840
Florida.................  Big Bend...............         1      28,410
                                                          2      27,100
                                                          3      26,740
                          Crist..................         6      19,200
                                                          7      31,680
Georgia.................  Bowen..................         1      56,320
                                                          2      54,770
                                                          3      71,750
                                                          4      71,740
                          Hammond................         1       8,780
                                                          2       9,220
                                                          3       8,910
                                                          4      37,640
                          J. McDonough...........         1      19,910
                                                          2      20,600
                          Wansley................         1      70,770
                                                          2      65,430
                          Yates..................         1       7,210
                                                          2       7,040
                                                          3       6,950
                                                          4       8,910
                                                          5       9,410
                                                          6      24,760
                                                          7      21,480
Illinois................  Baldwin................         1      42,010
                                                          2      44,420
                                                          3      42,550
                          Coffeen................         1      11,790
                                                          2      35,670
                          Grand Tower............         4       5,910
                          Hennepin...............         2      18,410
                          Joppa Steam............         1      12,590
                                                          2      10,770
                                                          3      12,270
                                                          4      11,360
                                                          5      11,420
                                                          6      10,620
                          Kincaid................         1      31,530
                                                          2      33,810
                          Meredosia..............         3      13,890
                          Vermilion..............         2       8,880
Indiana.................  Bailly.................         7      11,180
                                                          8      15,630
                          Breed..................         1      18,500
                          Cayuga.................         1      33,370
                                                          2      34,130
                          Clifty Creek...........         1      20,150
                                                          2      19,810
                                                          3      20,410
                                                          4      20,080
                                                          5      19,360
                                                          6      20,380
                          E. W. Stout............         5       3,880
                                                          6       4,770
                                                          7      23,610
                          F. B. Culley...........         2       4,290
                                                          3      16,970
                          F. E. Ratts............         1       8,330
                                                          2       8,480
                          Gibson.................         1      40,400
                                                          2      41,010
                                                          3      41,080
                                                          4      40,320
                          H.T. Pritchard.........         6       5,770
                          Michigan City..........        12      23,310
                          Petersburg.............         1      16,430
                                                          2      32,380
                          R. Gallagher...........         1       6,490
                                                          2       7,280
                          .......................         3       6,530
                          .......................         4       7,650
                          Tanners Creek..........         4      24,820
                          Wabash River...........         1       4,000
                          .......................         2       2,860
                          .......................         3       3,750
                          .......................         5       3,670
                          .......................         6      12,280
                          Warrick................         4      26,980
Iowa....................  Burlington.............         1      10,710
                          Des Moines.............         7       2,320
                          George Neal............         1       1,290
                          M.L. Kapp..............         2      13,800
                          Prairie Creek..........         4       8,180
                          Riverside..............         5       3,990
Kansas..................  Quindaro...............         2       4,220
Kentucky................  Coleman................         1      11,250
                                                          2      12,840
                          .......................         3      12,340
                          Cooper.................         1       7,450
                                                          2      15,320
                          E.W. Brown.............         1       7,110
                                                          2      10,910
                                                          3      26,100
                          Elmer Smith............         1       6,520
                                                          2      14,410
                          Ghent..................         1      28,410
                          Green River............         4       7,820
                          H.L. Spurlock..........         1      22,780
                          Henderson II...........         1      13,340
                                                          2      12,310
                          Paradise...............         3      59,170
                          Shawnee................        10      10,170
Maryland................  Chalk Point............         1      21,910
                                                          2      24,330
                          C.P. Crane.............         1      10,330
                                                          2       9,230
                          Morgantown.............         1      35,260
                                                          2      38,480
Michigan................  J.H. Campbell..........         1      19,280
                                                          2      23,060
Minnesota...............  High Bridge............         6       4,270
Mississippi.............  Jack Watson............         4      17,910
                                                          5      36,700
Missouri................  Asbury.................         1      16,190
                          James River............         5       4,850

[[Page 15193]]

 
                          Labadie................         1      40,110
                                                          2      37,710
                                                          3      40,310
                                                          4      35,940
                          Montrose...............         1       7,390
                                                          2       8,200
                                                          3      10,090
                          New Madrid.............         1      28,240
                                                          2      32,480
                          Sibley.................         3      15,580
                          Sioux..................         1      22,570
                                                          2      23,690
                          Thomas Hill............         1      10,250
                                                          2      19,390
New Hampshire...........  Merrimack..............         1      10,190
                                                          2      22,000
New Jersey..............  B.L. England...........         1       9,060
                                                          2      11,720
New York................  Dunkirk................         3      12,600
                                                          4      14,060
                          Greenidge..............         4       7,540
                          Milliken...............         1      11,170
                                                          2      12,410
                          Northport..............         1      19,810
                                                          2      24,110
                                                          3      26,480
                          Port Jefferson.........         3      10,470
                                                          4      12,330
Ohio....................  Ashtabula..............         5      16,740
                          Avon Lake..............         8      11,650
                                                          9      30,480
                          Cardinal...............         1      34,270
                                                          2      38,320
                          Conesville.............         1       4,210
                                                          2       4,890
                                                          3       5,500
                                                          4      48,770
                          Eastlake...............         1       7,800
                                                          2       8,640
                                                          3      10,020
                                                          4      14,510
                                                          5      34,070
                          Edgewater..............         4       5.050
                          Gen. J.M. Gavin........         1      79,080
                                                          2      80,560
                          Kyger Creek............         1      19,280
                                                          2      18,560
                                                          3      17,910
                                                          4      18,710
                                                          5      18,740
                          Miami Fort.............         5         760
                                                          6      11,380
                                                          7      38,510
                          Muskingum River........         1      14,880
                                                          2      14,170
                                                          3      13,950
                                                          4      11,780
                                                          5      40,470
                          Niles..................         1       6,940
                                                          2       9,100
                          Picway.................         5       4,930
                          R.E. Burger............         3       6,150
                                                          4      10,780
                                                          5      12,430
                          W.H. Sammis............         5      24,170
                                                          6      39,930
                                                          7      43,220
                          W.C. Beckjord..........         5       8,950
                                                          6      23,020
Pennsylvania............  Armstrong..............         1      14,410
                                                          2      15,430
                          Brunner Island.........         1      27,760
                                                          2      31,100
                                                          3      53,820
                          Cheswick...............         1      39,170
                          Conemaugh..............         1      59,790
                                                          2      66,450
                          Hatfield's Ferry.......         1      37,830
                                                          2      37,320
                                                          3      40,270
                          Martins Creek..........         1      12,660
                                                          2      12,820
                          Portland...............         1       5,940
                                                          2      10,230
                          Shawville..............         1      10,320
                                                          2      10,320
                                                          3      14,220
                                                          4      14,070
                          Sunbury................         3       8,760
                                                          4      11,450
Tennessee...............  Allen..................         1      15,320
                                                          2      16,770
                                                          3      15,670
                          Cumberland.............         1      86,700
                                                          2      94,840
                          Gallatin...............         1      17,870
                                                          2      17,310
                                                          3      20,020
                                                          4      21,260
                          Johnsonville...........         1       7,790
                                                          2       8,040
                                                          3       8,410
                                                          4       7,990
                                                          5       8,240
                                                          6       7,890
                                                          7       8,980
                                                          8       8,700
                                                          9       7,080
                                                         10       7,550
West Virginia...........  Albright...............         3      12,000
                          Fort Martin............         1      41,590
                                                          2      41,200
                          Harrison...............         1      48,620
                                                          2      46,150
                                                          3      41,500
                          Kammer.................         1      18,740
                                                          2      19,460
                                                          3      17,390
                          Mitchell...............         1      43,980
                                                          2      45,510
                          Mount Storm............         1      43,720
                                                          2      35,580
                                                          3      42,430
Wisconsin...............  Edgewater..............         4      24,750
                          La Crosse/Genoa........         3      22,700
                          Nelson Dewey...........         1       6,010
                                                          2       6,680
                          N. Oak Creek...........         1       5,220
                                                          2       5,140
                                                          3       5,370
                                                          4       6,320
                          Pulliam................         8       7,510
                          S. Oak Creek...........         5       9.670
                                                          6      12,040
                                                          7      16,180
                                                          8      15,790
------------------------------------------------------------------------

       (f) Energy Conservation and Renewable Energy.--
       (1) Definitions.--As used in this subsection:
       (A) Qualified energy conservation measure.--The term 
     ``qualified energy conservation measure'' means a cost 
     effective measure, as identified by the Administrator in 
     consultation with the Secretary of Energy, that increases the 
     efficiency of the use of electricity provided by an electric 
     utility to its customers.
       (B) Qualified renewable energy.--The term ``qualified 
     renewable energy'' means energy derived from biomass, solar, 
     geothermal, or wind as identified by the Administrator in 
     consultation with the Secretary of Energy.
       (C) Electric utility.--The term ``electric utility'' means 
     any person, State agency, or Federal agency, which sells 
     electric energy.
       (2) Allowances for emissions avoided through energy 
     conservation and renewable energy.--
       (A) In general.--The regulations under paragraph (4) of 
     this subsection shall provide that for each ton of sulfur 
     dioxide emissions avoided by an electric utility, during the 
     applicable period, through the use of qualified energy 
     conservation measures or qualified renewable energy, the 
     Administrator shall allocate a single allowance to such 
     electric utility, on a first-come-first-served basis from the 
     Conservation and Renewable Energy Reserve established under 
     subsection (g), up to a total of 300,000 allowances for 
     allocation from such Reserve.
       (B) Requirements for issuance.--The Administrator shall 
     allocate allowances to an electric utility under this 
     subsection only if all of the following requirements are met:
       (i) Such electric utility is paying for the qualified 
     energy conservation measures or qualified renewable energy 
     directly or through purchase from another person.
       (ii) The emissions of sulfur dioxide avoided through the 
     use of qualified energy conservation measures or qualified 
     renewable energy are quantified in accordance with 
     regulations promulgated by the Administrator under this 
     subsection.
       (iii) (I) Such electric utility has adopted and is 
     implementing a least cost energy conservation and electric 
     power plan which evaluates a range of resources, including 
     new power supplies, energy conservation, and renewable energy 
     resources, in order to meet expected future demand at the 
     lowest system cost.
       (II) The qualified energy conservation measures or 
     qualified renewable energy, or both, are consistent with that 
     plan.
       (III) Electric utilities subject to the jurisdiction of a 
     State regulatory authority must have such plan approved by 
     such authority. For electric utilities not subject to the 
     jurisdiction of a State regulatory authority such plan shall 
     be approved by the entity with rate-making authority for such 
     utility.
       (iv) In the case of qualified energy conservation measures 
     undertaken by a State regulated electric utility, the 
     Secretary of Energy certifies that the State regulatory 
     authority with jurisdiction over the electric rates of such 
     electric utility has established rates and charges which 
     ensure that the net income of such electric utility after 
     implementation of specific cost effective energy conservation 
     measures is at least as high as such net income would have 
     been if the energy conservation measures had not been 
     implemented. Upon the date of any such certification by the 
     Secretary of Energy, all allowances which, but for this 
     paragraph, would have been allocated under subparagraph (B) 
     before such date, shall be allocated to the electric utility. 
     This clause is not a requirement for qualified renewable 
     energy.
       (v) Such utility or any subsidiary of the utility's holding 
     company owns or operates at least one affected unit.
       (C) Period of applicability.--Allowances under this 
     subsection shall be allocated only with respect to kilowatt 
     hours of electric energy saved by qualified energy 
     conservation measures or generated by qualified renewable 
     energy after January 1, 1992 and before the earlier of (i) 
     December 31, 2000, or (ii) the date on which any electric 
     utility steam generating unit owned or operated by the 
     electric utility to which the allowances are allocated 
     becomes subject to this subpart (including those sources that 
     elect to become affected by this title, pursuant to section 
     417).
       (D) Determination of avoided emissions.--
       (i) Application.--In order to receive allowances under this 
     subsection, an electric utility shall make an application 
     which--
       (I) designates the qualified energy conservation measures 
     implemented and the qualified renewable energy sources used 
     for purposes of avoiding emissions;
       (II) calculates, in accordance with subparagraphs (F) and 
     (G), the number of tons of emissions avoided by reason of the 
     implementation of such measures or the use of such renewable 
     energy sources; and
       (III) demonstrates that the requirements of subparagraph 
     (B) have been met.

     Such application for allowances by a State-regulated electric 
     utility shall require approval by the State regulatory 
     authority with jurisdiction over such electric utility. The 
     authority shall review the application for accuracy and 
     compliance with this subsection and the rules under this 
     subsection. Electric utilities whose retail rates are not 
     subject to the jurisdiction of a State regulatory authority 
     shall apply directly to the Administrator for such approval.
       (E) Avoided emissions from qualified energy conservation 
     measures.--For the purposes of this subsection, the emission 
     tonnage deemed avoided by reason of the implementation of 
     qualified energy conservation

[[Page 15194]]

     measures for any calendar year shall be a tonnage equal to 
     the product of multiplying--
       (i) the kilowatt hours that would otherwise have been 
     supplied by the utility during such year in the absence of 
     such qualified energy conservation measures, by
       (ii) 0.004, and dividing by 2,000.
       (F) Avoided emissions from the use of qualified renewable 
     energy.--The emissions tonnage deemed avoided by reason of 
     the use of qualified renewable energy by an electric utility 
     for any calendar year shall be a tonnage equal to the product 
     of multiplying--(i) the actual kilowatt hours generated by, 
     or purchased from, qualified renewable energy, by (ii) 0.004, 
     and dividing by 2,000.
       (G) Prohibitions.--
       (i) No allowances shall be allocated under this subsection 
     for the implementation of programs that are exclusively 
     informational or educational in nature.
       (ii) No allowances shall be allocated for energy 
     conservation measures or renewable energy that were 
     operational before January 1, 1992.
       (3) Savings provision.--Nothing in this subsection 
     precludes a State or State regulatory authority from 
     providing additional incentives to utilities to encourage 
     investment in demand-side resources.
       (4) Regulations.--The Administrator shall implement this 
     subsection under 40 CFR part 73 (2001), amended as 
     appropriate by the Administrator. Such regulations shall list 
     energy conservation measures and renewable energy sources 
     which may be treated as qualified energy conservation 
     measures and qualified renewable energy for purposes of this 
     subsection. Allowances shall only be allocated if all 
     requirements of this subsection and the rules promulgated to 
     implement this subsection are complied with. The 
     Administrator shall review the determinations of each State 
     regulatory authority under this subsection to encourage 
     consistency from electric utility and from State to State in 
     accordance with the Administrator's rules. The Administrator 
     shall publish the findings of this review no less than 
     annually.
       (g) Conservation and Renewable Energy Reserve.--The 
     Administrator shall establish a Conservation and Renewable 
     Energy Reserve under this subsection. Beginning on January 1, 
     1995, the Administrator may allocate from the Conservation 
     and Renewable Energy Reserve an amount equal to a total of 
     300,000 allowances for emissions of sulfur dioxide pursuant 
     to section 411. In order to provide 300,000 allowances for 
     such reserve, in each year beginning in calendar year 2000 
     and until calendar year 2009, inclusive, the Administrator 
     shall reduce each unit's basic Phase II allowance allocation 
     on the basis of its pro rata share of 30,000 allowances. 
     Notwithstanding the prior sentence, if allowances remain in 
     the reserve one year after the date of enactment of the Clear 
     Skies Act of 2002, the Administrator shall allocate such 
     allowances for affected units under section 414 on a pro rata 
     basis. For purposes of this subsection, for any unit subject 
     to the emissions limitation requirements of section 414, the 
     term ``pro rata basis'' refers to the ratio which the 
     reductions made in such unit's allowances in order to 
     establish the reserve under this subsection bears to the 
     total of such reductions for all such units.
       (h) Alternative Allowance Allocation for United in Certain 
     Utility Systems With Optional Baseline.--
       (1) Optional baseline for units in certain systems.--In the 
     case of a unit subject to the emissions limitation 
     requirements of this section which (as of November 15, 
     1990)--
       (A) has an emission rate below 1.0 lbs/mmBtu,
       (B) has decreased its sulfur dioxide emissions rate by 60 
     percent or greater since 1980, and
       (C) is part of a utility system which has a weighted 
     average sulfur dioxide emissions rate for all fossil fueled-
     fired units below 1.0 lbs/mmBtu, at the election to the owner 
     or operator of such unit, the unit's baseline may be 
     calculated
       (i) as provided under section 411, or
       (ii) by utilizing the unit's average annual fuel 
     consumption at a 60 percent capacity factor. Such election 
     shall be made no later than March 1, 1991.
       (2) Allowance allocation.--Whenever a unit referred to in 
     paragraph (1) elects to calculate its baseline as provided in 
     clause (ii) of paragraph (1), the Administrator shall 
     allocate allowances for the unit pursuant to section 412(a), 
     this section, and section 414 (as Basic Phase II allowance 
     allocations) in an amount equal to the baseline selected 
     multiplied by the lower of the average annual emission rate 
     for such unit in 1989, or 1.0 lbs./mmBtu. Such allowance 
     allocation shall be in lieu of any allocation of allowances 
     under this section and section 414.

     SEC. 414. PHASE II SULFUR DIOXIDE REQUIREMENTS.

       (a) Applicability.--(1) After January 1, 2000, each 
     existing utility unit as provided below is subject to the 
     limitations or requirements of this section. Each utility 
     unit subject to an annual sulfur dioxide tonnage emission 
     limitation under this section is an affected unit under this 
     subpart. Each source that includes one or more affected units 
     is an affected source. In the case of an existing unit that 
     was not in operation during calendar year 1985, the emission 
     rate for a calendar year after 1985, as determined by the 
     Administrator, shall be used in lieu of the 1985 rate. The 
     owner or operator of any unit operated in violation of this 
     section shall be fully liable under this Act for fulfilling 
     the obligations specified in section 406.
       (2) In addition to basic Phase II allowance allocations, in 
     each year beginning in calendar year 2000 and ending in 
     calendar year 2009, inclusive, the Administrator shall 
     allocate up to 530,000 Phase II bonus allowances pursuant to 
     subsections (b)(2),(c)(4), (d)(3)(A) and (B), and (h)(2) of 
     this section and section 415.
       (3) In addition to basic Phase II allowances allocations 
     and Phase II bonus allowance allocations, beginning January 
     1, 2000, the Administrator shall allocate for each unit 
     listed on Table A in section 413 (other than units at Kyger 
     Creek, Clifty Creek, and Joppa Stream) and located in the 
     States of Illinois, Indiana, Ohio, Georgia, Alabama, 
     Missouri, Pennsylvania, West Virginia, Kentucky , or 
     Tennessee allowances in an amount equal to 50,000 multiplied 
     by the unit's pro rata share of the total number of basic 
     allowances allocated for all units listed on Table A (other 
     than units at Kyger Creek, Clifty Creek, and Joppa Stream). 
     Allowances allocated pursuant to this paragraph shall not be 
     subject to the 8,900,000 ton limitation in section 412(a).
       (b) Units Equal to, or Above, 75 MWe and 1.20 lbs/mmBtu.--
     (1) Except as otherwise provided in paragraph (3), after 
     January 1, 2000, it shall be unlawful for any existing 
     utility unit that serves a generator with nameplate capacity 
     equal to, or greater, than 75 MWe and an actual 1985 emission 
     rate equal to or greater than 1.20 lbs/mmBtu to exceed an 
     annual sulfur dioxide tonnage emission limitation equal to 
     the product of the unit's baseline multiplied by an emission 
     rate equal to 1.20 lbs/mmBtu, divided by 2,000, unless the 
     owner or operator of such unit holds allowances to emit not 
     less than the unit's total annual emissions or, for a year 
     after 2007, unless the owner or operator of the source that 
     includes such unit holds allowances to emit not less than the 
     total annual emissions of all affected units at the source.
       (2) In addition to allowances allocated pursuant to 
     paragraph (1) and section 412(a) as basic Phase II allowance 
     allocations, beginning January 1, 2000, and for each calendar 
     year thereafter until and including 2009, the Administrator 
     shall allocate annually for each unit subject to the 
     emissions limitation requirements of paragraph (1) with an 
     actual 1985 emissions rate greater than 1.20 lbs/mmBtu and 
     less than 2.50 lbs/mmBtu and a baseline capacity factor of 
     less than 60 percent, allowances from the reserve created 
     pursuant to subsection (a)(2) in an amount equal to 1.20 lbs/
     mmBtu multiplied by 50 percent of the difference, on a Btu 
     basis, between the unit's baseline and the unit's fuel 
     consumption at a 60 percent capacity factor.
       (3) After January 1, 2000, it shall be unlawful for any 
     existing utility unit with an actual 1985 emissions rate 
     equal to or greater than 1.20 lbs/mmBtu whose annual average 
     fuel consumption during 1985, 1986, and 1987 on a Btu basis 
     exceeded 90 percent in the form of lignite coal which is 
     located in a State in which, as of July 1, 1989, no county or 
     portion of a county was designated nonattainment under 
     section 107 of this Act for any pollutant subject to the 
     requirements of section 109 of this Act to exceed an annual 
     sulfur dioxide tonnage limitation equal to the product of the 
     unit's baseline multiplied by the lesser of the unit's actual 
     1985 emissions rate or its allowable 1985 emissions rate, 
     divided by 2,000, unless the owner or operator of such unit 
     holds allowances to emit not less than the unit's total 
     annual emissions or, for a year after 2007, unless the owner 
     or operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source.
       (4) After January 1, 2000, the Administrator shall allocate 
     annually for each unit, subject to the emissions limitation 
     requirements of paragraph (1), which is located in a State 
     with an installed electrical generating capacity of more than 
     30,000,000 kw in 1988 and for which was issued a prohibition 
     order or a proposed prohibition order (from burning oil), 
     which unit subsequently converted to coal between January 1, 
     1980 and December 31, 1985, allowances equal to the 
     difference between (A) the product of the unit's annual fuel 
     consumption, on a Btu basis, at a 65 percent capacity factor 
     multiplied by the lesser of its actual or allowable emissions 
     rate during the first full calendar year after conversion, 
     divided by 2,000, and (B) the number of allowances allocated 
     for the unit pursuant to paragraph (1): Provided, That the 
     number of allowances allocated pursuant to this paragraph 
     shall not exceed an annual total of five thousand. If 
     necessary to meeting the restriction imposed in the preceding 
     sentence the Administrator shall reduce, pro rata, the annual 
     allowances allocated for each unit under this paragraph.
       (c) Coal or Oil-fired Units Below 75 MWe and Above 1.20 
     lbs/mmBtu.--(1) Except as otherwise provided in paragraph 
     (3), after January 1, 2000, it shall be unlawful for a coal 
     or oil-fired existing utility unit that serves a generator 
     with nameplate capacity of less than 75 MWe and an actual 
     1985 emission rate equal to, or greater than, 1.20 lbs/

