SECTION 5. RULES RELATING

TO THE AVAILABILITY OF THE REFINED COAL CREDIT

.01 Leased Refined Coal Production Facility . The refined coal credit is allowed for qualified refined coal produced and sold to an unrelated person by the taxpayer, without regard to whether the taxpayer owns the refined coal production facility in which the refined coal is produced. Accordingly, a taxpayer that leases or operates a facility owned by another person may claim the credit for refined coal that the taxpayer produces in the facility.

.02 Addition or Improvement to an Ex- isting Facility . A refined coal production facility will not be treated as placed in service after October 22, 2004, if more than 20 percent of the facility’s total value (the cost of the new property plus the value of the used property) is attributable to property placed in service on or before October 22, 2004. The Service will not issue private letter rulings relating to when a refined coal production facility has been placed in service.

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be determined using a method that accurately measures such emissions.

(3) Adjustment for Additives . In any case in which additives are used to produce the refined coal, appropriate adjustment must be made in determining the useful thermal energy produced by the refined coal.

.03 Emission Reduction Testing Meth- ods .

(1) CEMS Field Testing . (a) In General . The emissions reduction may be determined using continuous emission monitoring system (CEMS) field testing. CEMS field testing is testing that meets all the following requirements:

(i) The boiler used to conduct the test is coal-fired and steam-producing and is of a size and type commonly used in commercial operations.

(ii) Emissions are measured using a CEMS.

(iii) If EPA has promulgated a performance standard that applies at the time of the test to the pollutant emission being measured, the CEMS must conform to that standard.

(iv) Emissions for both the feedstock coal and the refined coal are measured at the same operating conditions and over a period of at least 3 hours during which the boiler is operating at a steady state and at least 90 percent of full load. Operating changes to power plant components that are directly attributable to changing from the feedstock coal to refined coal, such as adjustment to primary and secondary air are not treated as a change in operating conditions for this purpose.

(v) Emissions of SO 2 are measured upstream of any SO 2 scrubber.

(vi) Emissions of Hg are measured upstream of any SO 2 scrubber or Hg control device (such as activated carbon injection).

(vii) Emissions of NOx are measured upstream of any NOx controls.

(viii) A qualified individual verifies the test results in a manner that satisfies the requirements of section 6.03(1)(b) of this notice.

(b) Downstream CEMS Testing Per- mitted. CEMS testing for emissions of SO downstream of an SO scrubber, of 2 2 Hg downstream of an SO 2 scrubber or Hg control device, or of NOx downstream of any NOx controls is permitted if such testing satisfies the requirements of section 6.03(1)(a)(i) through (iv) of this notice

§ 1.613–4(f)(5)). Section 613(c)(5) describes treatment processes that are not considered as mining unless they are provided for in § 613(c)(4) or are necessary or incidental to a process provided for in § 613(c)(4). Any cleaning process, such as a process that uses ash separation, dewatering, scrubbing through a centrifugal pump, spiral concentration, gravity concentration, flotation, application of liquid hydrocarbons or alcohol to the surface of the fuel particles or to the feed slurry, provided such cleaning does not change the physical or chemical structure of the coal, and drying to remove free water, provided such drying does not change the physical or chemical identity of the coal, will be considered as mining.

(3) Exception for Processing Waste Coal .

(a) In General . A cleaning process shall not be treated as a mining process for purposes of applying this section 6.01 to refined coal produced from waste coal at a facility placed in service before January 1, 2010, for the primary purpose of producing refined coal from waste coal. For purposes of this section 6.01(3), waste coal means the waste materials that are separated through ordinary mining processes during the process of producing a merchantable product from the coal extracted from a natural deposit. This section 6.01(3) does not apply with respect to the refined coal produced at a facility during a taxable year unless a verification of waste coal supply, as described in section 6.01(3)(b), is available for such facility. (b) Verification of Waste Coal Supply . The verification of the waste coal supply for a facility required under this section 6.01(3) must contain the following: (i) The name, address, and telephone number of the qualified individual.

(ii) A statement that the person providing the verification of the waste coal supply is a qualified individual.

(iii) A statement that the coal to be processed by the facility is “waste coal” within the meaning of section 6.01(3)(a).

(iv) A declaration, signed by the qualified individual, in the following form: “Under penalties of perjury, I declare that I have examined this verification statement and, to the best of my knowledge and belief, it is true, correct, and complete.”

