March 6, 2019

Ms. Karen G. Sabasteanski, Policy Analyst

Office of Regulatory Affairs

Department of Environmental Quality

P.O. Box 1105

Richmond, VA 23218

RE: Comments of the Alliance for Industrial Efficiency on Proposed 9VAC5 Chapter 140 Regulation for Emissions Trading Part VII CO2 Budget Trading Program

Dear Ms. Sabasteanski:

The Alliance for Industrial Efficiency (the “Alliance”) appreciates the opportunity to submit our comments on the re-proposed 9VAC5 Chapter 140 Regulation for Emissions Trading, Part VII Carbon Dioxide (CO2) Budget Trading Program (the “proposed regulation”).

We commend the Department of Environmental Quality (DEQ) for recognizing the most economically efficient means for reducing CO2 emissions in the regulation: incenting energy efficiency. We also commend DEQ for granting certain industrial combined heat and power (CHP) and waste heat to power (WHP) units an exemption from the proposed regulation, which rightly recognizes the significant emissions benefits offered by these systems.

On April 9, 2018, the Alliance offered five recommendations that further recognize the multiple economic, energy efficiency, and greenhouse gas reduction benefits that CHP and WHP systems provide. The first four recommendations applied to existing CHP projects and the fifth would help encourage additional CHP deployment. We recommended that DEQ:

1. Eliminate ownership language in the applicability guidelines;

2. Define “primary use” and add system efficiency requirements to the applicability guidelines;

3. Add “or facilities” to account for district energy systems in the applicability guidelines;

4. Add a thermal energy use exemption to the regulation;

5. Explicitly state CHP and WHP projects are eligible for set aside funds.

The Alliance greatly appreciates DEQ accepting our recommendations for both eliminating ownership language in the applicability guidelines, and defining “primary use” in the applicability guidelines, as they provide important clarity for potential CHP hosts.

Furthermore, the Alliance urges DEQ to consider three other recommendations which will further encourage greater use of emissions-reducing CHP and WHP systems in Virginia in a way that is consistent with the goal in the Commonwealth of Virginia’s 2018 Energy Plan to deploy 750 Megawatts of CHP by 2030.

• Add “or facilities” to account for district energy systems in the applicability guidelines. District energy systems capture and reuse waste heat, distributing it through underground piping to provide energy services to neighboring buildings. As written, we are concerned that the proposed rules limit the exemption to CHP that produces heat and electricity for a single building. Instead, we recommend clarifying that the exemption is open to multiple facilities serviced by a CHP system. For more detail on this recommendation, please see page 7 of our comments on the initial proposed regulation.
• Add a thermal energy use exemption to the regulation. The hallmark of a CHP system is that it produces both heat and electricity from a single fuel source. Without providing a thermal exemption, the proposed regulation undervalues the full energy output of these systems and the emissions reduction they deliver. For more detail on this recommendation, please see page 7 of our comments on the initial proposed regulation.
• Explicitly state CHP and WHP projects are eligible for set aside funds. We commend DEQ for including a set aside for air pollution abatement, such as energy efficiency programs. we encourage DEQ to add language to the proposed regulation clarifying that such projects are eligible for set aside funds. This will help ensure that potential project hosts are aware of the opportunity. Explicitly clarifying in the regulation that set aside funds are available for CHP and WHP projects (which are already included under the definition of “energy efficiency programs”) would eliminate confusion surrounding eligible projects and would encourage additional CHP and WHP deployment. For more detail on this recommendation, please see page 8 of our comments on the initial proposed regulation.

We thank DEQ for the opportunity to comment on the proposed regulation, and we are grateful for the emerging recognition of CHP’s benefits among Virginia policymakers.

Sincerely,

David Gardiner

Executive Director

Alliance for Industrial Efficiency