[[Page 15195]]

     mmBtu and which is a unit owned by a utility operating 
     company whose aggregate nameplate fossil fuel steam-electric 
     capacity is, as of December 31, 1989, equal to, or greater 
     than, 250 MWe to exceed an annual sulfur dioxide emissions 
     limitation equal to the product of the unit's baseline 
     multiplied by an emission rate equal to 1.20 lbs/mmBtu, 
     divided by 2,000 unless the owner or operator of such unit 
     holds allowances to emit not less than the unit's total 
     annual emissions or, for a year after 2007, unless the owner 
     or operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source.
       (2) After January 1, 2000, it shall be unlawful for a coal 
     or oil-fired existing utility unit that serves a generator 
     with nameplate capacity of less than 75 MWe and an actual 
     1985 emission rate equal to, or greater than, 1.20 lbs/mmBtu 
     (excluding units subject to section 111 of the Act or to a 
     federally enforceable emissions limitation for sulfur dioxide 
     equivalent to an annual rate of less than 1.20 lbs/mmBtu) and 
     which is a unit owned by a utility operating company whose 
     aggregate nameplate fossil fuel steam-electric capacity is, 
     as of December 31, 1989, less than 250 MWe, to exceed an 
     annual sulfur dioxide tonnage emissions limitation equal to 
     the product of the unit's baseline multiplied by the lesser 
     of its actual 1985 emissions rate or its allowable 1985 
     emissions rate, divided by 2,000, unless the owner or 
     operator of such unit holds allowances to emit not less than 
     the unit's total annual emissions or, for a year after 2007, 
     unless the owner or operator of the source that includes such 
     unit holds allowances to emit not less than the total annual 
     emissions of all affected units at the source.
       (3) After January 1, 2000 it shall be unlawful for any 
     existing utility unit with a nameplate capacity below 75 MWe 
     and an actual 1985 emissions rate equal to, or greater than, 
     1.20 lbs/mmBtu which became operational on or before December 
     31, 1965, which is owned by a utility operating company with, 
     as of December 31, 1989, a total fossil fuel steam-electric 
     generating capacity greater than 250 MWe, and less than 450 
     MWe which serves fewer than 78,000 electrical customers as of 
     November 15, 1990 to exceed an annual sulfur dioxide 
     emissions tonnage limitation equal to the product of its 
     baseline multiplied by the lesser of its actual or allowable 
     1985 emission rate, divided by 2,000, unless the owner or 
     operator holds allowances to emit not less than the units 
     total annual emissions or, for a year after 2007, unless the 
     owner or operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source. After January 1, 2010, 
     it shall be unlawful for each unit subject to the emissions 
     limitation requirements of this paragraph to exceed an annual 
     emissions tonnage limitation equal to the product of its 
     baseline multiplied by an emissions rate of 1.20 lbs/mmBtu, 
     divided by 2,000, unless the owner or operator holds 
     allowances to emit not less than the unit's total annual 
     emissions or, for a year after 2007, unless the owner or 
     operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source.
       (4) In addition to allowances allocated pursuant to 
     paragraph (1) and section 412(a) as basic Phase II allowance 
     allocations, beginning January 1, 2000, and for each calendar 
     year thereafter until and including 2009, inclusive, the 
     Administrator shall allocate annually for each unit subject 
     to the emissions limitation requirements of paragraph (1) 
     with an actual 1985 emissions rate equal to, or greater than, 
     1.20 lbs/mmBtu and less than 2.50 lbs/mmBtu and a baseline 
     capacity factor of less than 60 percent, allowances from the 
     reserve created pursuant to subsection (a)(2) in an amount 
     equal to 1.20 lbs/mmBtu multiplied by 50 percent of the 
     difference, on a Btu basis, between the unit's baseline and 
     the unit's fuel consumption at a 60 percent capacity factor.
       (5) After January 1, 2000, is shall be unlawful for any 
     existing unit with a nameplate capacity below 75 MWe and an 
     actual 1985 emissions rate equal to, or greater than, 
     1.20lbs/mmBtu which is part of an electric utility system 
     which, as of November 15, 1990, (A) has at least 20 percent 
     of its fossil-fuel capacity controlled by flue gas 
     desulfurization devices, (B) has more than 10 percent of its 
     fossil-fuel capacity consisting of coal-fired unites of less 
     than 75 MWe, and (C) has large units (greater than 400 MWe) 
     all of which have difficult or very difficult FGD Retrofit 
     Cost Factors (according to the Emissions and the FGD Retrofit 
     Feasibility at the 200 Top Emitting Generating Stations, 
     prepared for the United States Environmental Protection 
     Agency on January 10, 1986) to exceed an annual sulfur 
     dioxide emissions tonnage limitation equal to the product of 
     its baseline multiplied by an emissions rate of 2.5 lbs/
     mmBtu, divided by 2,000, unless the owner or operator holds 
     allowances to emit not less than the unit's total annual 
     emissions or, for a year after 2007, unless the owner or 
     operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source. After January 1, 2010, 
     it shall be unlawful for each unit subject to the emissions 
     limitation requirements of this paragraph to exceed an annual 
     emissions tonnage limitation equal to the project of its 
     baseline multiplied by an emissions rate of 1.20lbs/mmBtu, 
     divided by 2,000, unless the owner or operator holds for use 
     allowances to emit not less than the unit's total annual 
     emissions or, for a year after 2007, unless the owner or 
     operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source.
       (d) Coal-fired Units Below 1.20 lbs/mmBtu.--(1) After 
     January 1, 2000, it shall be unlawful for any existing coal-
     fired utility unit the lesser of whose actual or allowable 
     1985 sulfur dioxide emissions rate is less than 0.60 lbs/
     mmBtu to exceed an annual sulfur dioxide tonnage emission 
     limitation equal to the product of the unit's baseline 
     multiplied by (A) the lesser of 0.60 lbs/mmBtu or the unit's 
     allowable 1985 emissions rate, and (B) a numerical factor of 
     120 percent, divided by 2,000, unless the owner or operator 
     of such unit holds allowances to emit not less than the 
     unit's total annual emissions or, for a year after 2007, 
     unless the owner or operator of the source that includes such 
     unit holds allowances to emit not less than the total annual 
     emissions of all affected units at the source.
       (2) After January 1, 2000, it shall be unlawful for any 
     existing coal-fired utility unit the lesser of whose actual 
     or allowable 1985 sulfur dioxide emissions rate is equal to, 
     or greater than, 0.60 lbs/mmBtu and less than 1.20 lbs/mmBtu 
     to exceed an annual sulfur dioxide tonnage emissions 
     limitation equal to the product of the unit's baseline 
     multiplied by (A) the lesser of its actual 1985 emissions 
     rate or its allowable 1985 emissions rate, and (B) a 
     numerical factor of 120 percent, divided by 2,000, unless the 
     owner or operator of such unit holds allowances to emit not 
     less than the unit's total annual emissions or, for a year 
     after 2007, unless the owner or operator of the source that 
     includes such unit holds allowances to emit not less than the 
     total annual emissions of all affected units at the source.
       (3)(A) In addition to allowances allocated pursuant to 
     paragraph (1) and section 412(a) as basic Phase II allowance 
     allocations, at the election of the designated representative 
     of the operating company, beginning January 1, 2000, and for 
     each calendar year thereafter until and including 2009, the 
     Administrator shall allocate annually for each unit subject 
     to the emissions limitation requirements of paragraph (1) 
     allowances from the reserve created pursuant to subsection 
     (a)(2) in an amount equal to the amount by which (i) the 
     product of the lesser of 0.60 lbs.mmBtu or the unit's 
     allowable 1985 emissions rate multiplied by the unit's 
     baseline adjusted to reflect operation at a 60 percent 
     capacity factor, divided by 2,000, exceeds (ii) the number of 
     allowances allocated for the unit pursuant to paragraph (1) 
     and section 403(a)(1) as basic Phase II allowance 
     allocations.
       (B) In addition to allowances allocated pursuant to 
     paragraph (2) and section 412(a) as basic Phase II allowance 
     allocations, at the election of the designated representative 
     of the operating company, beginning January 1, 2000, and for 
     each calendar year thereafter until and including 2009, the 
     Administrator shall allocate annually for each unit subject 
     to the emissions limitation requirements of paragraph (2) 
     allowances from the reserve created pursuant to subsection 
     (a)(2) in an amount equal to the amount by which (i) the 
     product of the lesser of the unit's actual 1985 emissions 
     rate or its allowable 1985 emissions rate multiplied by the 
     unit's baseline adjusted to reflect operation at a 60 percent 
     capacity factor, divided by 2,000, exceeds (ii) the number of 
     allowances allocated for the unit pursuant to paragraph (2) 
     and section 412(a) as basic Phase II allowance allocations.
       (C) An operating company with units subject to the 
     emissions limitation requirements of this subsection may 
     elect the allocation of allowances as provided under 
     subparagraphs (A) and (B). Such election shall apply to the 
     annual allowance allocation for each and every unit in the 
     operating company subject to the emissions limitation 
     requirements of this subsection. The Administrator shall 
     allocate allowances pursuant to subparagraphs (A) and (B) 
     only in accordance with this subparagraph.
       (4) Notwithstanding any other provision of this section, at 
     the election of the owner or operator, after January 1, 2000, 
     the Administrator shall allocate in lieu of allocation, 
     pursuant to paragraph (1), (2), (3), (5), or (6), allowances 
     for a unit subject to the emissions limitation requirements 
     of this subsection which commenced commercial operation on or 
     after January 1, 1981 and before December 31, 1985, which was 
     subject to, and in compliance with, section 111 of the Act in 
     an amount equal to the unit's annual fuel consumption, on a 
     Btu basis, at a 65 percent capacity factor multiplied by the 
     unit's allowable 1985 emissions rate, divided by 2,000.
       (5) For the purposes of this section, in the case of an 
     oil-and gas-fired unit which has been awarded a clean coal 
     technology demonstration grant as of January 1, 1991, by the 
     United States Department of Energy, beginning January 1, 
     2002, the Administrator shall allocate for the unit 
     allowances in an amount equal to the unit's baseline 
     multiplied by 1.20 lbs/mmBtu, divided by 2,000.

[[Page 15196]]

       (e) Oil and Gas-fired Units Equal to or Greater Than 0.60 
     lbs/mmBtu and Less Than 1.20 lbs/mmBtu.--After January 1, 
     2000, it shall be unlawful for any existing oil and gas-fired 
     utility unit the lesser of whose actual or allowable 1985 
     sulfur dioxide emission rate is equal to, or greater than, 
     0.60 lbs/mmBtu, but less than 1.20 lbs/mmBtu to exceed an 
     annual sulfur dioxide tonnage limitation equal to the product 
     of the unit's baseline multiplied by (A) the lesser of the 
     unit's allowable 1985 emissions rate or its actual 1985 
     emissions rate and (B) a numerical factor of 120 percent 
     divided by 2,000, unless the owner or operator of such unit 
     holds allowances to emit not less than the unit's total 
     annual emissions or, for a year after 2007, unless the owner 
     or operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source.
       (f) Oil and Gas-fired Units Less Than 0.60 lbs/mmBtu.--
     After January 1, 2000, it shall be unlawful for any oil and 
     gas-fired existing utility unit the lesser of whose actual or 
     allowance 1985 emission rate is less than 0.60 lbs/mmBtu and 
     whose average annual fuel consumption during the period 1980 
     through 1989 on a Btu basis was 90 percent or less in the 
     form of natural gas to exceed an annual sulfur dioxide 
     tonnage emissions limitation equal to the product of the 
     unit's baseline multiplied by (A) the lesser of 0.60 lbs/
     mmBtu or the unit's allowance 1985 emissions, and (b) a 
     numerical factor of 120 percent, divided by 2,000, unless the 
     owner or operator of such unit holds allowances to emit not 
     less than the unit's total annual emissions or, for a year 
     after 2007, unless the owner or operator of the source that 
     includes such unit holds allowances to emit not less than the 
     total annual emissions of all affected units at the source.
       (2) In addition to allowances allocated pursuant to 
     paragraph (1) as basic Phase II allowance allocations and 
     section 412(a), beginning January 1, 2000, the Administrator 
     shall, in the case of any unit operated by a utility that 
     furnishes electricity, electric energy, steam, and natural 
     gas within an area consisting of a city and 1 contiguous 
     county, and in the case of any unit owned by a State 
     authority, the output of which unit is furnished within that 
     same area consisting of a city and 1 contiguous county, the 
     Administrator shall allocate for each unit in the utility its 
     pro rata share of 7,000 allowances and for each unit in the 
     State authority its pro rata share of 2,000 allowances.
       (g) Units That Commence Operation Between 1986 and December 
     31, 1995.--(1) After January 1, 2000, it shall be unlawful 
     for any utility unit that has commenced commercial operation 
     on or after January 1, 1986, but not later than September 30, 
     1990 to exceed an annual tonnage emission limitation equal to 
     the product of the unit's annual fuel consumption, on a Btu 
     basis, at a 65 percent capacity factor multiplied by the 
     unit's allowance 1985 sulfur dioxide emission rate 
     (converted, if necessary, to pounds per mmBtu), divided by 
     2,000 unless the owner or operator of such unit holds 
     allowances to emit not less than the unit's total annual 
     emissions or, for a year after 2007, unless the owner or 
     operator of the source that includes such unit holds 
     allowances to emit not less than the total annual emissions 
     of all affected units at the source.
       (2) After January 1, 2000, the Administrator shall allocate 
     allowances pursuant to section 411 to each unit which is 
     listed in table B of this paragraph in an annual amount equal 
     to the amount specified in table B.


                                Table B


        Unit                                                 Allowances
  Brandon Shores..................................................8,907
  Miller 4........................................................9,197
  TNP One 2.......................................................4,000
  Zimmer 1.......................................................18,458
  Spruce 1........................................................7,647
  Clover 1........................................................2,796
  Clover 2........................................................2,796
  Twin Oak 2......................................................1,760
  Twin Oak 1......................................................9,158
  Cross 1.........................................................6,401
  Malakoff 1......................................................1,759

       Notwithstanding any other paragraph of this subsection, for 
     units subject to this paragraph, the Administrator shall not 
     allocate allowances pursuant to any other paragraph of this 
     subsection, provided that the owner or operator of a unit 
     listed on Table B may elect an allocation of allowances under 
     another paragraph of this subsection in lieu of an allocation 
     under this paragraph.
       (3) Beginning January 1, 2000, the Administrator shall 
     allocate to the owner or operator of any utility unit that 
     commences commercial operation, or has commenced commercial 
     operation, on or after October 1, 1990, but not later than 
     December 31, 1992 allowances in an amount equal to the 
     product of the unit's annual fuel consumption, on a Btu 
     basis, at a 65 percent capacity factor multiplied by the 
     lesser of 0.30 lbs/mmBtu or the unit's allowable sulfur 
     dioxide emission rate (converted, if necessary, to pounds per 
     mmBtu), divided by 2,000.
       (4) Beginning January 1, 2000, the Administrator shall 
     allocate to the owner or operator of any utility unit that 
     has commenced construction before December 31, 1990 and that 
     commences commercial operation between January 1, 1993 and 
     December 31, 1995, allowances in an amount equal to the 
     product of the unit's annual fuel consumption, on a Btu 
     basis, at a 65 percent capacity factor multiplied by the 
     lesser of 0.30 lbs/mmBtu or the unit's allowable sulfur 
     dioxide emission rate (converted, if necessary, to pounds per 
     mmBtu), divided by 2,000.
       (5) After January 1, 2000, it shall be unlawful for any 
     existing utility unit that has completed conversion from 
     predominantly gas fired existing operation to coal fired 
     operation between January 1, 1985 and December 31, 1987, for 
     which there has been allocated a proposed or final 
     prohibition order pursuant to section 301(b) of the 
     Powerplant and Industrial Fuel Use Act of 1978 (42 U.S.C. 
     8301 et seq, repealed 1987) to exceed an annual sulfur 
     dioxide tonnage emissions limitation equal to the product of 
     the unit's annual fuel consumption, on a Btu basis, at a 65 
     percent capacity factor multiplied by the lesser of 1.20 lbs/
     mmBtu or the unit's allowable 1987 sulfur dioxide emissions 
     rate, divided by 2,000, unless the owner or operator of such 
     unit has obtained allowances equal to its actual emissions 
     or, for a year after 2007, unless the owner or operator of 
     the source that includes such unit holds allowances to emit 
     not less than the total annual emissions of all affected 
     units at the source.
       (6)(A) Unless the Administrator has approved a designation 
     of such facility under section 417, the provisions of this 
     subpart shall not apply to a ``qualifying small power 
     production facility'' or ``qualifying cogeneration facility'' 
     (within the meaning of section 3(17)(C) or 3(18)(B) of the 
     Federal Power Act) or to a ``new independent power production 
     facility'' if, as of November 15, 1990,
       (i) an applicable power sales agreement has been executed;
       (ii) the facility is the subject of a State regulatory 
     authority order requiring an electric utility to enter into a 
     power sales agreement with, purchase capacity from, or (for 
     purposes of establishing terms and conditions of the electric 
     utility's purchase of power) enter into arbitration 
     concerning, the facility;
       (iii) an electric utility has issued a letter of intent or 
     similar instrument committing to purchase power from the 
     facility at a previously offered or lower price and a power 
     sales agreement is executed within a reasonable period of 
     time; or
       (iv) the facility has been selected as a winning bidder in 
     a utility competitive bid solicitation.
       (h) Oil and Gas-fired Units Less Than 10 Percent Oil 
     Consumed.--(1) After January 1, 2000, it shall be unlawful 
     for any oil- and gas-fired utility unit whose average annual 
     fuel consumption during the period 1980 through 1989 on a Btu 
     basis exceeded 90 percent in the form of natural gas to 
     exceed an annual sulfur dioxide tonnage limitation equal to 
     the product of the unit's baseline multiplied by the unit's 
     actual 1985 emissions rate divided by 2,000 unless the owner 
     or operator of such unit holds allowances to emit not less 
     than the unit's total annual emissions or, for a year after 
     2007, unless the owner or operator of the source that 
     includes such unit holds allowances to emit not less than the 
     total annual emissions of all affected units at the source.
       (2) In addition to allowances allocated pursuant to 
     paragraph (1) and section 412(a) as basic Phase II allowance 
     allocations, beginning January 1, 2000, and for each calendar 
     year thereafter until and including 2009, the Administrator 
     shall allocate annually for each unit subject to the 
     emissions limitation requirements of paragraph (1) allowances 
     from the reserve created pursuant to subsection (a)(2) in an 
     amount equal to the unit's baseline multiplied by 0.050 lbs/
     mmBtu, divided by 2,000.
       (3) In addition to allowances allocated pursuant to 
     paragraph (1) and section 412(a), beginning January 1, 2010, 
     the Administrator shall allocate annually for each unit 
     subject to the emissions limitation requirements of paragraph 
     (1) allowances in an amount equal to the unit's baseline 
     multiplied by 0.050 lbs/mmBtu, divided by 2,000.
       (i) Units in High Growth States.--(1) In addition to 
     allowances allocated pursuant to this section and section 
     412(a) as basic Phase II allowance allocations, beginning 
     January 1, 2000, the Administrator shall allocate annually 
     allowances for each unit, subject to an emissions limitation 
     requirement under this section, and located in a State that--
       (A) has experienced a growth in population in excess of 25 
     percent between 1980 and 1988 according to State Population 
     and Household Estimates, With Age, Sex, and Components of 
     Change: 1981-1988 allocated by the United States Department 
     of Commerce, and
       (B) had an installed electrical generating capacity of more 
     than 30,000,000 kw in 1988, in an amount equal to the 
     difference between (A) the number of allowances that would be 
     allocated for the unit pursuant to the emissions limitation 
     requirements of this section applicable to the unit adjusted 
     to reflect the unit's annual average fuel consumption on a 
     Btu basis of any three consecutive calendar years between 
     1980 and 1989 (inclusive) as elected by the owner or operator 
     and (B) the number of allowances allocated for the unit 
     pursuant to the emissions limitation requirements of this 
     section: Provided, That the number of allowances allocated 
     pursuant to this subsection shall not exceed an annual total 
     of 40,000. If necessary to meeting the

[[Page 15197]]

     40,000 allowance restriction imposed under this subsection 
     the Administrator shall reduce, pro rata, the additional 
     annual allowances allocated to each unit under this 
     subsection.
       (2) Beginning January 1, 2000, in addition to allowances 
     allocated pursuant to this section and section 403(a)(1) as 
     basic Phase II allowance allocations, the Administrator shall 
     allocate annually for each unit subject to the emissions 
     limitation requirements of subsection (b)(1), (A) the lesser 
     of whose actual or allowable 1980 emissions rate has declined 
     by 50 percent or more as of November 15, 1990, (B) whose 
     actual emissions rate is less than 1.2 lbs/mmBtu as of 
     January 1, 2000, (C) which commenced operation after January 
     1, 1970, (D) which is owned by a utility company whose 
     combined commercial and industrial kilowatt-hour sales have 
     increased by more than 20 percent between calendar year 1980 
     and November 15, 1990, and (E) whose company-wide fossil-fuel 
     sulfur dioxide emissions rate has declined 40 percent or more 
     from 1980 to 1988, allowances in an amount equal to the 
     difference between (i) the number of allowances that would be 
     allocated for the unit pursuant to the emissions limitation 
     requirements of subsection (b)(1) adjusted to reflect the 
     unit's annual average fuel consumption on a Btu basis for any 
     three consecutive years between 1980 and 1989 (inclusive) as 
     elected by the owner or operator and (ii) the number of 
     allowances allocated for the unit pursuant to the emissions 
     limitation requirements of subsection (b)(1): Provided, That 
     the number of allowances allocated pursuant to this paragraph 
     shall not exceed an annual total of 5,000. If necessary to 
     meeting the 5,000 allowance restriction imposed in the last 
     clause of the preceding sentence the Administrator shall 
     reduce, pro rata, the additional allowances allocated to each 
     unit pursuant to this paragraph.
       (j) Certain Municipally Owned Power Plants.--Beginning 
     January 1, 2000, in addition to allowances allocated pursuant 
     to this section and section 412(a) as basic Phase II 
     allowance allocations, the Administrator shall allocate 
     annually for each existing municipally owned oil and gas-
     fired utility unit with nameplate capacity equal to, or less 
     than, 40 MWe, the lesser of whose actual or allowable 1985 
     sulfur dioxide emission rate is less than 1.20 lbs/mmBtu, 
     allowances in an amount equal to the product of the unit's 
     annual fuel consumption on a Btu basis at a 60 percent 
     capacity factor multiplied by the lesser of its allowable 
     1985 emission rate or its actual 1985 emission rate, divided 
     by 2,000.

