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```					             Distribution of GHG Allowances to Petroleum Products Manufacturing Sector
Energy Efficiency Based Allowance Distribution Methodology
Proposed by the Western States Petroleum Association
®
Using Solomon EII (Energy Intensity Index®) metric as a basis for relative efficiency

This methodology has been designed to distribute free allowances across the refining sector
according to facility performance and available allowances based on the cap reduction.

This methodolgy uses Solomon's EII metric as part of the distribution factor to allocate GHG
allowances according to relative energy efficiency.

An equation to calculate a distribution factor for each facility is used to provide a higher ratio of
GHG allowances to more efficient facilities, and a lower ratio to less efficient facilities.
• The adjustment factors in the equation can be set so that the calculation provides 100% free
allowances to the most efficient facility in the sector. All other facilities receive less than
100% based on their EII value.
• The technique pivots around the "average EII", which is approximately the EII at the mid-point of
the sector emissions on an EII rank order basis (EII for each facility weighted using emissions).

A calculation is performed for each facility to determine its distribution factor:
Distribution Factor: DFx = ((Avg / EIIx) + Adj) / (1 + Adj)
where:    Avg -- weighted average EII for the sector:
Avg = sum(BEx) / sum(BEx/EIIx)
Adj -- adjustment factor to provide most efficient facility 100% free allowances:
Adj = ((Avg/EIIbest) * FA - 1) / (1 - FA)
EIIx -- EII for each individual facility in sector (determined by Solomon)
BEx -- GHG Baseline Emissions for each facility
EIIbest -- EII of most efficient facility (lowest EII in sector)
FA -- Free Allocation to refining sector, as a fraction (e.g. 0.97 for 97%)

Prior to the compliance year, the Baseline Allocation to be provided to each facility is calculated as follows:

Baseline Allocationx = BAx = BEx * DFx * FA              (calculate for each facility in sector)

After the compliance period, the actual emissions from each facility are used to determine its
final allocation of free allowances:
Terms:       BEx -- Baseline Emissions (from above)
BAx -- Baseline Allocation (from above)
%Freex -- DFx * FA (from above)
AEx -- Actual Emissions for each facility (reported under MRR)
AAx -- Actual Allocation for each facility - final for compliance year
Actual Emissions vs. Baseline:              Actual Allocation Equations:
• If AEx < BAx                    AAx = AEx + 20% x (BAx – AEx)
• If BAx < AEx < BEx              AAx = BAx
• If BEx < AEx                 AAx = AEx * %Freex

®
Notes: EII is a registered trademark of Solomon Associates LLC
Energy Intensity Index® is a registered trademark of Solomon Associates LLC

932d5d70-e8fc-4828-ab85-605c49eb84a6.xls Description
Method to Distribute GHG Allowances to Petroleum Products Manufacturing Sector
Energy Efficiency Based Allowance Distribution Methodology
Proposed by the Western States Petroleum Association

Instructions for using this calculation spreadsheet:

Prior to the Compliance Year - Calculate the Baseline Allocation for Each Facility:
1) All required input data is highlighted in blue:
+ Name of each facility
+ Baseline Emissions for each facility - basis for free allocation assistance calculation
+ Energy Efficiency (Solomon EII®) value for each facility
+ Cap reduction relative to total Baseline Emissions
2) The facility with the lowest EII value must be at the top of the list
+ Facility with the lowest EII will receive 100% free allowances (yellow highlighted)
+ Remaining facilities can be listed in any order
+ If there fewer than 21 facilities, then input a 0 for emissions and non-zero for EII for extra lines
3)   Hit Enter key after entering last value
4)   Hit F9 to calculate (if automatic calculation turned off)
5)   Check convergence
+ The calculation converged properly when the following two values are 0:
- Confirm most efficient facility receives 100%                       0.0000
- Confirm free allocations equal total available                        0.0
- If not converged, then hit F9 to calculate again
- If calculation will not converge, then cap reduction may be out of range (too high)                             When the actual Solomon EII values and GHG emissions for each
6)   Save spreadsheet and print results showing Baseline Allocation for each facility                                       facility are entered into this calculation worksheet, then the
following factors are Confidential Business Information and
After Compliance Year - Calculate the Final Allocation using Actual Emissions:                                         cannot be disclosed.
7) All required input data is highlighted in green:                                                                         Data used in this example are hypothetical, however they
+ Actual emissions (MRR reported)                                                                                      mirror calculations that are confidential and should be protected.
8) Hit Enter key after entering last value                                                                                                                              Equation Variables:
9) Hit F9 to calculate (if automatic calculation turned off)                                                                     Calculated weighted EII average => Avg EII Factor:              99.97
10) Save spreadsheet and print results showing Final Allocation for each facility based on actual emissions                          Calculated adjustment factor => Adj Factor:                 1.366