     SEC. 415. ALLOWANCES FOR STATES WITH EMISSIONS RATES AT OR 
                   BELOW 0.80 LBS/MMBTU.

       (a) Election of Governor.--In addition to basic Phase II 
     allowance allocations, upon the election of the Governor of 
     any State, with a 1985 state-wide annual sulfur dioxide 
     emissions rate equal to or less than, 0.80 lbs/mmBtu, 
     averaged over all fossil fuel-fired utility steam generating 
     units, beginning January 1, 2000, and for each calendar year 
     thereafter until and including 2009, the Administrator shall 
     allocate, in lieu of other Phase II bonus allowance 
     allocations, allowances from the reserve created pursuant to 
     section 414(a)(2) to all such units in the State in an amount 
     equal to 125,000 multiplied by the unit's pro rata share of 
     electricity generated in calendar year 1985 at fossil fuel-
     fired utility steam units in all States eligible for the 
     election.
       (b) Notification of Administrator.--Pursuant to section 
     412(a), each Governor of a State eligible to make an election 
     under paragraph (a) shall notify the Administrator of such 
     election. In the event that the Governor of any such state 
     fails to notify the Administrator of the Governor's 
     elections, the Administrator shall allocate allowances 
     pursuant to section 414.
       (c) Allowances After January 1, 2010.--After January 1, 
     2010, the Administrator shall allocate allowances to units 
     subject to the provisions of this section pursuant to section 
     414.

     SEC. 416. ELECTION FOR ADDITIONAL SOURCES.

       (a) Applicability.--The owner or operator of any unit that 
     is not, nor will become, an affected unit under section 
     412(b), 413, or 414, that emits sulfur dioxide, may elect to 
     designate that unit or source to become an affected unit and 
     to receive allowances under this subpart. An election shall 
     be submitted to the Administrator for approval, along with a 
     permit application and proposed compliance plan in accordance 
     with section 404. The Administrator shall approve a 
     designation that meets the requirements of this section, and 
     such designated unit shall be allocated allowances, and be an 
     affected unit for purposes of this subpart.
       (b) Establishment of Baseline.--The baseline for a unit 
     designated under this section shall be established by the 
     Administrator by regulation, based on fuel consumption and 
     operating data for the unit for calendar years 1985, 1986, 
     and 1987, or if such data is not available, the Administrator 
     may prescribe a baseline based on alternative representative 
     data.
       (c) Emission Limitations.--(1) For a unit for which an 
     election, along with a permit application and compliance 
     plan, is submitted to the Administrator under paragraph (a) 
     before January 1, 2002, annual emissions limitations for 
     sulfur dioxide shall be equal to the product of the baseline 
     multiplied by the lesser of the unit's 1985 actual or 
     allowable emission rate in lbs/mmBtu, or if the unit did not 
     operate in 1985, by the lesser of the unit's actual or 
     allowable emission rate for a calendar year after 1985 (as 
     determined by the Administrator), divided by 2,000.
       (2) For a unit for which an election, along with a permit 
     application and compliance plan, is submitted to the 
     Administrator under paragraph (a) on or after January 1, 
     2002, annual emissions limitations for sulfur dioxide shall 
     be equal to the product of the baseline multiplied by the 
     lesser of the unit's 1985 actual or allowable emission rate 
     in lbs/mmBtu, or, if the unit did not operate in 1985, by the 
     lesser of the unit's actual or allowable emission rate for a 
     calendar year after 1985 (as determined by the 
     Administrator), divided by 4,000.
       (d) Allowances and Permits.--The Administrator shall issue 
     allowances to an affected unit under this section in an 
     amount equal to the emissions limitation calculated under 
     subsection (c), in accordance with section 412. Such 
     allowance may be used in accordance with, and shall be 
     subject to, the provisions of section 412. Affected sources 
     under this section shall be subject to the requirements of 
     sections 404, 405, 406, and 412.
       (e) Limitations.--Any unit designated under this section 
     shall not transfer or bank allowances produced as a result of 
     reduced utilization or shutdown, except that, such allowances 
     may be transferred or carried forward for use in subsequent 
     years to the extent that the reduced utilization or shutdown 
     results from the replacement of thermal energy from the unit 
     designated under this section, with thermal energy generated 
     by any other unit or units subject to the requirements of 
     this subpart, and the designated unit's allowances are 
     transferred or carried forward for use at such other 
     replacement unit or units. In no case may the Administrator 
     allocate to a source designated under this section allowances 
     in an amount greater than the emissions resulting from 
     operation of the source in full compliance with the 
     requirements of this Act. No such allowances shall authorize 
     operation of a unit in violation of any other requirements of 
     this Act.
       (f) Implementation.--The Administrator shall implement this 
     section under 40 CFR part 74 (2001), amended as appropriate 
     by the Administrator.

     SEC. 417 AUCTIONS, RESERVE.

       (a) Special Reserve of Allowances.--For purposes of 
     establishing the Special Allowance Reserve, the Administrator 
     shall withhold--
       (1) 2.8 percent of the allocation of allowances for each 
     year from 1995 through 1999 inclusive; and
       (2) 2.8 percent of the basic Phase II allowance allocation 
     of allowances for each year beginning in the year 2000

     which would (but for this subsection) be issued for each 
     affected unit at an affected source. The Administrator shall 
     record such withholding for purposes of transferring the 
     proceeds of the allowance sales under this subsection. The 
     allowances so withheld shall be deposited in the Reserve 
     under this section.
       (b) Auction Sales.--(1) Subaccount for auctions.--The 
     Administrator shall establish an Auction Subaccount in the 
     Special Reserve established under this section. The Auction 
     Subaccount shall contain allowances to be sold at auction 
     under this section in the amount of 150,000 tons per year for 
     each year from 1995 through 1999, inclusive and 250,000 tons 
     per year for each year from 2000 through 2009, inclusive.
       (2) Annual auctions.--Commencing in 1993 and in each year 
     thereafter until 2010, the Administrator shall conduct 
     auctions at which the allowances referred to in paragraph (1) 
     shall be offered for sale in accordance with regulations 
     promulgated by the Administrator. The allowances referred to 
     in paragraph (1) shall be offered for sale at auction in the 
     amounts specified in table C. The auction shall be open to 
     any person. A person wishing to bid for such allowances shall 
     submit (by a date set by the Administrator) to the 
     Administrator (on a sealed bid schedule provided by the 
     Administrator) offers to purchase specified numbers of 
     allowance at specified prices. Such regulations shall specify 
     that the auctioned allowances shall be allocated and sold on 
     the basis of bid price, starting with the highest-priced bid 
     and continuing until all allowances for sale at such auction 
     have been allocated. The regulations shall not permit that a 
     minimum price be set for the purchase of withheld allowances. 
     Allowances purchased at the auction may be used for any 
     purpose and at any time after the auction, subject to the 
     provisions of this subpart and subpart 2.

[[Page 15198]]



          TABLE C.--NUMBER OF ALLOWANCES AVAILABLE FOR AUCTION
------------------------------------------------------------------------
                                           Spot auction       Advance
              Year of sale                  (same year)       auction
------------------------------------------------------------------------
1993....................................          50,000         100,000
1994....................................          50,000         100,000
1995....................................          50,000         100,000
1996....................................         150,000         100,000
1997....................................         150,000         100,000
1998....................................         150,000         100,000
1999....................................         150,000         100,000
2000....................................         125,000         125,000
2001....................................         125,000         125,000
2002....................................         125,000         125,000
2003-2009...............................         125,000               0
------------------------------------------------------------------------

       (3) Proceeds.--(A) Notwithstanding section 3302 of title 31 
     of the United States Code or any other provision of law, 
     within 90 days of receipt, the Administrator shall transfer 
     the proceeds from the auction under this section, on a pro 
     rata basis, to the owners or operators of the affected units 
     at an affected source from whom allowances were withheld 
     under subsection (b). No funds transferred from a purchaser 
     to a seller of allowances under this paragraph shall be held 
     by any officer or employee of the United States or treated 
     for any purpose as revenue to the United States or the 
     Administrator.
       (B) At the end of each year, any allowances offered for 
     sale but not sold at the auction shall be returned without 
     charge, on a pro rata basis, to the owner or operator of the 
     affected units from whose allocation the allowances were 
     withheld. With 170 days after the date of enactment of the 
     Clear Skies Act of 2002, any allowance withheld under 
     paragraph (a)(2) but not offered for sale at an auction shall 
     be returned without charge, on a pro rata basis, to the owner 
     or operator of the affected units from whose allocation the 
     allowances were withheld.
       (4) Recording by EPA.--The Administrator shall record and 
     publicly report the nature, prices and results of each 
     auction under this subsection, including the prices of 
     successful bids, and shall record the transfers of allowances 
     as a result of each auction in accordance with the 
     requirements of this section. The transfer of allowances at 
     such auction shall be recorded in accordance with the 
     regulations promulgated by the Administrator under this 
     subpart.
       (c) Changes in Auctions and Withholding.--Pursuant to 
     rulemaking after public notice and comment the Administrator 
     may at any time after the year 1998 (in the case of advance 
     auctions) and 2005 (in the case of spot auctions) decrease 
     the number of allowances withheld and sold under this 
     section.
       (d) Termination of Auction.--The Administrator shall 
     terminate the withholding of allowances and the auction sales 
     under this section on December 31, 2009. Pursuant to 
     regulations under this section, the Administrator may be 
     delegation or contract provide for the conduct of sales or 
     auctions under the Administrator's supervision by other 
     departments or agencies of the United States Government or by 
     nongovernmental agencies, groups, or organizations.
       (e) The Administrator shall implement this section under 40 
     CFR part 73 (2001), amended as appropriate by the 
     Administrator.

     SEC. 418. INDUSTRIAL SO2 EMISSIONS.

       (a) Report.--Not later than January 1, 1995 and every 5 
     years thereafter, the Administrator shall transmit to the 
     Congress a report containing an inventory of national annual 
     sulfur dioxide emissions from industrial sources (as defined 
     in section 411(11)), including units subject to section 
     414(g)(2), for all years for which data are available, as 
     well as the likely trend in such emission over the following 
     twenty-year period. The reports shall also contain estimates 
     of the actual emission reduction in each year resulting from 
     promulgation of the diesel fuel desulfurization regulations 
     under section 214.
       (b) 5.60 Million Ton Cap.--Whenever the inventory required 
     by this section indicates that sulfur dioxide emissions from 
     industrial sources, including units subject to section 
     414(g)(2), and may reasonably be expected to reach levels 
     greater than 5.60 million tons per year, the Administrator 
     shall take such actions under the Act as may be appropriate 
     to ensure that such emissions do not exceed 5.60 million tons 
     per year. Such actions may include the promulgation of new 
     and revised standards of performance for new sources, 
     including units subject to section 414(g)(2), under section 
     111(b), as well as promulgation of standards of performance 
     for existing sources, including units subject to section 
     414(g)(2), under authority of this section. For an existing 
     source regulated under this section, ``standard of 
     performance'' means a standard which the Administrator 
     determines is applicable to that source and which reflects 
     the degree of emission reduction achievable through the 
     application of the best system of continuous emission 
     reduction which (taking into consideration the cost of 
     achieving such emission reduction, and any nonair quality 
     health and environmental impact and energy requirements) the 
     Administrator determines has been adequately demonstrated for 
     that category of sources.
       (c) Election.--Regulations promulgated under section 414(b) 
     shall not prohibit a source from electing to become an 
     affected unit under section 417.

     SEC. 419. TERMINATION.

       Starting January 1, 2010, the owners or operators of 
     affected units and affected facilities under sections 412(b) 
     and (c) and 416 and shall no longer be subject to the 
     requirements of sections 412 through 417.

              Subpart 2. Sulfur Dioxide Allowance Program

     SEC. 421 DEFINITIONS.

       For purposes of this subpart--
       (1) The term ``affected EGU'' means:
       (A) for a unit serving a generator before the date of 
     enactment of the Clear Skies Act of 2002, a unit in a State 
     serving a generator with a nameplate capacity of greater than 
     25 megawatts that produced or produces electricity for sale 
     during 2001 or any year thereafter, except for a cogeneration 
     unit that produced or produces electricity for sale equal to 
     less than one-third of the potential electrical output of the 
     generator that it served or serves during 2001 and each year 
     thereafter; and
       (B) for a unit commencing service of a generator on or 
     after the date of enactment of the Clear Skies Act of 2002, a 
     unit in a State serving a generator that produces electricity 
     for sale during any year starting with the year the unit 
     commences service of a generator, except for a gas-fired unit 
     serving one or more generators with total nameplate capacity 
     of 25 megawatts or less, or a cogeneration unit that produces 
     electricity for sale equal to less than one-third of the 
     potential electrical output of the generator that it serves, 
     during each year starting with the year the unit commences 
     services of a generator.
       (C) Notwithstanding paragraphs (A) and (B), the term 
     ``affected EGU'' does not include a solid waste incineration 
     unit subject to section 129 or a unit for the treatment, 
     storage, or disposal of hazardous waste subject to section 
     3005 of the Solid Waste Disposal Act.
       (2) The term ``coal-fired'' with regard to a unit means, 
     for purposes of section 424, combusting coal or any coal-
     derived fuel alone or in combination with any amount of any 
     other fuel in any year during 1997 through 2001 or, for a 
     unit that commenced operation during 2001-2004, a unit 
     designed to combust coal or any coal-derived fuel alone or in 
     combination with any other fuel.
       (3) The term ``Eastern bituminous'' means bituminous that 
     is from a mine located in a State east of the Mississippi 
     River.
       (4) The term ``general account'' means an account in the 
     Allowance Tracking System under section 403(c) established by 
     the Administrator for any person under 40 CFR Sec. 73.31(c) 
     (2001), amended as appropriate by the Administrator.
       (5) The term ``oil-fired'' with regard to a unit means, for 
     purposes of section 424, combusting fuel oil for more than 
     ten percent of the unit's total heat input, and combusting no 
     coal or coal-derived fuel, in any year during 1997 through 
     2001 or, for a unit that commenced operation during 2001-
     2004, a unit designed to combust oil for more than ten 
     percent of the unit's total heat input and not to combust any 
     coal or coal-derived fuel coal.
       (6) The term ``unit account'' means an account in the 
     Allowance Tracking System under section 403(c) established by 
     the Administrator for any unit under 40 CFR Sec. 73.31(a) and 
     (b) (2001), amended as appropriate by the Administrator.

     SEC. 422. APPLICABILITY.

       Starting January 1, 2010, it shall be unlawful for the 
     affected EGUs at a facility to emit a total amount of sulfur 
     dioxide during the year in excess of the number of sulfur 
     dioxide allowances held for such facility for that year by 
     the owner or operator of the facility.

     SEC. 423. LIMITATIONS ON TOTAL EMISSIONS.

       For affected EGUs for 2010 and each year thereafter, the 
     Administrator shall allocate sulfur dioxide allowances under 
     section 424, and shall conduct auctions of sulfur dioxide 
     allowances under section 409, in the amounts in Table A.

[[Page 15199]]



     TABLE A.--TOTAL SO2 ALLOWANCES ALLOCATED OR AUCTIONED FOR EGUS
------------------------------------------------------------------------
                                                      SO2         SO2
                      Year                        allowances  allowances
                                                   allocated   auctioned
------------------------------------------------------------------------
2010............................................   4,371,666      45,000
2011............................................   4,326,667      90,000
2012............................................   4,281,667     135,000
2013............................................   4,320,000     180,000
2014............................................   4,275,000     225,000
2015............................................   4,230,000     270,000
2016............................................   4,185,000     315,000
2017............................................   4,140,000     360,000
2018............................................   2,730,000     270,000
2019............................................   2,700,000     300,000
2020............................................   2,670,000     330,000
2021............................................   2,640,000     360,000
2022............................................   2,610,000     390,000
2023............................................   2,580,000     420,000
2024............................................   2,550,000     450,000
2025............................................   2,520,000     480,000
2026............................................   2,490,000     510,000
2027............................................   2,460,000     540,000
2028............................................   2,430,000     570,000
2029............................................   2,400,000     600,000
2030............................................   2,325,000     675,000
2031............................................   2,250,000     750,000
2032............................................   2,175,000     825,000
2033............................................   2,100,000     900,000
2034............................................   2,025,000     975,000
2035............................................   1,950,000   1,050,000
2036............................................   1,875,000   1,125,000
2037............................................   1,800,000   1,200,000
2038............................................   1,725,000   1,275,000
2039............................................   1,650,000   1,350,000
2040............................................   1,575,000   1,425,000
2041............................................   1,500,000   1,500,000
2042............................................   1,425,000   1,575,000
2043............................................   1,350,000   1,650,000
2044............................................   1,275,000   1,725,000
2045............................................   1,200,000   1,800,000
2046............................................   1,125,000   1,875,000
2047............................................   1,050,000   1,950,000
2048............................................     975,000   2,025,000
2049............................................     900,000   2,100,000
2050............................................     825,000   2,175,000
2051............................................     750,000   2,250,000
2052............................................     675,000   2,325,000
2053............................................     600,000   2,400,000
2054............................................     525,000   2,475,000
2055............................................     450,000   2,550,000
2056............................................     375,000   2,625,000
2057............................................     300,000   2,700,000
2058............................................     225,000   2,775,000
2059............................................     150,000   2,850,000
2060............................................      75,000   2,925,000
2061............................................           0   3,000,000
------------------------------------------------------------------------

     SEC. 424. EGU ALLOCATIONS.

       (a) By January 1, 2007, the Administrator shall promulgate 
     regulations determining allocations of sulfur dioxide 
     allowances for affected EGUs for each year during 2010 
     through 2060. The regulations shall provide that--
       (1)(A) Ninety-five percent of the total amount of sulfur 
     dioxide allowances allocated each year to affected EGUs under 
     section 423 shall be allocated based on the sulfur dioxide 
     allowances that were allocated under subpart 1 for 2010 or 
     thereafter and are held in unit accounts and general accounts 
     in the Allowance Tracking System under section 403(c).
       (B) The Administrator shall allocate sulfur dioxide 
     allowances to each facility's account and each general 
     account in the Allowance Tracking System under section 403(c) 
     as follows:
       (i) The Administrator shall determine the amount of sulfur 
     dioxide allowances allocated under subpart 1 for 2010, and 
     each subsequent year, that are recorded in each unit account 
     and each general account in the Allowance Tracking System as 
     of 12:00 noon, Eastern Standard time, on the date 180 days 
     after enactment of the Clear Skies Act of 2002. The 
     Administrator shall determine this amount in accordance with 
     40 CFR part 73 (2001), amended as appropriate by the 
     Administrator, except that the Administrator shall discount 
     all sulfur dioxide allowances allocated for 2011 or later at 
     a rate of 7% per year.
       (ii) The Administrator shall determine for each unit 
     account and each general account in the Allowance Tracking 
     System an amount of sulfur dioxide allowances equal to the 
     allocation amount under subparagraph (A) multiplied by the 
     ratio of the amount of sulfur dioxide allowances determined 
     to be recorded in that account under clause (i) to the total 
     amount of sulfur dioxide allowances determined to be recorded 
     in all unit accounts and general accounts in the Allowance 
     Tracking System under clause (i).
       (iii) The Administrator shall allocate to each facility's 
     account in the Allowance Tracking System an amount of sulfur 
     dioxide allowances equal to the total amount of sulfur 
     dioxide allowances determined under clause (ii) for the unit 
     accounts of the units at the facility and to each general 
     account in the Allowance Tracking System the amount of sulfur 
     dioxide allowances determined under clause (ii) for that 
     general account.
       (2)(A) Three and one-half percent of the total amount of 
     sulfur dioxide allowances allocated each year for affected 
     EGUs under section 423 shall be allocated for units at a 
     facility that are affected EGUs as of December 31, 2004, that 
     commenced operation before January 1, 2001, and that are not 
     allocated any sulfur dioxide allowances under subpart 1.
       (B) The Administrator shall allocate each year for the 
     units under subparagraph (A) an amount of sulfur dioxide 
     allowances determined by--
       (i) For such units at the facility that are coal-fired, 
     multiplying 0.40 lb/mmBtu by the total baseline heat input of 
     such units and converting to tons;
       (ii) For such units at the facility that are oil-fired, 
     multiplying 0.20 lb/mmBtu by the total baseline heat input of 
     such units and converting to tons;
       (iii) For all such other units at the facility that are not 
     covered by clause (i) or (ii), multiplying 0.05 lb/mmBtu by 
     the total baseline heat input of such units and converting to 
     tons;
       (iv) If the total of the amounts for all facilities under 
     clauses (i), (ii), and (iii) exceeds the allocation amount 
     under subparagraph (A), multiplying the allocation amount 
     under subparagraph (A) by the ratio of the total of the 
     amounts for the facility under clauses (i), (ii), and (iii) 
     to the total of the amounts for all facilities under clause 
     (i), (ii), and (iii); and
       (v) Allocating to each facility the lesser of the total of 
     the amounts for the facility under clauses (i), (ii), and 
     (iii) or, if the total of the amounts for all facilities 
     under clauses (i), (ii), and (iii) exceeds the allocation 
     amount under subparagraph (A), the amount under clause (iv). 
     The Administrator shall add to the amount of sulfur dioxide 
     allowances allocated under paragraph (3) any unallocated 
     allowances under this paragraph.
       (3)(A) One and one-half percent of the total amount of 
     sulfur dioxide allowances allocated each year for affected 
     EGUs under section 423 shall be allocated for units that are 
     affected EGUs as of December 31, 2004, that commence 
     operation on or after January 1, 2001 and before January 1, 
     2005, and that are not allocated any sulfur dioxide 
     allowances under subpart 1.
       (B) The Administrator shall allocate each year for the 
     units under subparagraph (A) an amount of sulfur dioxide 
     allowances determined by--
       (i) For such units at the facility that are coal-fired or 
     oil-fired, multiplying 0.19 lb/mmBtu by the total baseline 
     heat imput of such units and converting to tons;
       (ii) For all such other units at the facility that are not 
     covered by clause (i), multiplying 0.02 lb/mmBtu by the total 
     baseline heat input of such units and converting to tons;
       (iv) If the total of the amounts for all facilities under 
     clauses (i) and (ii) exceeds the allocation amount under 
     subparagraph (A), multiplying the allocation amount under 
     subparagraph (A) by the ratio of the total of the amounts for 
     the facility under clauses (i) and (ii) to the total of the 
     amounts for all facilities under clauses (i) and (ii); and
       (v) Allocating to each facility the lesser of the total of 
     the amounts for the facility under clauses (i) and (ii) or, 
     if the total of the amounts for all facilities under clauses 
     (i) and (ii) exceeds the allocation amount under subparagraph 
     (A), the amount under clause (iv). The Administrator shall 
     allocate to the facilities under paragraphs (1) and (2) on a 
     pro rata basis (based on the allocations under those 
     paragraphs) any unallocated allowances under this paragraph.
       (b) For each year 2010 through 2060, if the Administrator 
     has not promulgated the regulations determining allocations 
     under paragraph (a) by July 1 that is eighteen months before 
     January 1 of such year, then--
       (1) The Administrator shall:
       (A) allocate, for such year, to each unit with coal as its 
     primary or secondary fuel or residual oil as its primary fuel 
     listed in the Administrator's Emissions Scorecard 2000, 
     Appendix B, Table B1 an amount of sulfur dioxide allowances 
     determined by multiplying eighty percent of the allocation 
     amount under section 423 by the ratio of such unit's heat 
     input in the Emissions Scorecard 2000, Appendix B, Table B1 
     to the total of the heat input in the Emissions Scorecard 
     2000, Appendix B, Table B1 for all units with coal as their 
     primary or secondary fuel or residual oil as their primary 
     fuel;
       (B) record in each facility's account in the Allowance 
     Tracking System under section 403(c) for such year the total 
     of the amounts of sulfur dioxide allowances for the units at 
     such facility determined under subparagraph (A); and
       (C) auction an amount of sulfur dioxide allowances equal to 
     five percent of the allocation amount under section 423 and 
     conduct the auction on the first business day in October 
     following the respective promulgation deadline under 
     subsection (b) and in accordance with section 400.
       (2) Notwithstanding any other provision of law to the 
     contrary, the determination of the amount of sulfur dioxide 
     allowances under subparagraph (1)(A) and the recording of 
     sulfur dioxide allowances under subparagraph (1)(B) shall not 
     be subject to judicial review.
       (3) Notwithstanding the provisions to the contrary in 
     section 423, the Administrator shall not allocate or record 
     fifteen percent of the allocation amount under section 423 
     for such year.

     SEC. 425. DISPOSITION OF SULFUR DIOXIDE ALLOWANCES ALLOCATED 
                   UNDER SUBPART 1.

       (a) After allocating allowances under section 424(a)(1), 
     the Administrator shall remove from the unit accounts and 
     general accounts in the Allowance Tracking System under 
     section 403(c) and from the Special Allowances Reserve under 
     section 418 all sulfur dioxide allowances allocated or 
     deposited under subpart 1 for 2010 or later.
       (b) The Administrator shall promulgate regulations as 
     necessary to assure that the requirement to hold allowances 
     under section 422 may be met using sulfur dioxide allowances 
     allocated under subpart 1 for 1995 through 2009.

[[Page 15200]]



     SEC. 426. INCENTIVES FOR SULFUR DIOXIDE EMISSION CONTROL 
                   TECHNOLOGY.

       (a) Reserve.--The Administrator shall establish a reserve 
     of 250,000 sulfur dioxide allowances comprising 83,334 sulfur 
     dioxide allowances for 2010, 83,333 sulfur dioxide allowances 
     for 2011, and 83,333 sulfur dioxide allowances for 2012.
       (b) Application.--By July 1, 2004 an owner or operator of 
     an affected EGU that commenced operation before 2001 and that 
     during 2001 combusted Eastern bituminous may submit an 
     application to the Administrator for sulfur dioxide 
     allowances from the reserve under subsection (a). The 
     application shall include--
       (1) a statement that the owner or operator will install and 
     commence operation of specified sulfur dioxide control 
     technology at the unit within 24 months after approval of the 
     application under subsection (c) if the unit is allocated the 
     sulfur dioxide allowances requested under paragraph (4). The 
     owner or operator shall provide description of the control 
     technology.
       (2) a statement that, during the period starting with the 
     commencement of operation of sulfur dioxide technology under 
     paragraph (1) through 2009, the unit will combust Eastern 
     bituminous at a percentage of the unit's total heat input 
     equal to or exceeding the percentage of total heat input 
     combusted by the unit in 2001 if the unit is allocated the 
     sulfur dioxide allowances requested under paragraph (4).
       (3) a demonstration that the unit will achieve, while 
     combusting fuel in accordance with paragraph (2) and 
     operating the sulfur dioxide control technology specified in 
     paragraph (1), a specified tonnage of sulfur dioxide emission 
     reductions during the period starting with the commencement 
     of operation of sulfur dioxide technology under subparagraph 
     (1) through 2009. The tonnage of emission reductions shall be 
     the difference between emissions monitored at a location at 
     the unit upstream of the control technology described in 
     paragraph (1) and emissions monitored at a location at the 
     unit downstream of such control technology, while the unit is 
     combusting fuel in accordance with paragraph (2).
       (4) a request that EPA allocate for the unit a specified 
     number of sulfur dioxide allowances from the reserve under 
     subsection (a) for the period starting with the commencement 
     of operation of the sulfur dioxide technology under paragraph 
     (1) through 2009.
       (5) a statement of the ratio of the number of sulfur 
     dioxide allowances requested under paragraph (4) to the 
     tonnage of sulfur dioxide emissions reductions under 
     paragraph (3).
       (c) Approval or Disapproval.--Through adjudicative 
     determinations subject to notice and opportunity for comment, 
     the Administrator shall--
       (1) determine whether each application meets the 
     requirements of subsection (b);
       (2) list the applications meeting the requirements of 
     subsection (b) and their respective allowance-to-emission-
     reduction ratios under paragraph (b)(5) in order, from lowest 
     to highest, of such ratios;
       (3) for each application listed under paragraph (2), 
     multiply the amount of sulfur dioxide emission reductions 
     requested by each allowance-to-emission-reduction ratio on 
     the list that equals or is less than the ratio for the 
     application;
       (4) sum, for each allowance-to-emission-reduction ratio in 
     the list under paragraph (2), the amounts of sulfur dioxide 
     allowances determined under paragraph (3);
       (5) based on the calculations in paragraph (4), determine 
     which allowance-to-emission-reduction ratio on the list under 
     paragraph (2) results in the highest total amount of 
     allowances that does not exceed 250,000 allowances; and
       (6) approve each application listed under paragraph (2) 
     with a ratio equal to or less than the allowance-to-emission-
     reduction ratio determined under paragraph (5) and disapprove 
     all the other applications.
       (d) Monitoring.--An owner or operator whose application is 
     approved under subsection (c) shall install, and quality 
     assure data from, a CEMS for sulfur dioxide located upstream 
     of the sulfur dioxide control technology under paragraph 
     (b)(1) at the unit and a CEMS for sulfur dioxide located 
     downstream of such control technology at the unit during the 
     period starting with the commencement of operation of such 
     control technology through 2009. The installation of the CEMS 
     and the quality assurance of data shall be in accordance with 
     subparagraph (a)(2)(B) and subsections (c) through (e) of 
     section 405, except that, where two or more units utilize a 
     single stock, separate monitoring shall be required for each 
     unit.
       (f) Allocations.--By July 1, 2010, for the units for which 
     applications are approved under paragraph (c), the 
     Administrator shall allocate sulfur dioxides allowances as 
     follows:
       (1) For each unit, the Administrator shall multiply the 
     allowance-to-emission-reduction ratio of the last application 
     that EPA approved under subsection (c) by the lesser of:
       (A) the total tonnage of sulfur dioxide emissions 
     reductions achieved by the unit, during the period starting 
     with the commencement of operation of the sulfur dioxide 
     control technology under subparagraph (b)(1) through 2009, 
     through use of such control technology; or
       (B) the tonnage of sulfur dioxide emission reductions under 
     paragraph (b)(3).
       (2) If the total amount of sulfur dioxide allowances 
     determined for all units under paragraph (1) exceeds 250,000 
     sulfur dioxide allowances, the Administrator shall multiply 
     250,000 sulfur dioxide allowances by the ratio of the amount 
     of sulfur dioxide allowances determined for each unit under 
     paragraph (1) to the total amount of sulfur dioxide 
     allowances determined for all units under paragraph (1).
       (3) The Administrator shall allocate to each unit the 
     lesser of the amount determined for that unit under paragraph 
     (1) or, if the total amount of sulfur dioxide allowances 
     determined for all units under paragraph (1) exceeds 250,000 
     sulfur dioxide allowances, under paragraph (2). The 
     Administrator shall auction any unallocated allowances from 
     the reserve under this section and conduct the auction by the 
     first business day in October 2010 and in accordance with 
     section 409.

              Subpart 3. Western Regional Air Partnership.

     SEC. 431. DEFINITIONS.

       For purposes of this subpart--
       (1) The term ``adjusted baseline heat input'' means the 
     average annual heat input used by a unit during the three 
     years in which the unit had the highest heat input for the 
     period from the eighth through the fourth year before the 
     first covered year.
       (A) Notwithstanding paragraph (1), if a unit commences 
     operation during such period and--
       (i) on or after January 1 of the fifth year before the 
     first covered year, then ``adjusted baseline heat input'' 
     shall mean the average annual heat input used by the unit 
     during the fifth and fourth years before the first covered 
     year; and (ii) on or after January 1 of the fourth year 
     before the first covered year, then ``adjusted baseline heat 
     input'' shall mean the annual heat input used by the unit 
     during the fourth year before the first covered year.
       (B) A unit's heat input for a year shall be the heat 
     input--
       (i) required to be reported under section 405 for the unit, 
     if the unit was required to report heat input during the year 
     under that section;
       (ii) reported to the Energy Information Administrator for 
     the unit, if the unit was not required to report heat input 
     under section 405;
       (iii) based on data for the unit reported to the State 
     where the unit is located as required by State law, if the 
     unit was not required to report heat input during the year 
     under section 405 and did not report to the Energy 
     Information Administration; or
       (iv) based on fuel use and fuel heat content data for the 
     unit from fuel purchase or use records, if the unit was not 
     required to report heat input during the year under section 
     405 and did not report to the Energy Information 
     Administration and the State.
       (2) The term ``affected EGU'' means an affected EGU under 
     subpart 2 that is in a State and that:
       (A) in 2000, emitted 100 tons or more of sulfur dioxide and 
     was used to produce electricity for sale; or
       (B) in any year after 2000, emits 100 tons or more of 
     sulfur dioxide and is used to produce electricity for sale.
       (3) The term ``coal-fired'' with regard to a unit means, 
     for purposes of section 434, a unit combusting coal or any 
     coal-derived fuel alone or in combination with any amount of 
     any other fuel in any year during the period from the eighth 
     through the fourth year before the first covered year.
       (4) The term ``covered year'' means:
       (A)(1) the third year after the year 2018 or later when the 
     total annual sulfur dioxide emissions of all affected EGUs in 
     the States first exceed 271,000 tons; or
       (2) the third year after the year 2013 or later when the 
     Administrator determines by regulation that the total annual 
     sulfur dioxide emissions of all affected EGUs in the States 
     are reasonably projected to exceed 271,000 tons in 2018 or 
     any year thereafter. The Administrator may make such 
     determination only if all the States submit to the 
     Administrator a petition requesting that the Administrator 
     issue such determination and make all affected EGUs in the 
     States subject to the requirements of sections 432 through 
     434; and
       (B) each year after the ``covered year'' under subparagraph 
     (A).
       (5) the Term ``oil-fired'' with regard to a unit means, for 
     purposes of section 434, a unit combusting fuel oil for more 
     than ten percent of the unit's total heat input, and 
     combusting no coal or coal-derived fuel, an any year during 
     the period from the eight through the fourth year before the 
     first covered year.

     SEC. 432. APPLICABILITY.

       Starting January 1 of the first covered year, it shall be 
     unlawful for the affected EGUs at a facility to emit a total 
     amount of sulfur dioxide during the year in excess of the 
     number of sulfur dioxide allowances held for such facility 
     for that year by the owner or operator of the facility.

     SEC. 433. LIMITATIONS ON TOTAL EMISSIONS.

       For affected EGUs, the total amount of sulfur dioxide 
     allowances that the Administrator shall allocate for each 
     covered year under section 434 shall equal 271,000 tons.

[[Page 15201]]



     SEC. 434. EGU ALLOCATIONS.

       (a) By January 1 of the year before the first covered year, 
     the Administrator shall promulgate regulations determining, 
     for each covered year, the allocations of sulfur dioxide 
     allowances for the units at a facility that are affected EGUs 
     as of December 31 of the fourth year before the covered year 
     by--
       (1) For such units at the facility that are coal-fired, 
     multiplying 0.40 lb/mmBtu by the total adjusted baseline heat 
     input of such units and converting to tons;
       (2) For such units at the facility that are oil-fired, 
     multiplying 0.20 lb/mmBtu by the total adjusted baseline heat 
     input of such units and converting to tons;
       (3) For all such other units at the facility that are not 
     covered by paragraph (1) or (2) multiplying 0.05 lb/mmBtu by 
     the total adjusted baseline heat input of such units and 
     converting to tons; and
       (4) Multiplying the allocation amount under section 433 by 
     the ratio of the total of the amounts for the facility under 
     paragraphs (1), (2), and (3) to the total of the amounts for 
     all facilities under paragraphs (1), (2), and (3).
       (b) For each covered year, if the Administrator has not 
     promulgated the regulations determining allocations under 
     paragraph (a) by July 1 that is eighteen months before 
     January 1 of such year, then--
       (1) The Administrator shall:
       (A) allocate, for such year, to each affected EGU with coal 
     as its primary or secondary fuel or residual oil as its 
     primary fuel listed in the Administrator's Emissions 
     Scorecard 2000, Appendix B, Table B1 an amount of sulfur 
     dioxide allowances determined by multiplying eighty percent 
     of the allocation amount under section 433 by the ratio of 
     such unit's heat input in the Emissions Scorecard 2000, 
     Appendix B, Table B1 to the total of the heat input in the 
     Emissions Scorecard 2000, Appendix B, Table B1 for all 
     affected EGUs with coal as their primary or secondary fuel or 
     residual oil as their primary fuel;
       (B) record in each facility's account in the Allowance 
     Tracking System under section 403(c) for such year the sum of 
     the amounts of sulfur dioxide allowances for the units at 
     such facility determined under subparagraph (A); and
       (C) auction an amount of sulfur dioxide allowances equal to 
     five percent of the allocation amount under section 433 and 
     conduct the auction on the first business day in October 
     following the respective promulgation deadline under 
     subsection (b) and in accordance with section 409.
       (2) Notwithstanding any other provision of law to the 
     contrary, the determination of the amount of sulfur dioxide 
     allowances under subparagraph (1)(A) and the recording of 
     sulfur dioxide allowances under subparagraph (1)(B) shall not 
     be subject to judicial review.
       (3) Notwithstanding the provisions to the contrary in 
     section 433, the Administrator shall not allocate or record 
     fifteen percent of the allocation amount under section 433 
     for such year.

              Part C--Nitrogen Oxides Emission Reductions

                      Subpart 1--Acid Rain Program

     SEC. 441. NITROGEN OXIDES EMISSION REDUCTION PROGRAM.

       (a) Applicability.--On the date that a coal-fired utility 
     unit becomes an affected unit pursuant to sections 413 or 
     414, or on the date a unit subject to the provisions of 
     section 413(d), must meet the SO2 reduction 
     requirements, each such unit shall become an affected unit 
     for purposes of this section and shall be subject to the 
     emission limitations for nitrogen oxides set forth herein.
       (b) Emission Limitations.--
       (1) The Administrator shall by regulation establish annual 
     allowable emission limitations for nitrogen oxides for the 
     types of utility boilers listed below, which limitations 
     shall not exceed the rates listed below: Provided, That the 
     Administrator may set a rate higher than that listed for any 
     type of utility boiler if the Administrator finds that the 
     maximum listed rate for that boiler type cannot be achieved 
     using low NOX burner technology. The Administrator 
     shall implement this paragraph under 40 CFR Sec. 76.5 (2001). 
     The maximum allowable emission rates are as follows:
       (A) for tangentially fired boilers, 0.45 lb/mmBtu;
       (B) for dry bottom wall-fired boilers (other than units 
     applying cell burner technology), 0.50 lb/mmBtu. After 
     January 1, 1995, it shall be unlawful for any unit that is an 
     affected unit on that date and is of the type listed in this 
     paragraph to emit nitrogen oxides in excess of the emission 
     rates set by the Administrator pursuant to this paragraph.
       (2) The Administrator shall, by regulation, establish 
     allowable emission limitations on a lb/mmBtu, annual average 
     basis, for nitrogen oxides for the following types of utility 
     boilers:
       (A) wet bottom wall-fired boilers;
       (B) cyclones;
       (C) units applying cell burner technology;
       (D) all other types of utility boilers.
       The Administrator shall base such rates on the degree of 
     reduction achievable through the retrofit application of the 
     best system of continuous emission reduction, taking into 
     account available technology, costs and energy and 
     environmental impacts; and which is comparable to the costs 
     of nitrogen oxides controls set pursuant to subsection 
     (b)(1). The Administrator may revise the applicable emission 
     limitations for tangentially fired and dry bottom, wall-fired 
     boilers (other than cell burners) to be more stringent if the 
     Administrator determines that more effective low 
     NOX burned technology is available: Provided, 
     That, no unit that is an affected unit pursuant to section 
     413 and that is subject to the requirements of subsection 
     (b)(1), shall be subject to the revised emission limitations, 
     if any. The Administrator shall implement that paragraph 
     under 40 CFR Sec. Sec. 76.6 and 76.7 (2001).
       (c) Alternative Emission Limitations.--The permitting 
     authority shall, upon request of an owner or operator of a 
     unit subject to this section, authorize an emission 
     limitation less stringent than the applicable limitation 
     established under subsection (b)(1) or (b)(2) upon a 
     determination that--
       (1) a unit subject to subsection (b)(1) cannot meet the 
     applicable limitation using low NOX burner 
     technology; or
       (2) a unit subject to subsection (b)(2) cannot meet the 
     applicable rate using the technology on which the 
     Administrator based the applicable emission limitation.
       The permitting authority shall base such determination upon 
     a showing satisfactory to the permitting authority, in 
     accordance with regulations established by the Administrator, 
     that the owner or operator--
       (1) has properly installed appropriate control equipment 
     designed to meet the applicable emission rate;
       (2) has properly operated such equipment for a period of 
     fifteen months (or such other period of time as the 
     Administrator determines through the regulations), and 
     provides operating and monitoring data for such period 
     demonstrating that the unit cannot meet the applicable 
     emission rate; and
       (3) has specified an emission rate that such unit can meet 
     on an annual average basis. The permitting authority shall 
     issue an operating permit for the unit in question, in 
     accordance with section 404 and title V--
       (i) that permits the unit during the demonstration period 
     referred to in subparagraph (2) above, to emit at a rate in 
     excess of the applicable emission rate;
       (ii) at the conclusion of the demonstration period to 
     revise the operating permit to reflect the alternative 
     emission rate demonstrated in paragraphs (2) and (3) above.
       Units subject to subsection (b)(1) for which an alternative 
     emission limitation is established shall not be required to 
     install any additional control technology beyond low 
     NOX burners. Nothing in this section shall 
     preclude an owner or operator from installing and operating 
     an alternative NOX control technology capable of 
     achieving the applicable emission limitation. The 
     Administrator shall implement this subsection under 40 CFR 
     part 76 (2001), amended as appropriate by the Administrator.
       (d) Emissions Averaging.--In lieu of complying with the 
     applicable emission limitations under subsection (b)(1), (2), 
     or (c), the owner or operator of two or more units subject to 
     one or more of the applicable emission limitations set 
     pursuant to these sections, may petition the permitting 
     authority for alternative contemporaneous annual emission 
     limitations for such units that ensure that (1) the actual 
     annual emission rate in pounds of nitrogen oxides per million 
     Btu averaged over the units in question is a rate that is 
     less than or equal to (2) Btu-weighted average annual 
     emission rate for the same units if they had been operated, 
     during the same period of time, in compliance with 
     limitations set in accordance with the applicable emission 
     rates set pursuant to subsections (b)(1) and (2).
       If the permitting authority determines, in accordance with 
     regulations issued by the Administrator that the conditions 
     in the paragraph above can be met, the permitting authority 
     shall issue operating permits for such units, in accordance 
     with section 404 and title V, that allow alternative 
     contemporaneous annual emission limitations. Such emission 
     limitations shall only remain in effect while both units 
     continue operation under the conditions specified in their 
     respective operating permits. The Administrator shall 
     implement this subsection under 40 CFR part 76 (2001), 
     amended as appropriate by the Administrator.