Distribution of GHG Allowances to Petroleum Products Manufacturing Sector
Energy Efficiency Based Allowance Distribution Methodology
Note that all emissions data and EII values in this example spreadsheet are hypothetical

Sector Quantity - Total Free Allowances to be Distributed:                         33,600,000
Cap Reduction Relative to Total Baseline Emissions:             4.0%

Energy Efficiency Based Allowance Distribution Methodology - Baseline Allocation                                       True-Up Calculation Based on Actual Emissions
Final
Emissions                                                       Baseline      Actual
Energy                                                                                 Allocation
Baseline for                Distribution Percent Free          Allocation    Emissions      True-Up
Covered Facility                                            Efficiency                                                                              Based on
Facility,                   Factor      Allowances             CO2e         (MRR         Adjustment
(EII)                                                                                  Actual
CO2e Tonnes/yr                                                   Tonnes/yr     Reported)
Emissions
1   Lowest EII Facility                        2,500,000         91.0          1.042         100.0%            2,500,000     2,400,000      -80,000     2,420,000                                       96.0%
2   Facility 2                                  500,000          92.0          1.037          99.5%             497,578       505,000        4,976       502,554                                        96.0%
3   Facility 3                                 2,000,000         93.0          1.032          99.0%            1,980,831     1,920,000      -48,665     1,932,166                                       96.0%
4   Facility 4                                 2,500,000         94.0          1.027          98.6%            2,464,441     2,490,000          0       2,464,441                                       96.0%                  Percent Free Allowances
5   Facility 5                                 4,000,000         95.0          1.022          98.1%            3,924,938     3,970,000          0       3,924,938                                       96.0%   100%
6   Facility 6                                  800,000          96.0          1.017          97.7%             781,430       810,000        9,768       791,198                                        96.0%    99%
7   Facility 7                                 1,000,000         97.0          1.013          97.2%             972,432      1,005,000       4,862       977,294                                        96.0%
98%
8   Facility 8                                 2,000,000         98.0          1.009          96.8%            1,936,332     1,900,000      -29,065     1,907,266                                       96.0%
9   Facility 9                                  500,000          99.0          1.004          96.4%                           480,000        -1,594      480,399                                        96.0%    97%
481,993
10   Facility 10                                1,200,000        100.0          1.000          96.0%            1,151,867     1,250,000      47,994      1,199,861                                       96.0%    96%
11   Facility 11                                2,600,000        101.0          0.996          95.6%            2,485,271     2,440,000      -36,217     2,449,054                                       96.0%    95%
12   Facility 12                                1,000,000        102.0          0.992          95.2%             951,937       965,000           0        951,937                                        96.0%    94%
13   Facility 13                                2,300,000        103.0          0.988          94.8%            2,180,576     2,250,000          0       2,180,576                                       96.0%    93%
14   Facility 14                                 600,000         104.0          0.984          94.4%             566,574       625,000       23,607       590,181                                        96.0%    92%
15   Facility 15                                2,500,000        105.0          0.980          94.1%            2,351,441     2,375,000          0       2,351,441                                       96.0%
91%
16   Facility 16                                1,000,000        106.0          0.976          93.7%             936,932       970,000           0        936,932                                        96.0%
17   Facility 17                                1,500,000        107.0          0.972          93.3%            1,400,035     1,520,000      18,667      1,418,702                                       96.0%    90%
18   Facility 18                                4,000,000        108.0          0.969          93.0%            3,719,388     3,950,000          0       3,719,388                                       96.0%          1   3   5    7    9     11    13   15   17   19   21
19   Facility 19                                2,500,000        109.0          0.965          92.6%            2,316,005     2,320,000          0       2,316,005                                       96.0%                                Refinery
20   Facility 20                                    0            110.0          0.961          92.3%                0             0                                                                      96.0%
21   Facility 21                                    0            110.0          0.961          92.3%                0             0                                                                      96.0%
Total   35,000,000                                      96.0%           33,600,000    34,145,000      -85,667      33,514,333
(Total Sector Baseline)                                                                                               95.8% vs. Baseline
Notes:
®
1) EII is a registered trademark of Solomon Associates LLC
2) The Solomon EII values and the factors used in the calculations are Confidential Business Information
and should not be publically disclosed.

932d5d70-e8fc-4828-ab85-605c49eb84a6.xls Calculation

```
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