     SEC. 442. TERMINATION.

       Starting January 1, 2008, owner or operator of affected 
     units and affected facilities under section 441 shall no 
     longer be subject to the requirements of that section.

             Subpart 2. Nitrogen Oxides Allowance Program.

     SEC. 451. DEFINITIONS.

       For purposes of this subpart--
       (1) The term ``affected EGU'' means:
       (A) for a unit serving a generator before the date of 
     enactment of the Clear Skies Act of 2002, a unit in a State 
     serving a generator with a nameplate capacity of greater than 
     25 megawatts that produced or produces electricity for sale 
     during 2001 or any year thereafter, except for a cogeneration 
     unit that produced or produces electricity for sale equal to 
     less than one-third of the potential electrical output of the 
     generator that it served or serves during 2001 and each year 
     thereafter; and

[[Page 15202]]

       (B) for a unit commencing service of a generator on or 
     after the date of enactment of the Clear Skies Act of 2002, a 
     unit in a State serving a generator that produces electricity 
     for sale during any year starting with the year the unit 
     commences service of a generator, except for a gas-fired unit 
     serving one or more generators with total nameplate capacity 
     of 25 megawatts or less, or a cogeneration unit that produces 
     electricity for sale equal to less than one-third of the 
     potential electrical output of the generator that it serves, 
     during each year starting with the unit commences service of 
     a generator.
       (C) Notwithstanding paragraphs (A) and (B), the term 
     ``affected EGU'' does not include a solid waste incineration 
     unit subject to section 129 or a unit for the treatment, 
     storage, or disposal of hazardous waste subject to section 
     3005 of the Solid Waste Disposal Act.
       (2) The term ``Zone 1 State'' means Alabama, Arkansas, 
     Connecticut, Delaware, the District of Columbia, Florida, 
     Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, 
     Louisiana, Maine, Maryland, Massachusetts, Michigan, 
     Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, 
     New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode 
     Island, South Carolina, Tennessee, Texas east of Interstate 
     35, Vermont, Virginia, West Virginia, and Wisconsin.
       (3) The term ``Zone 2 State'' means Alaska, American Samoa, 
     Arizona, California, Colorado, the Commonwealth of Northern 
     Mariana Islands, the Commonwealth of Puerto Rico, Guam, 
     Hawaii, Idaho, Montana, Nebraska, North Dakota, New Mexico, 
     Nevada, Oregon, South Dakota, Texas west of Interstate 35, 
     Utah, the Virgin Islands, Washington, and Wyoming.

     SEC. 452. APPLICABILITY.

       (a)(1) Starting January 1, 2008, it shall be unlawful for 
     the affected EGUs at a facility in a Zone 1 State to emit a 
     total amount of nitrogen oxides during a year in excess of 
     the number of nitrogen oxides allowances held for such 
     facility for that year by the owner or operator of the 
     facility.
       (2) Only nitrogen oxides allowances under section 453(a) 
     shall be held in order to meet the requirements of paragraph 
     (1), except as provided under section 465.
       (b)(1) Starting January 1, 2008, it shall be unlawful for 
     the affected EGUs at a facility in a Zone 2 State to emit a 
     total amount of nitrogen oxides during a year in excess of 
     the number of nitrogen oxides allowances held for such 
     facility for that year by the owner or operator of the 
     facility.
       (2) Only nitrogen oxides allowances under section 453(b) 
     shall be held in order to meet the requirements of paragraph 
     (1).

     SEC. 453. LIMITATIONS ON TOTAL EMISSIONS.

       (a) For affected EGUs in the Zone 1 States for 2008 and 
     each year thereafter, the Administrator shall allocate 
     nitrogen oxides allowances under section 454(a), and conduct 
     auctions of nitrogen oxides allowances under section 409, in 
     the amounts in Table A.

 TABLE A.--TOTAL NOX ALLOWANCE ALLOCATED OR AUCTIONED FOR EGUS IN ZONE 1
------------------------------------------------------------------------
                                                      NOX         NOX
                      Year                        allowances  allowances
                                                   allocated   auctioned
------------------------------------------------------------------------
2008............................................   1,546,380      15,620
2009............................................   1,530,760      31,240
2010............................................   1,515,140      46,860
2011............................................   1,499,520      62,480
2012............................................   1,483,900      78,100
2013............................................   1,468,280      93,720
2014............................................   1,452,660     109,340
2015............................................   1,437,040     124,960
2016............................................   1,421,420     140,580
2017............................................   1,405,800     156,200
2018............................................   1,034,180     127,820
2019............................................   1,022,560     139,440
2020............................................   1,010,940     151,060
2021............................................     999,320     162,680
2022............................................     987,700     174,300
2023............................................     976,080     185,920
2024............................................     964,460     197,540
2025............................................     952,840     209,160
2026............................................     941,220     220,780
2027............................................     929,600     232,400
2028............................................     900,550     261,450
2029............................................     871,500     290,500
2030............................................     842,450     319,550
2031............................................     813,400     348,600
2032............................................     784,350     377,650
2033............................................     755,300     406,700
2034............................................     726,250     435,750
2035............................................     697,200     464,800
2036............................................     668,150     493,850
2037............................................     639,100     522,900
2038............................................     610,050     551,950
2039............................................     581,000     581,000
2040............................................     551,950     610,050
2041............................................     522,900     639,100
2042............................................     493,850     668,150
2043............................................     464,800     697,200
2044............................................     435,750     726,250
2045............................................     406,700     755,300
2046............................................     377,650     784,350
2047............................................     348,600     813,400
2048............................................     319,550     842,450
2049............................................     290,500     871,500
2050............................................     261,450     300,550
2051............................................     232,400     929,550
2052............................................     203,350     958,650
2053............................................     174,300     987,700
2054............................................     145,250   1,016,750
2055............................................     116,200   1,045,800
2056............................................      87,150   1,074,850
2057............................................      58,100   1,103,900
2058............................................      29,050   1,132,950
2059............................................           0   1,162,000
------------------------------------------------------------------------

       (b) For affected EGUs in the Zone 2 States for 2008 and 
     each year thereafter, the Administrator shall allocate 
     nitrogen oxides allowances under section 454(b), and conduct 
     auctions of nitrogen oxides allowances under section 409, in 
     the amounts in Table B.

       TABLE B.--TOTAL NOX ALLOWANCES ALLOCATED FOR EGUS IN ZONE 2
------------------------------------------------------------------------
                                                       NOX        NOX
                       Year                         allowance  allowance
                                                    allocated  auctioned
------------------------------------------------------------------------
2008..............................................    532,620      5,380
2009..............................................    527,240     10,760
2010..............................................    521,860     16,140
2011..............................................    516,480     21,520
2012..............................................    511,100     26,900
2013..............................................    505,720     32,280
2014..............................................    500,340     37,660
2015..............................................    494,960     43,040
2016..............................................    489,580     48,420
2017..............................................    484,200     53,800
2018..............................................    478,820     59,180
2019..............................................    473,440     64,560
2020..............................................    468,060     69,940
2021..............................................    462,680     75,320
2022..............................................    457,300     80,700
2023..............................................    451,920     86,080
2024..............................................    446,540     91,460
2025..............................................    441,160     96,840
2026..............................................    435,780    102,220
2027..............................................    430,400    107,600
2028..............................................    416,950    121,050
2029..............................................    403,500    134,500
2030..............................................    390,050    147,950
2031..............................................    376,600    161,400
2032..............................................    363,150    174,850
2033..............................................    349,700    188,300
2034..............................................    336,250    201,750
2035..............................................    322,800    215,200
2036..............................................    309,350    228,650
2037..............................................    295,900    242,100
2038..............................................    282,450    255,550
2039..............................................    269,000    269,000
2040..............................................    255,550    282,450
2041..............................................    242,100    295,900
2042..............................................    228,650    309,350
2043..............................................    215,200    322,800
2044..............................................    201,750    336,250
2045..............................................    188,300    349,700
2046..............................................    174,850    363,150
2047..............................................    161,400    376,600
2048..............................................    147,950    390,050
2049..............................................    134,500    403,500
2050..............................................    121,050    416,950
2051..............................................    107,600    430,400
2052..............................................     94,150    443,850
2053..............................................     80,700    457,300
2054..............................................     67,250    470,750
2055..............................................     53,800    484,200
2056..............................................     40,350    497,650
2057..............................................     26,900    511,100
2058..............................................     13,450    524,550
2059..............................................          0    538,000
------------------------------------------------------------------------

     SEC. 454. EGU ALLOCATIONS.

       (a) EGU Allocations in the Zone 1 States.--(1) by January 
     1, 2006, the Administrator shall promulgate regulations 
     determining the allocation of nitrogen oxides allowances for 
     each year during 2008 through 2058 for units at a facility in 
     a Zone 1 State that are affected EGUs as of December 31, 
     2004. The regulations shall determine the allocation for such 
     units for each year by multiplying the allocation amount 
     under section 453(a) by the ratio of the total amount of 
     baseline heat input of such units at the facility to the 
     total amount of baseline heat input of all affected EGUs in 
     the Zone 1 States.
       (2)(A) For each year 2008 through 2058, if the 
     Administrator has not promulgated the regulations determining 
     allocation under paragraph (a)(1), but has promulgated the 
     regulations under section 403(b) providing for the transfer 
     of nitrogen oxides allowances and section 403(c) establishing 
     the Allowance Tracking system for nitrogen oxides allowances, 
     by July 1 that is eighteen months before January 1 of such 
     year, then--
       (i) The Administrator shall:
       (I) allocate, for such year, to each unit in the Zone 1 
     States listed in the Administrator's Emissions Scorecard 
     2000, Appendix B, Table B1 an amount of nitrogen oxides 
     allowances determined by multiplying eighty percent of the 
     allocation amount under section 453(a) by the ratio of such 
     unit's heat input in the Emissions Scorecard 2000, Appendix 
     B, Table B1 to the total of the heat input in the Emissions 
     Scorecard 2000, Appendix B, Table B1 for all units in the 
     Zone 1 States;
       (II) record in each facility's account in the Allowance 
     Tracking System under section 403(c) for such year the total 
     of the amounts of nitrogen oxides allowances for the units at 
     such facility determined under subclause (I); and
       (III) auction an amount of nitrogen oxides allowances equal 
     to five percent of the allocation amount under section 453(a) 
     and conduct the auction on the first business day in October 
     following the respective promulgation deadline under 
     subparagraph (A) and in accordance with section 409.
       (ii) Notwithstanding any other provision of law to the 
     contrary, the determination of the amount of nitrogen oxides 
     allowances under subclause (i)(I) and the recording of 
     nitrogen oxides allowances under subclause (i)(II) shall not 
     be subject to judicial review.
       (iii) Notwithstanding the provisions to the contrary in 
     section 453, the Administrator shall not allocate or record 
     fifteen percent of the allocation amount under section 453(a) 
     for such year.
       (B) For each year 2008 through 2058, if the Administrator 
     has not promulgated the regulations determining allocations 
     under paragraph (a)(1), and has not promulgated the 
     regulations under section 403(b) providing for the transfer 
     of nitrogen oxides allowances and section 403(c) establishing 
     the Allowance

[[Page 15203]]

     Tracking System for nitrogen oxides allowances, by July 1 
     that is eighteen months before January 1 of such year, then 
     it shall be unlawful for an affected EGU in the Zone 1 States 
     to emit nitrogen oxides during such year in excess of 0.14 
     lb/mmBtu.
       (b) EGU Allocations in the Zone 2 States.)(1)--By January 
     1, 2006, the Administrator shall promulgate regulations 
     determining the allocation of nitrogen oxides allowances for 
     each year during 2008 through 2058 for units at a facility in 
     a Zone 2 State that are affected EGUs as of December 31, 
     2004. The regulations shall determine the allocation for such 
     units for each year by multiplying the allocation amount 
     under section 453(b) by the ratio of the total amount of 
     baseline heat input of such units at the facility to the 
     total amount of baseline heat input of all affected EGUs in 
     the Zone 2 States,
       (2)(A) For each year 2008 through 2058, if the 
     Administrator has not promulgated the regulations determining 
     allocations under paragraph (b)(1), but has promulgated the 
     regulations under section 403(b) providing for the transfer 
     of nitrogen oxides allowances and section 403(c) establishing 
     the Allowance Tracking System for nitrogen oxides allowances, 
     by July 1 that is eighteen months before January 1 of such 
     years, then--
       (i) The Administrator shall:
       (I) allocate, for such year, to each unit in the Zone 2 
     States listed in the Administrator's Emissions Scorecard 
     2000, Appendix B, Table B1 an amount of nitrogen oxides 
     allowances determined by mutiplying eighty percent of the 
     allocation amount under section 453(b) by the ratio of such 
     unit's heat input in the Emissions Scorecard 2000, Appendix 
     B, Table B1 to the total of the heat input in the Emissions 
     Scorecard 2000, Appendix B, Table B1 for all units in the 
     Zone 2 States;
       (II) record in each facility's account in the Allowance 
     Tracking System under section 403(c) for such year the total 
     of the amounts of nitrogen oxides allowances for the units at 
     such facility determined under subclause (I); and
       (III) auction an amount of nitrogen oxides allowances equal 
     to five percent of the allocation amount under section 453(b) 
     and conduct the auction on the first business day in October 
     following the respective promulgation deadline under 
     subparagraph (A) and in accordance with section 409.
       (ii) Notwithstanding any other provision of law to the 
     contrary, the determination of the amount of nitrogen oxides 
     allowances under subclause (i)(I) and the recording of 
     nitrogen oxides allowances under subclause (i)(II) shall not 
     be subject to judicial review.
       (III) Notwithstanding the provisions to the contrary in 
     section 453, the Administrator shall not allocate or record 
     fifteen percent of the allocation amount under section 453(b) 
     for such year.
       (B) For each year 2008 through 2058, if the Administrator 
     has not promulgated the regulations determining allocations 
     under paragraph (b)(1), and has not promulgated the 
     regulations under section 403(b) providing for the transfer 
     of nitrogen oxides allowances and section 403(c) establishing 
     the Allowance Tracking System for nitrogen oxides allowances, 
     by July 1 that is eighteen months before January 1 of such 
     year, then it shall be unlawful for any affected EGU in the 
     Zone 2 States to emit nitrogen oxides during such year in 
     excess of 0.25 lb/mmBtu.

         Subpart 3. Ozone Season Nox Budget Program

     SEC. 461. DEFINITIONS.

       For purposes of this subpart--
       (1) The term ``ozone season'' means:
       (A) with regard to Connecticut, Delaware, the District of 
     Columbia, Maryland, Massachusetts, New Jersey, New York, 
     Pennsylvania, and Rhode Island, the period May 1 through 
     September 30 for each year starting in 2003; and
       (B) with regard to all other States, the period May 30, 
     2004 through September 30, 2004 and the period May 1 through 
     September 30 for each year thereafter.
       (2) The term ``State'' means Connecticut, Delaware, the 
     District of Columbia, Illinois, Indiana, Kennedy, Maryland, 
     Massachusetts, New Jersey, New York, North Carolina, Ohio, 
     Pennsylvania, Rhode Island, South Carolina, Tennessee, 
     Virginia, and West Virginia and the fine grid portions of 
     Alabama, Georgia, Michigan, and Missouri.
       (3) The term ``fine grid portions of Alabama, Georgia, 
     Michigan, and Missouri'' means the areas in Alabama, Georgia, 
     Michigan, and Missouri subject to 40 CFR Sec. 51.121 (2001), 
     as it would be amended in the notice of proposed rulemaking 
     at 67 Federal Register 8396 (February 22, 2002).

     SEC. 462. GENERAL PROVISIONS.

       The provisions of sections 402 through 406 and section 409 
     shall not apply to this subpart.

     SEC. 463. APPLICABLE IMPLEMENTATION PLAN.

       (a) Except as provided in subsection (b), the applicable 
     implementation plan for each State shall be consistent with 
     the requirements, including the State's nitrogen oxides 
     budget and compliance supplement pool, in 40 CFR 
     Sec. Sec. 51.121 and 51.122 (2001), as it would be amended in 
     the notice of proposed rulemaking at 67 Federal Register 8396 
     (February 22, 2002).
       (b) Notwithstanding any provision to the contrary in 40 CFR 
     Sec. 51.121 (2001), the applicable implementation plan for 
     each State shall require full implementation of the required 
     emission control measures starting no later than the first 
     ozone season.

     SEC. 464. TERMINATION OF FEDERAL ADMINISTRATION OF 
                   NOX TRADING PROGRAM.

       (a) Starting January 1, 2008, the Administrator shall not 
     administer any nitrogen oxides trading program in any State's 
     applicable implementation plan under section 463.
       (b) Nothing in subsection (a) shall preclude a State from 
     administering any nitrogen oxides trading program in the 
     State's applicable implementation plan under section 463.

     SEC. 465. CARRYFORWARD OF PRE-2008 NITROGEN OXIDES 
                   ALLOWANCES.

       The Administrator shall promulgate regulations as necessary 
     to assure that the requirement to hold allowances under 
     section 452(a)(1) may be met using nitrogen oxides allowances 
     allocated for an ozone season before 2008 under a nitrogen 
     oxides trading program that the Administrator administers in 
     a State's applicable implementation plan under section 463.

                  Part D--Mercury Emissions Reductions

     SEC. 471. DEFINITIONS.

       For purposes of this subpart--
       (1) The term ``adjusted baseline heat input'' with regard 
     to a unit means the unit's baseline heat input multiplied 
     by--
       (A) 1.0, for the portion of the baseline heat input that is 
     the unit's average annual combustion of bituminous during the 
     years on which the unit's baseline heat input is based;
       (B) 3.0, for the portion of the baseline heat input that is 
     the unit's average annual combustion of lignite during the 
     years on which the unit's baseline heat input is based;
       (C) 1.25, for the portion of the baseline heat input that 
     is the unit's average annual combustion of subbituminous 
     during the years on which the unit's baseline heat input is 
     based; and
       (D) 1.0, for the portion of the baseline heat input that is 
     not covered by subparagraph (A), (B), or (C) or for the 
     entire baseline heat input if such baseline heat input is not 
     based on the unit's heat input in specified years.
       (2) The term ``affected EGU'' means:
       (A) for a unit serving a generator before the date of 
     enactment of the Clear Skies Act of 2002, a coal-fired unit 
     in a State serving a generator with a nameplate capacity of 
     greater than 25 megawatts that produced or produces 
     electricity for sale during 2001 or any year thereafter, 
     except for a cogeneration unit that produced or produces 
     electricity for sale equal to less than one-third of the 
     potential electrical output of the generator that it served 
     or serves during 2001 and each year thereafter; and
       (B) for a unit commencing service of a generator on or 
     after the date of enactment of the Clear Skies Act of 2002, a 
     coal-fired unit in a State serving a generator that produces 
     electricity for sale during any year starting with the year 
     the unit commences service of a generator, except for a 
     cogeneration unit that produces electricity for sale equal to 
     less than one-third of the potential electrical output of the 
     generator that it serves, during each year starting with the 
     year the unit commences service of a generator.
       (C) Notwithstanding paragraphs (A) and (B), the term 
     ``affected EGU'' does not include a solid waste incineration 
     unit subject to section 129 or a unit for the treatment, 
     storage, or disposal of hazardous waste subject to section 
     3005 of the Solid Waste Disposal Act.

     SEC. 472. APPLICABILITY.

       Starting January 1, 2010, it shall be unlawful for the 
     affected EGUs at a facility in a State to emit a total amount 
     of mercury during the year in excess of the number of mercury 
     allowances held for such facility for that year by the owner 
     or operator of the facility.

     SEC. 473. LIMITATIONS ON TOTAL EMISSIONS.

       For affected EGUs for 2010 and each year thereafter, the 
     Administrator shall allocate mercury allowances under section 
     474, and conduct auctions of mercury allowances under section 
     409, in the amounts in Table A.

   TABLE A.--TOTAL MERCURY ALLOWANCES ALLOCATED OR AUCTIONED FOR EGUS
------------------------------------------------------------------------
                                                    Mercury     Mercury
                      Year                        allowances  allowances
                                                   allocated   auctioned
------------------------------------------------------------------------
2010............................................     823,680       8,320
2011............................................     815,360      16,640
2012............................................     807,040      24,960
2013............................................     798,720      33,280
2014............................................     790,400      41,600
2015............................................     782,080      49,920
2016............................................     773,760      58,240
2017............................................     765,440      66,560
2018............................................     436,800      43,200
2019............................................     432,000      48,000
2020............................................     427,200      52,800
2021............................................     422,400      57,600
2022............................................     417,600      62,400
2023............................................     412,800      67,200
2024............................................     408,000      72,000
2025............................................     403,200      76,800
2026............................................     398,400      81,600
2027............................................     393,600      86,400
2028............................................     388,800      91,200
2029............................................     384,000      96,000
2030............................................     372,000     108,000
2031............................................     360,000     120,000
2032............................................     348,000     132,000
2033............................................     336,000     144,000
2034............................................     324,000     156,000
2035............................................     312,000     168,000
2036............................................     300,000     180,000
2037............................................     288,000     192,000
2038............................................     276,000     204,000
2039............................................     264,000     216,000

[[Page 15204]]

 
2040............................................     252,000     228,000
2041............................................     240,000     240,000
2042............................................     228,000     252,000
2043............................................     216,000     264,000
2044............................................     204,000     276,000
2045............................................     192,000     288,000
2046............................................     180,000     300,000
2047............................................     168,000     312,000
2048............................................     156,000     324,000
2049............................................     144,000     336,000
2050............................................     132,000     348,000
2051............................................     120,000     360,000
2052............................................     108,000     372,000
2053............................................      96,000     384,000
2054............................................      84,000     396,000
2055............................................      72,000     408,000
2056............................................      60,000     420,000
2057............................................      48,000     432,000
2058............................................      36,000     444,000
2059............................................      24,000     456,000
2060............................................      12,000     468,000
2061............................................           0     480,000
------------------------------------------------------------------------

     SEC. 474. EGU ALLOCATIONS.

       (a) By January 1, 2007, the Administrator shall promulgate 
     regulations determining allocations of mercury allowances for 
     each year during 2010 through 2060 for units at a facility 
     that are affected EGUs as of December 31, 2004. The 
     regulations shall provide that the Administrator shall 
     allocate each year for such units an amount determined by 
     multiplying the allocation amount in section 473 by the ratio 
     of the total amount of the adjusted baseline heat input of 
     such units at the facility to the total amount of adjusted 
     baseline heat input of all affected EGUs.
       (b)(1) For each year 2010 through 2060, if the 
     Administrator has not promulgated the regulations determining 
     allocations under paragraph (a), but has promulgated the 
     regulations under section 403(b) providing for the transfer 
     of mercury allowances and section 403(c) establishing the 
     Allowance Tracking System for mercury allowances, by July 1 
     that is eighteen months before January 1 of such year, then--
       (A) The Administrator shall
       (i) allocate, for such year, to each unit with coal as its 
     primary or secondary fuel listed in the Administrator's 
     Emissions Scorecard 2000, Appendix B, Table B1 an amount of 
     mercury allowances determined by multiplying eighty percent 
     of the allocation amount under section 473 by the ratio of 
     such unit's heat input in the Emissions Scorecard 2000, 
     Appendix B, Table B1 to the total of the heat input in the 
     Emissions Scorecard 2000, Appendix B, Table B1 for all units 
     with coal as their primary or secondary fuel;
       (ii) record in each facility's account in the Allowance 
     Tracking System under section 403(c) for such year the total 
     of the amounts of mercury allowances for the units at such 
     facility determined under clause (i); and
       (iii) auction an amount of mercury allowances equal to five 
     percent of the allocation amount under section 473 and 
     conduct the auction on the first business day in October 
     following the respective promulgation deadline under 
     paragraph (1) and in accordance with section 409.
       (B) Notwithstanding any other provision of law to the 
     contrary, the determination of the amount of mercury 
     allowances under subparagraph (1)(A) and the recording of 
     mercury allowances under subparagraph (1)(B) shall not be 
     subject to judicial review.
       (C) Notwithstanding the provisions to the contrary in 
     section 473, the Administrator shall not allocate or record 
     fifteen percent of the allocation amount under section 473 
     for such year.
       (2) For each year 2010 through 2060, if the Administrator 
     has not promulgated the regulations determining allocations 
     under paragraph (a), and has not promulgated the regulations 
     under section 403(b) providing for the transfer of mercury 
     allowances and section 403(c) establishing the Allowance 
     Tracking System for mercury allowances, by July 1 that is 
     eighteen months before January 1 of such year, then it shall 
     be unlawful for any affected EGU to emit mercury during such 
     year in excess of 30 percent of the mercury content (in 
     ounces per mmBtu) of the coal and coal-derived fuel combusted 
     by the unit.

     Part E--National Emission Standards; Research; Environmental 
Accountability; Major Source Preconstruction Review and Best Available 
                Retrofit Control Technology Requirements

     SECTION 481. NATIONAL EMISSION STANDARDS FOR AFFECTED UNITS.

       (a) Definitions.--For purposes of this section:
       (1) The term ``commenced,'' with regard to construction, 
     means that an owner or operator has either undertaken a 
     continuous program of construction or has entered into a 
     contractual obligation to undertake and complete, within a 
     reasonable time, a continuous program of construction. For 
     boilers and integrated gasification combined cycle plants, 
     this term does not include undertaking such a program or 
     entering into such an obligation more than 36 months prior to 
     the date on which the unit begins operation. For combustion 
     turbines, this term does not include undertaking such a 
     program or entering into such an obligation more than 18 
     months prior to the date on which the unit begins operation.
       (2) The term ``construction'' means fabrication, erection, 
     or installation of an affected unit.
       (3) The term ``affected unit'' means any unit that is 
     subject to emission limitations under subpart 2 of part B, 
     subpart 2 of part C, or part D.
       (4) The term ``existing affected unit'' means any affected 
     unit that is not a new affected unit.
       (5) The term ``new affected unit'' means any affected unit, 
     the construction or reconstruction of which is commenced 
     after the date of enactment of the Clear Skies Act of 2002, 
     except that for the purpose of any revision of a standard 
     pursuant to subsection (e), ``new affected unit'' means any 
     affected unit, the construction or reconstruction of which is 
     commenced after the public of regulations (or, if earlier, 
     proposed regulations) prescribing a standard under this 
     section that will apply to such unit.
       (6) The term ``reconstruction'' means the replacement of 
     components of a unit to such an extent that:
       (A) the fixed capital cost of the new components exceeds 50 
     percent of the fixed capital cost that would be required to 
     construct a comparable entirely new unit; and
       (B) it is technologically and economically feasible to meet 
     the applicable standards set forth in this section.
       (7) The term ``simply cycle combustion turbine'' means a 
     stationary combustion turbine that does not extract heat from 
     the combustion turbine exhaust gases.
       (b) Emission Standards.--
       (1) In General.--No later than twelve months after the date 
     of enactment of the Clear Skies Act of 2002, the 
     Administrator shall promulgate regulations prescribing the 
     standards in subsections (c) through (d) for the specified 
     affected units and establishing requirements to ensure 
     compliance with these standards, including monitoring, 
     recordkeeping, and reporting requirements.
       (2) Monitoring.--
       (A) The owner or operator of any affected unit subject to 
     the standards for sulfur dioxide, nitrogen oxides, or mercury 
     under this section shall meet the requirements of section 
     405, except that, where two or more units utilize a single 
     stack, separate monitoring shall be required for each 
     affected unit for the pollutants for which the unit is 
     subject to such standards.
       (B) The Administrator shall, by regulation, require--
       (1) the owner or operator of any affected unit subject to 
     the standards for sulfur dioxide, nitrogen oxides, or mercury 
     under this section to--
       (i) install and operate CEMS for monitoring output, 
     including electricity and useful thermal energy, on the 
     affected unit and to quality assure the data; and
       (ii) comply with recordkeeping and reporting requirements, 
     including provisions for reporting output data in megawatt 
     hours.
       (2) the owner or operator of any affected unit subject to 
     the standards for particulate matter under this section to--
       (i) install and operate CEMS for monitoring particulate 
     matter on the affected unit and to quality assure the data;
       (ii) comply with recordkeeping and reporting requirements; 
     and
       (iii) comply with alternative monitoring, quality 
     assurance, recordkeeping, and reporting requirements for any 
     period of time for which the Administrator determines that 
     CEMS with appropriate vendor guarantees are not commercially 
     available for particulate matter.
       (3) Compliance.--For boilers, integrated gasification 
     combined cycle plants, and combustion turbines that are gas-
     fired or coal fired, the Administrator shall require that the 
     owner or operator demonstrate compliance with the standards 
     daily, using a 30-day rolling average, except that in the 
     case of mercury, the compliance period shall be the calendar 
     year. For combustion turbines that are not gas-fired or coal-
     fired, the Administrator shall require that the owner or 
     operator demonstrate compliance with the standards hourly, 
     using a 4-hour rolling average.
       (c) Boilers and Integrated Gasification Combined Cycle 
     Plants.--(1) After the effective date of standards 
     promulgated under subsection (b), no owner or operator shall 
     cause any boiler or integrated gasification combined cycle 
     plant that is a new affected unit to discharge into the 
     atmosphere any gases which contain:
       (A) sulfur dioxide in excess of 2.0 lb/MWh;
       (B) nitrogen oxides in excess of 1.0 lb/MWh;
       (C) particulate matter in excess of 0.20 lb/MWh; or
       (D) if the unit is coal-fired, mercury in excess of 0.015 
     lb/GWh, unless:
       (i) mercury emissions from the unit are reduced by 80%
       (ii) flue gas desulfurization (FGD) and selective catalytic 
     reduction (SCR) are applied to the unit and are operated so 
     as to optimize capture of mercury; or
       (iii) a technology is applied to the unit and operated so 
     as to optimize capture of mercury, and the permitting 
     authority determines that the technology is equivalent in 
     terms of mercury capture to the application of FGD and SCR.
       (2) Notwithstanding subparagraph (1)(D), integrated 
     gasification combined cycle plants with a combined capacity 
     of less than 5 GW are exempt from the mercury requirement 
     under subparagraph (1)(D) if they are

[[Page 15205]]

     constructed as part of a demonstration project under the 
     Secretary of Energy that will include a demonstration of 
     removal of significant amounts of mercury as determined by 
     the Secretary of Energy in conjunction with the Administrator 
     as part of the solicitation process.
       (3) After the effective date of standards promulgated under 
     subsection (b), no owner or operator shall cause any oil-
     fired boiler that is an existing affected unit to discharge 
     into the atmosphere any gases which contain particulate 
     matter in excess of 0.30 lb/MWh.
       (d) Combustion Turbines.--(1) After the effective date of 
     standards promulgated under subsection (b), no owner or 
     operator shall cause any gas-fired combustion turbine that is 
     a new affected unit to discharge into the atmosphere any 
     gases which contain nitrogen oxides in excess of:
       (A) 0.56 lb/MWh (15 ppm at 15 percent oxygen), if the unit 
     is a simple cycle combustion turbine;
       (B) 0.084 lb/MWh (3.5 ppm at 15 percent oxygen), if the 
     unit is not a simple cycle combustion turbine and either uses 
     add-on controls or is located within 50 km of a class I area;
       (C) 0.21 lb/MWh (9 ppm at 15 percent oxygen), if the unit 
     is not a simple cycle turbine and neither uses add-on 
     controls nor is located within 50 km of a class I area.
       (2) After the effective date of standards promulgated under 
     subsection (b), no owner or operator shall cause any coal-
     fired combustion turbine that is a new affected unit to 
     discharge into the atmosphere any gases which contain sulfur 
     dioxide, nitrogen oxides, particulate matter, or mercury in 
     excess of the emission limits under subparagraphs (c)(1)(A) 
     through (D).
       (3) After the effective date of standards promulgated under 
     subsection (b), no owner or operator shall cause any 
     combustion turbine that is not gas-fired or coal-fired and 
     that is a new affected unit to discharge into the atmosphere 
     any gases which contain:
       (A) sulfur dioxide in excess of 2.0lb/MWh;
       (B) nitrogen oxides in excess of--
       (i) 0.289 lb/MWh (12 ppm at 15 percent oxygen), if the unit 
     is not a simple cycle combustion turbine, is dual-fuel 
     capable, and uses add-on controls; or is not a simple cycle 
     combustion turbine and is located within 50 km of a class I 
     area;
       (ii) 1.01 lb/MWh (42 ppm at 15 percent oxygen), if the unit 
     is a simple cycle combustion turbine; is not a simple cycle 
     combustion turbine and is not dual-fuel capable; or is not a 
     simple cycle combustion turbine, is dual-fuel capable, and 
     does not use add-on controls.
       (C) particulate matter in excess of 0.20 lb/MWh.
       (e) Periodic Review and Revision.--(1) The Administrator 
     shall, at least every 8 years following the promulgation of 
     standards under subsection (b), review and, if appropriate, 
     revise such standards to reflect the degree of emission 
     limitation achievable through the application of the best 
     system of emission reduction which (taking into account the 
     cost of achieving such reduction and any nonair quality 
     health and environmental impacts and energy requirements) the 
     Administrator determines has been adequately demonstrated. 
     When implementation and enforcement of any requirement of 
     this Act indicate that emission limitations and percent 
     reductions beyond those required by the standards promulgated 
     under this section are achieved in practice, the 
     Administrator shall, when revising standards promulgated 
     under this section, consider the emission limitations and 
     percent reductions achieved in practice.
       (2) Notwithstanding the requirements of paragraph (1) the 
     Administrator need not review any standard promulgated under 
     subsection (b) if the Administrator determines that such 
     review is not appropriate in light of readily available 
     information on the efficacy of such standard.
       (f) Effective Date.--Standard promulgated pursuant to this 
     section shall become effective upon promulgation.
       (g) Delegation.--(1) Each State may develop and submit to 
     the Administration a procedure for implementing and enforcing 
     standards promulgated under this section for affected units 
     located in such State. If the Administrator finds the State 
     procedure is adequate, the Administrator shall delegate to 
     such State any authority the Administrator has under this Act 
     to implement and enforce such standards.
       (2) Nothing in this subsection shall prohibit the 
     Administrator from enforcing any applicable standard under 
     this section.
       (h) Violations.--After the effective date of standards 
     promulgated under this section, it shall be unlawful for any 
     owner or operator of any affected unit to operate such unit 
     in violation of any standard applicable to such unit.
       (i) Coordination With Other Authorities.--For purposes of 
     sections 111(e), 113, 114, 116, 120, 303, 304, 307 and other 
     provisions for the enforcement of this Act, each standard 
     established pursuant to this section shall be treated in the 
     same manner as a standard of performance under section 111, 
     and each affected unit subject to standards under this 
     section shall be treated in the same manner as a stationary 
     source under section 111.
       (j) State Authority.--Nothing in this section shall 
     preclude or deny the right of any State or political 
     subdivision thereof to adopt or enforce any regulations, 
     requirement, limitation, or standard relating to affected 
     units that is more stringent than a regulation, requirement, 
     limitation or standard in effect under this section or under 
     any other provision of this Act.
       (k) Other Authority Under This Act.--Nothing in this 
     section shall diminish the authority of the Administrator or 
     a State to establish any other requirements applicable to 
     affected units under any other authority of law, including 
     the authority to establish for any air pollutant a national 
     ambient air quality standard, except that no new affected 
     unit subject to standards under this section shall be subject 
     to standards under section 111 of this Act.

     SECTION 482. RESEARCH, ENVIRONMENTAL MONITORING, AND 
                   ASSESSMENT.

       (a) Purposes.--The Administrator, in collaboration with the 
     Secretary of Energy and the Secretary of the Interior, shall 
     conduct a comprehensive program of research and environmental 
     monitoring and assessment to enhance scientific understanding 
     of the human health and environmental effects of particulate 
     matter and mercury and to demonstrate the efficacy of 
     emission reductions under this title. The purposes of such a 
     program are to:
       (1) expand current research and knowledge of the 
     contribution of emissions from electricity generation to 
     exposure and health effects associated with particulate 
     matter and mercury;
       (2) enhance current research and development of promising 
     multi-pollutant control strategies and CEMS for mercury;
       (3) produce peer-reviewed scientific and technology 
     information to inform the review of emissions levels under 
     section 410;
       (4) improve environmental monitoring and assessment of 
     sulfur dioxide, nitrogen oxides and mercury, and their 
     transformation products, to track changes in human health and 
     the environment attributable to emission reductions under 
     this title; and
       (5) periodically provide peer-reviewed reports on the 
     costs, benefits, and effectiveness of emission reductions 
     achieved under this title.
       (b) Research.--The Administrator shall enhance planned and 
     ongoing laboratory and field research and modeling analyses, 
     and conduct new research and analyses to produce peer-
     reviewed information concerning the human health and 
     environmental effects of mercury and particulate matter and 
     the contribution of U.S. electrical generating units to those 
     effects. Such information shall be included in the report 
     under subsection (d). In addition, such research and analyses 
     shall:
       (1) improve understanding of the rates and processes 
     governing chemical and physical transformations of mercury in 
     the atmosphere, including speciation of emissions from 
     electricity generation and the transport of these species;
       (2) improve understanding of the contribution of mercury 
     emissions from electricity generation to mercury in fish and 
     other biota, including:
       (A) the response of and contribution to mercury in the 
     biota owing to atmospheric deposition of mercury from U.S. 
     electricity generation on both local and regional scales;
       (B) long-term contributions of mercury from U.S. 
     electricity generation on mercury accumulations in 
     ecosystems, and the effects of mercury reductions in that 
     sector on the environment and public health;
       (C) the role and contribution of mercury, from U.S. 
     electricity generating facilities and anthropogenic and 
     natural sources to fish contamination and to human exposure, 
     particularly with respect to sensitive populations; and
       (D) the contribution of U.S. electricity generation to 
     population exposure to mercury in freshwater fish and seafood 
     and quantification of linkages between U.S. mercury emissions 
     and domestic mercury exposure and its health effects; and
       (E) the contribution of mercury from U.S. electricity 
     generation in the context of other domestic and international 
     sources of mercury, including transport of global 
     anthropogenic and natural background levels.
       (3) improve understanding of the health effects of fine 
     particulate matter components related to electricity 
     generation emissions (as distinct from other fine particle 
     fractions and indoor air exposures) and the contribution of 
     U.S. electrical generating units to those effects including:
       (A) the chronic effects of fine particulate matter from 
     electricity generation in sensitive population groups; and
       (B) personal exposure to fine particulate matter from 
     electricity generation.
       (4) improve understanding, by way of a review of the 
     literature, of methods for valuing human health and 
     environmental benefits associated with fine particulate 
     matter and mercury.
       (c) Innovative Control Technologies.--The Administrator 
     shall collaborate with the Secretary of Energy to enhance 
     research and development, and conduct new research that 
     facilitates research into and development of innovative 
     technologies to control sulfur dioxide, nitrogen oxides, 
     mercury, and particulate matter at a lower cost than existing 
     technologies. Such research and development shall provide 
     updated information on

[[Page 15206]]

     the cost and feasibility of technologies. Such information 
     shall be included in the report under subsection (d). In 
     addition, the research and development shall:
       (1) upgrade cost and performance models to include results 
     from ongoing and future electricity generation and pollution 
     control demonstrations by the Administrator and the Secretary 
     of Energy;
       (2) evaluate the overall environmental implications of the 
     various technologies tested including the impact on the 
     characteristics of coal combustion residues;
       (3) evaluate the impact of the use of selective catalytic 
     reduction on mercury emissions from the combustion of all 
     coal types;
       (4) evaluate the potential of integrated gasification 
     combined cycle to adequately control mercury;
       (5) expand current programs by the Administrator to conduct 
     research and promote, lower cost CEMS capable of providing 
     real-time measurements of both speciated and total mercury 
     and integrated compact CEMS that provide cost-effective real-
     time measurements of sulfur dioxide, nitrogen oxides, and 
     mercury;
       (6) expand lab- and pilot-scale mercury and multi-pollutant 
     control programs by the Secretary of Energy and the 
     Administrator, including development of enhanced sorbents and 
     srubbers for use on all coal types;
       (7) characterize mercury emissions from low-rank coals, for 
     a range of traditional control technologies, like scrubbers 
     and selective catalytic reduction; and
       (8) improve low cost combustion modifications and controls 
     for dry-bottom boilers.
       (d) Emissions Levels Evaluation Report.--Not later than 
     January 1, 2008, the Administrator, in consultation with the 
     Secretary of Energy, shall prepare a peer reviewed report to 
     inform review of the emissions levels under section 410. The 
     report shall be based on the best available peer-reviewed 
     scientific and technology information. It shall address cost, 
     feasibility, human health and ecological effects, and net 
     benefits associated with emissions levels under this title.
       (e) Environmental Accountability.--(1) The Administrator 
     shall conduct a program of environmental monitoring and 
     assessment to track on a continuing basis, changes in human 
     health and the environment attributable to the emission 
     reductions required under this title. Such a program shall:
       (A) develop and employ methods to routinely monitor, 
     collect, and compile data on the status and trends of mercury 
     and its transformation products in emissions from affected 
     facilities, atmospheric deposition, surface water quality, 
     and biological systems. Emphasis shall be placed on those 
     methods that--
       (i) improve the ability to routinely measure mercury in dry 
     deposition processes;
       (ii) improve understanding of the spatial and temporal 
     distribution of mercury deposition in order to determine 
     source-receptor relationships and patterns of long-range, 
     regional, and local deposition;
       (iii) improve understanding of aggregate exposures and 
     additive effects of methylmercury and other pollutants; and
       (iv) improve understanding of the effectiveness and cost of 
     mercury emissions controls.
       (B) modernize and enhance the national air quality and 
     atmospheric deposition monitoring networks in order to cost-
     effectively expand and integrate, where appropriate, 
     monitoring capabilities for sulfur, nitrogen, and mercury to 
     meet the assessment and reporting requirements of this 
     section.
       (C) perform and enhance long-term monitoring of sulfur, 
     nitrogen, and mercury, and parameters related to 
     acidification, nutrient enrichment, and mercury 
     bioaccumulation in freshwater and marine biota.
       (D) maintain and upgrade models that describe the 
     interactions of emissions with the atmosphere and resulting 
     air quality implications and models that describe the 
     response of ecosystems to atmospheric deposition.
       (E) assess indicators of ecosystems health related to 
     sulfur, nitrogen, and mercury, including characterization of 
     the causes and effects of episodic exposure to air pollutants 
     and evaluation of recovery.
       (2) Reporting Requirements.--Not later than twenty-four 
     months after the date of enactment of the Clear Skies Act of 
     2002, and not later than every four years thereafter, the 
     Administrator shall provide a peer reviewed report to the 
     Congress on the costs, benefits, and effectiveness of 
     emission reduction programs under this title. The report 
     shall address the relative contribution of emission 
     reductions from U.S. electricity generation under this title 
     compared to the emission reductions achieved under other 
     titles of the Clean Air Act with respect to:
       (A) actual and projected emissions of sulfur dioxide, 
     nitrogen oxides, and mercury;
       (B) average ambient concentrations of sulfur dioxide and 
     nitrogen oxides transformation products, related air quality 
     parameters, and indicators of reductions in human exposure;
       (C) status and trends in total atmospheric deposition of 
     sulfur, nitrogen, and mercury, including regional estimates 
     of total atmospheric deposition;
       (D) status and trends in visibility;
       (E) status of terrestrial and aquatic ecosystems (including 
     forests and forested watersheds, streams, lakes, rivers, 
     estuaries, and near-coastal waters);
       (F) status of mercury and its transformation products in 
     fish;
       (G) causes and effects of atmospheric deposition, including 
     changes in surface water quality, forest and soil conditions;
       (H) occurrence and effects of coastal eutrophication and 
     episodic acidification, particularly with respect to high 
     elevation watersheds; and
       (I) reduction in atmospheric deposition rates that should 
     be achieved to prevent or reduce adverse ecological effects.

      SEC. 483. EXEMPTION FROM MAJOR SOURCE RECONSTRUCTION REVIEW 
                   REQUIREMENTS AND BEST AVAILABLE RETROFIT 
                   CONTROL TECHNOLOGY REQUIREMENTS.

       (a) Major Source Exemption.--An affected unit may not be 
     considered a major emitting facility or major stationary 
     source, or a part of a major emitting facility or major 
     stationary source for purposes of compliance with the 
     requirements of part C and part D of title I. This exemption 
     only applies to units that are either subject to the 
     performance standards of section 481 or meet the following 
     requirements within three years after the date of enactment 
     of the Clear Skies Act of 2002:
       (1) The owner or operator of the affected unit properly 
     operates, maintains and repairs pollution control equipment 
     to limit emissions of particulate matter, or the owner or 
     operator of the affected unit is subject to an enforceable 
     permit issued pursuant to title V or a permit program 
     approved or promulgated as part of an applicable 
     implementation plan to limit the emissions of particular 
     matter from the affected unit to 0.03 lb/mmBtu within eight 
     years after the date of enactment of the Clear Skies Act of 
     2002, and
       (2) The owner or operator of the affected unit uses good 
     combustion practices to minimize emissions of carbon 
     monoxide.
       (b) Class I Area Protections.--Notwithstanding the 
     exemption in subsection (a), an affected unit located within 
     50 km of a Class I area on which construction commences after 
     the date of enactment of the Clear Skies Act of 2002 is 
     subject to those provisions under part C of title I 
     pertaining to the review of a new or modified major 
     stationary source's impact on a Class I area.
       (c) Preconstruction Requirements.--Each State shall include 
     in its plan under section 110, a program to provide for the 
     regulation of the construction of an affected unit that 
     ensures that the following requirements are met prior to the 
     commencement of construction of an affected unit:
       (1) in an area designated as attainment or unclassifiable 
     under section 107(d), the owner or operator of the affected 
     unit must demonstrate to the State that the emissions 
     increase from the construction or operation of such unit will 
     not cause, or contribute to, air pollution in excess of any 
     national ambient air quality standard.
       (2) in an area designated as nonattainment under section 
     107(d), the State must determine that the emissions increase 
     from the construction or operation of such unit will not 
     interfere with any program to assure that the national 
     ambient air quality standards are achieved.
       (3) for a modified unit, the unit must comply prior to 
     beginning operation with either the performance standards of 
     section 481 or best available control technology as defined 
     in part C of title I for the pollutants whose hourly 
     emissions will increase at the unit's maximum capacity.
       (4) the State must provide for an opportunity for 
     interested persons to comment on the Class I area protections 
     and preconstruction requirements as set forth in this 
     section.
       (d) Definitions.--For purposes of this section:
       (1) The term ``affected unit'' means any unit that is 
     subject to emission limitations under subpart 2 of part B, 
     subpart 2 of part C, or part D.
       (2) The term ``construction'' includes the construction of 
     a new affected unit and the modification of any affected 
     unit.
       (3) The term ``modification'' means any physical change in, 
     or change in the method of operation of, an affected unit 
     which increases the hourly emissions of any air pollutant at 
     the unit's maximum capacity.''.

     SEC. 3. OTHER AMENDMENTS.

       (a) Title I of the Clean Air Act is amended by--
       (1) removing from section 103 subparagraphs (j)(3)(E) and 
     (j)(3)(F); and
       (2) modifying section 107 by amending:
       (A) subparagraph (D)(1)(A) by
       (i) deleting the ``or'' at the end of clause (ii);
       (ii) replacing the period with ``, or'' at the end of 
     clause (iii);
       (iii) adding clause (iv) to read as follows:
       ``(iv) notwithstanding clauses (i)--(iii), an area may be 
     designated transitional for the fine particles national 
     primary ambient air quality standard or the 8-hour ozone 
     national primary ambient air quality standard if the 
     Administrator has performed air quality modeling and, in the 
     case of an area that needs additional local control measures, 
     the State has performed supplemental air quality modeling, 
     demonstrating that the area

[[Page 15207]]

     will attain that standard no later than December 31, 2015, 
     and such modeling demonstration and all necessary local 
     controls have been approved into the state implementation 
     plan no later than December 31, 2004.''; and
       (iv) adding to the flush language at the end a sentence to 
     read as follows:
       ``. . . However, for purposes of the fine particles 
     national primary ambient air quality standard and the 8-hour 
     ozone national primary ambient air quality standard, the time 
     period for the State to submit the designations shall be 
     extended to no later than November 30, 2003.''
       (B) clause (d)(1)(B)(i) by adding at the end a sentence to 
     read as follows:
       ``. . . Provided, however, that the Administrator shall not 
     be required to designate areas for the revised fine particles 
     national primary ambient air quality standard and 8-hour 
     ozone fine particles national primary ambient air quality 
     standard prior to 6-months after the States are required to 
     submit recommendations under section 107(d)(1)(A), but in no 
     event shall the period for designating such areas be extended 
     beyond November 30, 2004.''
       (3) modifying section 110 by:
       (A) amending clause (a)(2)(D)(i) to read as follows:
       ``(D) contain adequate provisions--
       (i)(I) except as provided in subclause (II), prohibiting, 
     consistent with the provisions of this title, any source or 
     other type of emissions activity within the State from 
     emitting any air pollutant in amounts which will--
       (A) contribute significantly to nonattainment in, or 
     interfere with maintenance by, any other State with respect 
     to any such national primary or secondary ambient air quality 
     standard, or
       (B) interfere with measures required to be included in the 
     applicable implementation plan for any other State under part 
     C to prevent significant deterioration of air quality or to 
     protect visibility,
       (II) The Administrator, in reviewing, under subclause (I), 
     any plan with respect to which emissions from affected units, 
     within the meaning of section 126(d)(1), are substantial--
       (A) shall consider, among other relevant factors, emissions 
     reductions required to occur by the attainment date or dates 
     of any relevant non-attainment areas in the other State or 
     States; and
       (B) may not require submission of plan provisions--
       (i) subjecting affected units, within the meaning of 
     section 126(d)(1), to requirements with an effective date 
     prior to January 1, 2012; or
       (ii) mandating an amount of emissions reductions based on 
     the Administrator's determination that emissions reductions 
     are available from such affected units, unless the 
     Administrator determines that emissions from such units may 
     be reduced at least as cost-effectively as emissions from 
     each other principal category of sources of sulfur dioxide or 
     nitrogen oxides, including industrial boilers, on-road mobile 
     sources, and off-road mobile sources, and any other category 
     of sources that the Administrator may identify, and that 
     reductions in such emissions will improve air quality in the 
     petitioning State's nonattainment area(s) at least as cost-
     effectively as reductions in emissions from each other 
     principal category of sources of sulfur dioxide or nitrogen 
     oxides, to the maximum extent that a methodology is 
     reasonably available to make such a determination. The 
     Administrator shall develop an appropriate peer reviewed 
     methodology for making such determinations by December 31, 
     2006. In making this determination, the Administrator will 
     use the best available peer reviewed models and methodology 
     that consider the proximity of the source or sources to the 
     petitioning State or political subdivision and incorporate 
     other source characteristics.
       (III) Nothing in subclause (II) shall be interpreted to 
     require revisions to the provisions of 40 CFR 51.121 and 
     51.122 (2001), as would be amended in the notice of proposed 
     rulemaking at 67 Federal Register 8396 (February 22, 2002).''
       (B) adding a new subsection (q) to read as follows:
       ``(q) Transitional Areas.--
       (1) Maintenance.--
       (A) By December 31, 2010, each area designated as 
     transitional pursuant to section 107(d)(1) shall submit an 
     updated emission inventory and an analysis of whether growth 
     in emissions, including growth in vehicle miles traveled, 
     will interfere with attainment by December 31, 2015.
       (B) No later than December 31, 2011, the Administrator 
     shall review each transitional area's maintenance analysis, 
     and, if the Administrator determines that growth in emissions 
     will interfere with attainment by December 31, 2015, the 
     Administrator will consult with the State and determine what 
     action, if any, is necessary to assure that attainment will 
     be achieved by 2015.
       (2) Prevention of significant deterioration. Each area 
     designated as transitional pursuant to section 107(d)(1) 
     shall be treated as an attainment or unclassifiable area for 
     purposes of the prevention of significant deterioration 
     provisions of part C of this subchapter.
       (3) Consequences of failure to attain by 2015. No later 
     than June 30, 2016, EPA shall determine whether each area 
     designated as transitional for the 8-hour ozone standard or 
     for the fine particles standard has attained that standard. 
     If EPA determines that a transitional area has not attained 
     the standard, the area shall be redesignated as nonattainment 
     within 1 year of the determination and the State shall be 
     required to submit a state implementation plan revision 
     satisfying the provisions of section 172 within 3 years of 
     redesignation as nonattainment.
       (4) adding to section 111 a new subparagraph (b)(1)(C) to 
     read as follows:
       ``(C) No standards of performance promulgated under this 
     section shall apply to units subject to regulations 
     promulgated pursuant to section 481.''.
       (5) modifying section 112 by amending:
       (A) paragraph (c)(1) to read as follows:
       ``(c) List of Source Categories.--
       (1) In General.--Not later than 12 months after November 
     15, 1990, the Administrator shall publish, and shall from 
     time to time, but not less often than every 8 years, revise, 
     if appropriate, in response to public comment or new 
     information, a list of all categories and subcategories of 
     major sources and area sources (listed under paragraph (3)) 
     of the air pollutants listed pursuant to subsection (b). 
     Provided, however, that electric utility steam generating 
     units not subject to Resource Conservation and Recovery Act 
     section 3005 shall not be included in any category or 
     subcategory listed under this subsection. The Administrator 
     shall have the authority to regulate the emission of 
     hazardous air pollutants listed under section 112(b), other 
     than mercury compounds, by electric utility steam generating 
     units in accordance with the regime set forth in section 
     112(f)(2) through (4). The section 112(f)(2) determination 
     shall be based on actual emissions by electric utility steam 
     generating units in 2010. Any such regulations shall be 
     promulgated within 8 years of 2010. To the extent 
     practicable, the categories and subcategories listed under 
     this subsection shall be consistent with the list of source 
     categories established pursuant to section 111 and part C. 
     Nothing in the preceding sentence limits the Administrator's 
     authority to establish subcategories under this section, as 
     appropriate.''
       (B) subparagraph (n)(1)(A) to read as follows:
       ``(n) Other Provisions.--
       (1) Electric Utility Steam Generating Units.--
       (A) The Administrator shall perform a study of the hazards 
     to public health reasonably anticipated to occur as a result 
     of emissions by electric utility steam generating units of 
     pollutants listed under subsection (b) after imposition of 
     the requirements of this Act. The Administrator shall report 
     the results of this study to the Congress within 3 years 
     after November 15, 1990.''
       (6) modifying section 126 by:
       (A) revising subsection (b) by replacing ``section 
     110(a)(2)(D)(ii) or this section'' with ``section 
     110(a)(2)(D)(i)'';
       (B) revising subsection (c)(1) by replacing ``this section 
     and the prohibition of section 110(a)(2)(D)(ii)'' with ``the 
     prohibition of section 110(a)(2)(D)(i)'';
       (C) revising subsection (c), flush language at end, by 
     replacing ``section 110(a)(2)(D)(ii)'' with ``section 
     110(a)(2)(D)(i)'' and deleting the last sentence; and
       (D) adding subsection (d) to read as follows:
       ``(d)(1) For purposes of this subsection, the term 
     ``affected unit'' means any unit that is subject to emission 
     limitations under subpart 2 of part B, subpart 2 of part C, 
     or part D.
       (2) To the extent that any petition submitted under 
     subsection (b) after the date of enactment of the Clear Skies 
     Act of 2002 seeks a finding for any affected unit, then, 
     notwithstanding any provision in subsections (a) through (c) 
     to the contrary--
       (A) In determining whether to make a finding under 
     subsection (b) for any affected unit, the Administrator shall 
     consider, among other relevant factors, emissions reductions 
     required to occur by the attainment date or dates of any 
     relevant nonattainment areas in the petitioning State or 
     political subdivision.
       (B) The Administrator may not determine that affected units 
     emit or would emit any air pollutant in violation of the 
     prohibition of section 110(a)(2)(D)(i) unless that 
     Administrator determines that:
       (i) such emissions may be reduced at least as cost-
     effectively as emissions from each other principal category 
     of sources of sulfur dioxide or nitrogen oxides, including 
     industrial boilers, on-road mobile sources, and off-road 
     mobile sources, and any other category of sources that the 
     Administrator may identify; and
       (ii) reductions in such emissions will improve air quality 
     in the petitioning state's nonattainment area(s) at least as 
     cost-effectively as reductions in emissions from each other 
     principal category of sources of sulfur dioxide or nitrogen 
     oxides to the maximum extent that a methodology is reasonably 
     available to make such a determination. In making this 
     determination, the Administrator will use the best available 
     peer reviewed models and methodology that consider the 
     proximity of the source or sources

[[Page 15208]]

     to the petitioning State or political subsidision and 
     incorporate other sources characteristics.
       (C) The Administrator shall develop an appropriate peer 
     reviewed methodology for making determinations under 
     subparagraph (B) by December 31, 2006.
       (D) The Administrator shall not make any findings with 
     respect to an affected unit under this section prior to 
     January 1, 2009. For any petition submitted prior to January 
     1, 2007, the Administrator shall make a finding or deny the 
     petition by January 31, 2009.
       (E) The Administrator, by rulemaking, shall extend the 
     compliance and implementation deadlines in subsection (c) to 
     the extent necessary to assure that no affected unit shall be 
     subject to any such deadline prior to January 1, 2012.''
       (b) Title III of the Clean Air Act is amended by modifying 
     section 307(d)(1(G) to read as follows:
       ``(G) the promulgation or revision of any regulation under 
     title IV,''.
       (C) Title IV of the Clean Air Act (relating to noise 
     pollution) (42 U.S.C. 7641 et seq.) is--
       (1) amended by renumbering sections 401 through 403 as 
     sections 701 through 703, respectively; and
       (2) renumbered as title VII.
       (d) Title VIII of the Clean Air Act Amendments of 1990 
     (miscellaneous provisions) is amended by modifying section 
     821(a) to read as follows:
       ``(a) Monitoring.--The Administrator of the Environmental 
     Protection Agency shall promulgate regulations within 18 
     months after November 15, 1990 to require that all affected 
     sources subject to subpart 1 of part B of title IV of the 
     Clean Air Act shall also monitor carbon dioxide emissions 
     according to the same timetable as in section 405(b). The 
     regulations shall require that such data be reported to the 
     Administrator. The provisions of section 405(e) of title IV 
     of the Clean Air Act shall apply for purposes of this section 
     in the same manner and to the same extent as such provision 
     applies to the monitoring and data referred to in section 
     405. The Administrator shall implement this subsection under 
     40 CFR part 75 (2001), amended as appropriate by the 
     Administrator.''
                                 ______
                                 
      By Mr. BAUCUS (for himself, Mr. Grassley, Mr. McCain, Mr. DeWine, 
        Ms. Landrieu, Mr. Johnson, Mrs. Carnahan, Mr. Hatch, Mr. 
        Rockefeller, Mrs. Lincoln, Mr. Torricelli, Mr. Durbin, Mr. 
        Murkowski, and Mr. Kerry):
  S. 2816. A bill to amend the Internal Revenue Code of 1986 to improve 
tax equity for military personnel, and for other purposes; to the 
Committee on Finance.
  Mr. BAUCUS. Mr. President, I rise today to introduce the Foreign and 
Armed Services Tax Fairness Act of 2002, FAST Fairness, that will not 
only correct inequities in the current tax code our military men and 
women are subject to, but it will also provide incentives for our 
dedicated forces to continue their service to America.
  On July 9, 2002, the House passed unanimously a bill, H.R. 5063, that 
provided limited relief to military personnel. The bill would provide a 
special rule for members of the armed forces in determining the 
exclusion of gain from the sale of a principal residence and would 
restore the tax-exempt status of death gratuity payments to members of 
the armed forces. I support the efforts of the House, but believe we 
can go farther.
  These are the men and women that put their lives on the line for our 
freedom on a daily basis. We need to ensure that laws that we here in 
Congress pass do not negatively impact them. We should also develop 
sound policy that serves as an incentive for our youth to follow in the 
steps of the men and women that went before them to defend our country.
  It is with these principles in mind that I move forward with this 
military tax package and incorporate additional provisions already 
introduced by my colleagues. I would now like to describe the 
provisions that I have chosen to include in this critical piece of 
legislation:
  On July 24, 2002, Senator Carnahan introduced S. 2783, which would 
restore the tax exempt status of all death gratuity payments. This 
proposal is similar to the provision included in H.R. 5063.
  Why is this provision so important? Under current law, death gratuity 
benefits are excludable from income only to the extent that they were 
as of September 9, 1986. In 1986, the death gratuity benefit was 
$3,000. In 1991, the benefit was increased to $6,000, but the tax code 
was never adjusted to exclude the additional $3,000 from income. 
Because of this oversight, the U.S. government has been taxing families 
for the death of a family member who died in combat. This is just 
wrong.
  I support the provisions of H.R. 5063 and S. 2783, therefore I have 
included them in this piece of legislation.
  In 1997, Congress passed legislation revising the taxation of capital 
gains on the sale of a person's principal residence. The new rule is 
that up to $250,000, $500,000 per couple, is excluded on that sale of a 
principal residence if the individual has lived in the house for at 
least two of the previous five years.
  However, when enacted, Congress failed to provide a special rule for 
military and Foreign Service personnel who are required to move either 
within the U.S. or abroad. Senators McCain and Graham both have 
introduced legislation to address this oversight.
  I agree that we should adjust the rule for our service men and women. 
We shouldn't penalize them for choosing to serve our country. My 
proposal would permit service personnel and members of the Foreign 
Service to suspend the five-year period while away on assignment, 
meaning those years would count toward neither the two years nor the 
five year periods. This is a also similar to provisions on H.R. 5063.
  The Department of Defense provides payments to members of the Armed 
Services to offset diminution in housing values due to military base 
realignment or closure. For example, if a house near a base was worth 
$180,000 prior to the base closure and $100,000 after the base closure, 
DOD may provide the owner with a payment to offset some, but not all of 
the $80,000 diminution in value. Under current law, those amounts are 
taxable as compensation.
  There will be another round of base closures in the near future. That 
fate was decided in the FY2002 Defense Authorization bill. We should 
ensure that those men and women losing value in their homes due to a 
federal government decision are not adversely affected financially. The 
proposal would provide that payments for lost value are not includible 
into income. Recently, Senator Cleland introduced a package that 
included this provision. I thank him for his unending pursuit to 
provide military personnel with the best quality of life available. 
And, I'm happy to include this provision in my legislation.
  Under current law, military personnel in a combat zone are afforded 
an extended period for filing tax returns. However, this does not apply 
to contingency operations. This proposal would extend the same benefits 
to military personnel assigned to contingency operations.
  It can't be easy trying to figure out our complicated tax system 
while you are overseas and protecting our nation's freedom. Those men 
and women that have been sent to uphold freedom in other countries are 
confronted with similar circumstances, such as in Operation Just Cause 
in Panama, 1989, or in Operation Restore Hope in Somalia in 1992 and 
1993, or in Operation Uphold Democracy in Haiti, 1994. Contingency 
operations are just as demanding as combat zone deployment, although 
not always in the same manner. I would like to thank Senator Johnson 
for introducing S. 2785. It is important that we support all our troops 
when they are overseas.
  Some reservists who travel one weekend per month and two weeks in the 
summer for reserve duty incur significant travel and lodging expenses. 
Under current law, these are deductible as itemized deductions but must 
exceed 2 percent of adjusted gross income. For lower income reservists, 
this deduction does not provide a benefit, because they do not itemize. 
For higher income reservists, the 2 percent floor limits the amount of 
the benefit of the deductions.
  In my home state of Montana, we have approximately 3500 reservists, 
800 of which travel each month across the State for their training. 
These 800 reservists pay out of their own pocket the expense for 
travel, and hotel rooms. In Montana we rank 48th in the Nation for per 
capita personal income.

[[Page 15209]]

I know it can't be easy for Montanans to incur approximately $200 in 
expenses each and every month. Yet, they continue selflessly to provide 
their services to our country at their own expense. For those 
reservists that travel out of State for their training, this expense is 
higher on average. This proposal would provide an above the line 
deduction for overnight travel costs and would be available for all 
reservists and members of the National Guard.
  This issue is currently addressed in S. 540, which Senator DeWine 
introduced back in March of 2001. I can't tell you just how many people 
have contacted our office in support of this bill. I support what this 
bill does and I am glad that we can include some of its provisions in 
my military tax package.
  Recently, Senator Harkin introduced S. 2789, which would expand the 
membership for Veteran's organizations. Currently, qualified veterans' 
organizations under section 501(c)(19) of the tax code are both tax-
exempt and contributions to the organization are tax-deductible. In 
order to qualify under 501(c)(19), the organization must meet several 
tests, including 75 percent of the members must be current or former 
active military, and substantially all of the members must be either 
current or former active military or widows of former active military. 
The proposal would permit lineal descendants and ancestors to qualify 
for the ``substantially all'' test.
  It is important that our veterans' organizations continue the good 
work that they do. But, as the organizations age, they are in danger of 
losing their tax-exempt status. I support Senator Harkin's bill, as 
does the American Legion. I have included it in my tax package.
  Finally, I want to ensure that women in the military can continue 
their dedicated service even once they have entered motherhood knowing 
that their children are being well taken care of. The military provides 
extensive childcare benefits to its employees. DOD employees at DOD-
owned facilities provide childcare services while other areas contract 
out their childcare.
  When Congress passed the Tax Reform Act of 1986, we included a 
provision stating that qualified military benefits are excluded from 
income. It is not absolutely clear whether child care provisions are 
covered under this provision. The proposal would clarify that any 
childcare benefit provided to military personnel would be excludable 
from income. Senator Landrieu has introduced S. 2807, a similar 
measure. I support this measure and am proud to include it in this 
piece of legislation.
  It is my intention to mark-up this legislation soon in hopes that we 
can move it through the Senate quickly. It is important that we 
continue to show members of the armed forces our support and solidarity 
during this time of conflict. The War on Terrorism has brought to light 
the essential role the armed services play in upholding freedom 
throughout the world. I would like to see a military tax equity bill 
signed into law by the President before the end of the year.
  Mr. President, I ask consent that the text of the bill be printed in 
the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2816

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; ETC.

       (a) Short Title.--This Act may be cited as the ``Foreign 
     and Armed Services Tax Fairness Act of 2002''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; etc.
Sec. 2. Restoration of full exclusion from gross income of death 
              gratuity payment.
Sec. 3. Special rule for members of uniformed services and Foreign 
              Service in determining exclusion of gain from sale of 
              principal residence.
Sec. 4. Qualified military base realignment and closure fringe benefit.
Sec. 5. Extension of tax filing delay provisions to military personnel 
              serving in contingency operations.
Sec. 6. Deduction of certain expenses of members of the reserve 
              component.
Sec. 7. Modification of membership requirement for exemption from tax 
              for veterans' organizations.
Sec. 8. Clarification of the treatment of dependent care assistance 
              programs sponsored by the Department of Defense for 
              members of the Armed Forces of the United States.

     SEC. 2. RESTORATION OF FULL EXCLUSION FROM GROSS INCOME OF 
                   DEATH GRATUITY PAYMENT.

       (a) In General.--Subsection (b)(3) of section 134 (relating 
     to certain military benefits) is amended by adding at the end 
     the following new subparagraph:
       ``(C) Exception for death gratuity adjustments made by 
     law.--Subparagraph (A) shall not apply to any adjustment to 
     the amount of death gratuity payable under chapter 75 of 
     title 10, United States Code, which is pursuant to a 
     provision of law enacted after September 9, 1986.''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     134(b)(3) is amended by striking ``subparagraph (B)'' and 
     inserting ``subparagraphs (B) and (C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to deaths occurring after September 
     10, 2001.

     SEC. 3. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND 
                   FOREIGN SERVICE IN DETERMINING EXCLUSION OF 
                   GAIN FROM SALE OF PRINCIPAL RESIDENCE.

       (a) In General.--Subsection (d) of section 121 (relating to 
     exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraph:
       ``(9) Members of uniformed services and foreign service.--
       ``(A) In general.--At the election of an individual with 
     respect to a property, the running of the 5-year period 
     described in subsection (a) with respect to such property 
     shall be suspended during any period that such individual or 
     such individual's spouse is serving on qualified official 
     extended duty as a member of the uniformed services or of the 
     Foreign Service.
       ``(B) Maximum period of suspension.--The 5-year period 
     described in subsection (a) shall not be extended more than 5 
     years by reason of subparagraph (A).
       ``(C) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any extended duty while serving at a duty station 
     which is at least 50 miles from such property or while 
     residing under Government orders in Government quarters.
       ``(ii) Uniformed services.--The term `uniformed services' 
     has the meaning given such term by section 101(a)(5) of title 
     10, United States Code, as in effect on the date of the 
     enactment of this paragraph.
       ``(iii) Foreign service of the united states.--The term 
     `member of the Foreign Service' has the meaning given the 
     term `member of the Service' by paragraph (1), (2), (3), (4), 
     or (5) of section 103 of the Foreign Service Act of 1980.
       ``(iv) Extended duty.--The term `extended duty' means any 
     period of duty pursuant to a call or order to such duty for a 
     period in excess of 90 days or for an indefinite period.
       ``(D) Special rules relating to election.--
       ``(i) Election limited to 1 property at a time.--An 
     election under subparagraph (A) with respect to any property 
     may not be made if such an election is in effect with respect 
     to any other property.
       ``(ii) Revocation of election.--An election under 
     subparagraph (A) may be revoked at any time.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to elections made after the date of the enactment 
     of this Act for suspended periods under section 121(d)(9) of 
     the Internal Revenue Code of 1986 (as added by this section) 
     beginning after such date.

     SEC. 4. QUALIFIED MILITARY BASE REALIGNMENT AND CLOSURE 
                   FRINGE BENEFIT.

       (a) In General.--Section 132(a) (relating to the exclusion 
     from gross income of certain fringe benefits) is amended by 
     striking ``or'' at the end of paragraph (6), by striking the 
     period at the end of paragraph (7) and inserting ``, or'' and 
     by adding at the end the following new paragraph:
       ``(8) qualified military base realignment and closure 
     fringe.''.
       (b) Qualified Military Base Realignment and Closure 
     Fringe.--Section 132 is amended by redesignating subsection 
     (n) as subsection (o) and by inserting after subsection (m) 
     the following new subsection:
       ``(n) Qualified Military Base Realignment and Closure 
     Fringe.--For purposes of this section, the term `qualified 
     military base realignment and closure fringe' means 1

[[Page 15210]]

     or more payments under the authority of section 1013 of the 
     Demonstration Cities and Metropolitan Development Act of 1966 
     (42 U.S.C. 3374) to offset the adverse effects on housing 
     values as a result of a military base realignment or 
     closure.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 5. EXTENSION OF TAX FILING DELAY PROVISIONS TO MILITARY 
                   PERSONNEL SERVING IN CONTINGENCY OPERATIONS.

       (a) In General.--Section 7508(a) (relating to time for 
     performing certain acts postponed by reason of service in 
     combat zone) is amended--
       (1) by inserting ``or when deployed outside the United 
     States away from the individual's permanent duty station 
     while participating in an operation designated by the 
     Secretary of Defense as a contingency operation (as defined 
     in section 101(a)(13) of title 10, United States Code) or 
     which became such a contingency operation by operation of 
     law'' after ``section 112'',
       (2) by inserting in the first sentence ``or at any time 
     during the period of such contingency operation'' after ``for 
     purposes of such section'',
       (3) by inserting ``or operation'' after ``such an area'', 
     and
       (4) by inserting ``or operation'' after ``such area''.
       (b) Conforming Amendments.--
       (1) Section 7508(d) is amended by inserting ``or 
     contingency operation'' after ``area''.
       (2) The heading for section 7508 is amended by inserting 
     ``or contingency operation'' after ``combat zone''.
       (3) The item relating to section 7508 in the table of 
     sections for chapter 77 is amended by inserting ``or 
     contingency operation'' after ``combat zone''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any period for performing an act which has not 
     expired before the date of the enactment of this Act.

     SEC. 6. DEDUCTION OF CERTAIN EXPENSES OF MEMBERS OF THE 
                   RESERVE COMPONENT.

       (a) Deduction Allowed.--Section 162 (relating to certain 
     trade or business expenses) is amended by redesignating 
     subsection (p) as subsection (q) and inserting after 
     subsection (o) the following new subsection:
       ``(p) Treatment of Expenses of Members of Reserve Component 
     of Armed Forces of the United States.--For purposes of 
     subsection (a), in the case of an individual who performs 
     services as a member of a reserve component of the Armed 
     Forces of the United States at any time during the taxable 
     year, such individual shall be deemed to be away from home in 
     the pursuit of a trade or business during any period for 
     which such individual is away from home in connection with 
     such service.''.
       (b) Deduction Allowed Whether or Not Taxpayer Elects To 
     Itemize.--Section 62(a)(2) (relating to certain trade and 
     business deductions of employees) is amended by adding at the 
     end the following new subparagraph:
       ``(E) Certain expenses of members of reserve components of 
     the armed forces of the united states.--The deductions 
     allowed by section 162 which consist of expenses, in amounts 
     not in excess of the rates for travel expenses (including per 
     diem in lieu of subsistence) authorized for employees of 
     agencies under subchapter I of chapter 57 of title 5, United 
     States Code, paid or incurred by the taxpayer in connection 
     with the performance of services by such taxpayer as a member 
     of a reserve component of the Armed Forces of the United 
     States.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 2001.

     SEC. 7. MODIFICATION OF MEMBERSHIP REQUIREMENT FOR EXEMPTION 
                   FROM TAX FOR VETERANS' ORGANIZATIONS.

       (a) In General.--Subparagraph (B) of section 501(c)(19) 
     (relating to list of exempt organizations) is amended by 
     striking ``or widowers'' and inserting ``, widowers, or 
     ancestors or lineal descendants''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 8. CLARIFICATION OF THE TREATMENT OF DEPENDENT CARE 
                   ASSISTANCE PROGRAMS SPONSORED BY THE DEPARTMENT 
                   OF DEFENSE FOR MEMBERS OF THE ARMED FORCES OF 
                   THE UNITED STATES.

       (a) In General.--Section 134(b) (defining qualified 
     military benefit) is amended by adding at the end the 
     following new paragraph:
       ``(4) Clarification of certain benefits.--For purposes of 
     paragraph (1), such term includes any dependent care 
     assistance program sponsored by the Department of Defense for 
     members of the Armed Forces of the United States.''.
       (b) Conforming Amendments.--
       (1) Section 3121(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (2) Section 3306(b)(13) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (3) Section 3401(a)(18) is amended by striking ``or 129'' 
     and inserting ``, 129, or 134(b)(4)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.
       (d) No Inference.--No inference may be drawn from the 
     amendments made by this section with respect to the tax 
     treatment of any amounts under the program described in 
     section 134(b)(4) of the Internal Revenue Code of 1986 (as 
     added by this section) for any taxable year beginning before 
     January 1, 2002.
                                 ______
                                 
      By Mr. KENNEDY (for himself, Mr. Hollings, Mr. Bond, and Ms. 
        Mikulski):
  S. 2817. A bill to authorize appropriations for fiscal years 2003, 
2004, 2005, 2006, and 2007 for the National Science Foundation, and for 
other purposes; to the Committee on Health, Education, Labor, and 
Pensions.
  Mr. KENNEDY. Mr. President, I am pleased to introduce today the 
National Science Foundation Doubling Act. This important legislation 
has been crafted with the extensive cooperation of Senator Hollings, 
Chairman of the Senate Committee on Commerce, Science, and 
Transportation, Senator Mikulski and Senator Bond, the respective Chair 
and Ranking Member of the Senate Committee on Appropriations 
Subcommittee on Veterans Affairs, Housing and Urban Development, and 
Independent Agencies. I commend each of them for their leadership in 
federal support for the sciences .
  The National Science Foundation, NSF, has two key missions, and it 
carries both of them out well. It supports basic research and 
development in math, science, engineering, and technology, and it 
promotes math and science learning at every level, from K-12 through 
post-graduate education.
  NSF has funded basic research leading to the creation of speech 
recognition software, MRI machines, and even World Wide Web browsers 
such as Netscape and Microsoft's Internet Explorer. In education, NSF 
initiatives of the late 1980s were the forerunners of the standards-
based school reform movement embraced throughout the Nation today.
  We can and should build on NSF's distinguished record in improving 
the lives of millions of Americans. The 20th Century was the era of the 
industrial age, and the 21st Century will be the era of information 
technology and the life sciences. With the leadership of Senator Harkin 
and others, we have doubled the budget of the National Institutes of 
Health over the last five years. We should do the same for NSF. We 
should double our support for research and development in theoretical 
mathematics and the physical sciences, because they support advances in 
the health sciences and because they are also valuable in their own 
right.
  As former Senator Glenn has pointed out so frequently, we need to do 
much more to interest young minds in math and science and recruit 
tomorrow's scientists and engineers. Over the next 10 years, the number 
of jobs requiring technical skills will grow by 50 percent. 
Unfortunately, high school student performance on math and science 
exams is alarmingly low. The number of American students studying the 
sciences at the post-secondary level is flat. Too many women and 
minorities continue to shy away from the sciences.
  The bill we are introducing today authorizes a doubling of the NSF 
budget over the next five years. It makes sense to match the growth of 
NIH. As we enhance research and development in the life sciences, we 
should also be strengthening research and development in the physical 
sciences.
  This legislation also builds on NSF's Systemic Initiatives by 
supporting a Secondary School Systemic Initiative to develop models to 
improve high school student math and science performance and 
preparation for college-level or technical work.
  The bill supports model Math and Science Partnerships between 
institutions of higher education and local school districts to improve 
the knowledge and teaching techniques of current math and science 
teachers.
  The bill supports institutions of higher education in increasing the

[[Page 15211]]

number of students, particularly women and minorities, who study toward 
and obtain degrees in science, math, engineering, and technology.
  Finally, the bill reforms NSF's program on major research and 
facilities equipment, to help prioritize projects and guard against 
cost overruns and non-merit reviewed proposals.
  Scientific discovery and development continues to set America apart 
from other Nations and is one of our enduring legacies. The National 
Science Foundation Doubling Act is a solid piece of legislation 
building on our Nation's history in the sciences and promoting a better 
future. It deserves to be considered quickly, and I believe favorably, 
by the United States Senate.
  Mr. HOLLINGS. Mr. President, I join my colleagues, Senator Kennedy, 
and Senator Mikulski and Senator Bond, in introducing this bill to 
authorize the National Science Foundation through FY 2007. My friends 
and I represent three Committees with a strong interest in NSF, and we 
chose a straightforward title for the name of this bill, the NSF 
Doubling Act, because our intentions are simple and straightforward. 
Congress's intent is to double NSF's budget by fiscal year 2007. NSF is 
the Nation's premier federal science agency that invests in basic 
research across all disciplines that is on the frontiers of science. In 
1945, Vannevar Bush's report for President Roosevelt led to the 
establishment of the National Science Foundation. Since then, this 
nation has been on a path of solid investment in the scientific 
research that underlies our future economic health and well being. It's 
no mistake that Alan Greenspan and other important economists have 
noted that more than one-half of our Nation's economic growth since 
World War I has stemmed from technology driven by science.
  By next year, we in Congress will have succeeded in our goal to 
double the budget of the National Institutes of Health. I applaud that 
effort. But as scientific disciplines have become fundamentally 
interdependent, advances in the health sciences necessarily depend on 
advances in math, computer science, and engineering. NSF is the only 
Federal agency specifically charged with ensuring a broad and deep base 
of fundamental knowledge across disciplines. This mission is critical 
to technological innovation, our economy, and our general health and 
welfare as a Nation.
  I have said that our intentions are simple and straightforward. So 
let me set out three simple reasons why this doubling is vital to our 
future:
  The first concerns our security. Not only does NSF fund areas, such 
as cyber security, that are critical to protecting our nation, but NSF 
is the agency that takes the lead in ensuring that this country has 
sufficient human capital to ensure our continued world leadership in 
science and technology. The Hart-Rudman Commission on National Security 
warned that our failure to invest in science and to reform math and 
science education was the second biggest threat to our national 
security, only the threat of a weapon of mass destruction in an 
American city was a greater danger. NSF invests in math and science 
education from kindergarten all the way through to the post-doctoral 
level and beyond. This bill allows the Foundation to increase that 
investment, while reaffirming our commitment to women, minorities, and 
people with disabilities. These underrepresented groups, together, make 
up more than half of our Nation's work force and are only increasing. 
Letting these groups fall by the wayside would not only threaten our 
economic competitiveness, but also our national security.
  Second pertains to our economy. I have already talked about science 
and technology driving our economic growth. Let me give just one 
example of how NSF's investments can spur our economy. NSF is the 
leading agency in the National Nanotechnology Initiative. 
Nanotechnology, which is the science of manipulating matter at the 
atomic and molecular level, will cut across every scientific 
discipline, including materials and manufacturing, healthcare and 
medicine, energy and the environment, agriculture, biotechnology, 
information technology, and national security. Worldwide, the market 
for nanotechnology is expected to be $1 trillion annually within 10 to 
15 years. NSF's cross-disciplinary approach, which includes 
groundbreaking research into the way society and this new technology 
will interact, will help this nation take advantage of Nanotechnology 
sooner, better, and with greater confidence.
  The third involves basic research. NSF is responsible for the overall 
health and well-being of the research enterprise in this country. One 
way NSF does this is through continued support for the EPSCoR program. 
EPSCoR supports the development of the science and technology resources 
of individual States like South Carolina, through partnerships that 
involve the State's universities, industry, government, and the Federal 
research and development enterprise. For example, NSF supports an 
Engineering Research Center focused on advanced fibers and films at 
Clemson University that, through partnerships and continued investment 
over the next 10 years, will make Clemson the national leader in 
advanced fibers and films technologies.
  I think these arguments are solid, simple, and straightforward. We 
can talk about NSF's past outstanding contributions to science. We can 
talk about the future and the importance of science and technology to 
our economy. But, where the rubber meets the road, we have to stop 
talking and invest, with real money, in the science and engineering 
enterprise that will guaranty the health, economic viability, and 
security of our future. I, for one, appreciate the hard work that NSF 
has done over the past 52 years promoting the progress of science, and 
I urge my Senate colleagues to support me in providing this agency the 
resources needed to conquer tomorrow.
  Mr. BOND. Mr. President, I rise today to express my strong support 
for the National Science Foundation Doubling Act of 2002. As an 
original co-sponsor, I am pleased to join my colleagues, Senators 
Kennedy, Hollings, and Mikulski in introducing this important 
legislation that will strengthen the long-term economic competitiveness 
and health of our Nation. As an appropriator and as an authorizer of 
NSF, I have a special interest in NSF and the basic science research it 
supports. I believe this bill underscores the critical role NSF plays 
in the economic and intellectual growth and well-being of this Nation.
  As many of my colleagues know, Senator Mikulski and I have led a 
bipartisan, bi-cameral effort to double NSF's budget and this 
reauthorization bill further supports our doubling effort over a five-
year period. NSF is funding innovative and cutting-edge research in 
nanotechnology, plant biotechnology, and information technology. 
Doubling NSF's funding is not only important for these research 
programs but also in the area of education. NSF plays a valuable role 
in supporting math and science education and developing the Nation's 
supply of scientists and engineers in this country.
  Unfortunately, despite our efforts on the appropriations committee, 
the Federal Government has not provided adequate support to NSF and the 
physical sciences in general. I believe the lack of adequate support 
for the physical sciences puts our Nation's capabilities for scientific 
innnovation at risk and, equally important, at risk of falling behind 
other industrial nations.
  Further, doctors throughout Missouri and the country have told me 
that despite the tremendous support we have provided for the life 
sciences, their research in the biomedical field will stagnate without 
adequate government support of the physical sciences that NSF supports. 
Many medical technologies such as magnetic resonance imaging, 
ultrasound, digital mammography and genomic mapping could not have 
occurred, and cannot improve to the next level of proficiency, without 
NSF-supported work in biology, physics, chemistry, mathematics, 
engineering, and computer sciences. Simply put: supporting NSF supports 
NIH.
  The high-tech industry also is concerned about NSF funding because 
they

[[Page 15212]]

are struggling to find qualified homegrown engineers and scientists and 
becoming more reliant on foreign nationals to fill their positions. 
Many notable researchers in the high-tech industry have told me that 
the significant shortages of trained American engineers and scientists 
have limited the growth potential of the electronics and software 
industries and allowed foreign competitors to catch up to U.S. industry 
capabilities.
  To address the development of tech talent in this country, NSF 
provides a wide array of support to preK-12, undergraduate, and 
graduate level schools. One new important tool is the Math and Science 
partnership program--a new joint program between NSF and the Department 
of Education. This program encourages partnerships among local school 
systems, higher education entities, and other organizations to improve 
student outcomes in math and science for all students.
  Another important tool that I support is the tech talent program. 
This program was initiated at the urging of me and my Senate 
colleagues--Senators Lieberman, Frist, Mikulski, and Domenici. Last 
year, we introduced S. 1549, the Tech Talent Act to improve 
undergraduate education in math, science, engineering, and technology. 
We provided $5 million in the Fiscal Year 2002 VA-HUD and Independent 
Agencies Appropriations Act to jumpstart this important initiative and 
another $20 million was added in the fiscal year 2003 bill that passed 
the Appropriations Committee last week. NSF has already received 177 
applications requesting an aggregate sum of almost $60 million.
  Lastly, I am very supportive of efforts to improve the accountability 
of NSF's programs and activities--especially those projects funded 
through the major research equipment and facilities construction 
account. The bill includes a number of provisions to ensure that 
funding decisions on large research facilities are done in a rationale 
and understandable manner.
  Before the bill reaches the floor, I hope to work with my colleagues 
on addressing other issues related to the National Science Board. As 
the budget for NSF grows, it is important that the Board has the tools 
it needs to fulfill its statutory responsibilities. Specifically, we 
need to provide the chairman of the Board the authority to hire its own 
staff to support the Board's oversight and policy-making 
responsibilities and to ensure that it can provide the Congress and the 
President with independent science policy advice. These tools will also 
ensure that the Board is not a ``rubber stamp'' for the Director of 
NSF.
  I urge my colleagues to support this bill. I understand that some of 
my colleagues have concerns about the bill, but I believe that overall, 
this is a good bill. I look forward to working with my colleagues in 
the Senate and the House in moving a strong bipartisan NSF 
reauthorization bill and in advancing our effort to double NSF's 
budget.
  I thank the Chair.

                          ____________________