(c) Qualified Individual . A qualified individual for purposes of this section 6.01(3) is an individual that— (i) is not related (within the meaning of § 45(e)(4)) to the taxpayer claiming the refined coal credit;

(ii) is properly licensed as a professional engineer; and

(iii) has the requisite qualifications to provide the verification required under this section 6.01(3).

(4) Exception for Certain Processing of Utility-Grade Coal.

(a) In General . Mining processes do not include a process that satisfies all of the following requirements:

(i) The process modifies utility-grade coal.

(ii) The process consists predominantly of operations that are not ordinarily performed on similar coal by a mine owner or operator.

(iii) The process goes beyond those necessary for the production of utility-grade coal from similar coal.

(b) Utility-Grade Coal. Utility-grade coal is coal that, without further processing, satisfies commonly applicable utility specifications for similar coal.

(c) Similar Coal . Coals are similar if they are of the same rank, are extracted in the same geographic area, and are customarily sold in the same geographic area (which may differ from the area where they are extracted).

.02 Basis for Determining Emission Re- duction .

(1) In General . Emission reductions are determined by comparing the emissions that result when feedstock coal and refined coal are used to produce the same amounts of useful thermal energy.

(2) Emissions Resulting from Produc- tion Process . Emissions that result from the process of producing refined coal from feedstock coal are treated for purposes of this section 6.02 as emissions that result when the refined coal is used to produce useful thermal energy. In any case in which waste heat from an activity other than the production of refined coal is used in the process of producing refined coal from feedstock coal, the emissions associated with the waste heat are not treated as emissions that result from such process. The emissions that result when refined coal is produced from feedstock coal must

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permitted under section 6.03(2)(b)(i) or (ii) of this notice.

(i) Laboratory analysis may be used to establish that the requisite emissions reduction for SO will be achieved if 2 or Hg the analysis shows that the sulfur(S) or Hg content of the amount of refined coal necessary to produce an amount of useful energy has been reduced by at least 20 percent (40 percent, in the case of facilities placed in service after December 31, 2008) in comparison to the S or Hg content of the amount of feedstock coal necessary to produce the same amount of useful energy, excluding any dilution caused by materials combined or added during the production process.

(ii) Laboratory analysis, including proximate and ultimate analysis, if combined with appropriate analytical methods, including Computational Fluid Dynamics (CFD) modeling, may be used to show that the requisite reduction in NOx will be achieved when the refined coal is burned. Such analytical methods must be based on sufficient combustion emission data to permit a qualified individual, as defined in section 6.03(1) of this notice, to reliably conclude that the emission reduction will be achieved.

(3) In General . A taxpayer may show qualified emission reduction of any pollutant by any of the testing methods that is described as a permissible method of testing the emission reduction of that pollutant in this section 6.03.

.04 Frequency of Testing . (1) In General . A taxpayer may establish that a qualified emissions reduction determined under section 6.03 of this notice applies to production from a facility by a determination or redetermination that is valid at the time the production occurs. A determination or redetermination is valid for the period beginning on the date of the determination or redetermination and ending with the occurrence of the earliest of the following events: (i) The lapse of six months from the date of such determination or redetermination.

(ii) A change in the source or rank of feedstock coal that occurs after the date of such determination or redetermination.

(iii) A change in the process of producing refined coal from the feedstock coal that occurs after the date of such determination or redetermination.

and emissions are measured in accordance with section 6.03(1)(b)(i) or (if applicable) (ii) of this notice.

(i) Except as provided in section 6.03(1)(b)(ii) of this notice, the emissions must be measured in accordance with section 6.03(1)(a)(iv) and the taxpayer must provide verification that any scrubber or control device was operated under the same operating conditions during the test period. Such verification should include, depending on the nature and type of the control device, important control device operating parameters such as, for a scrubber, continuous pressure drop, liquid flow rate, and gas flow rate, and for an electrostatic precipitator, continuous secondary voltage and current and number of fields in operation.

(ii) If, during the 5-year period immediately preceding the date that the plant began burning the refined coal, the plant burned, throughout any 24-consecutivemonth period selected by the taxpayer (the base period), feedstock coal from the same source and of the same rank as the feedstock coal used to produce the refined coal, emissions of SO or NOx may be 2 measured by treating the average emissions at which the plant actually emitted the pollutant during the base period as the emissions for the feedstock coal and the average emissions at which the plant actually emitted the pollutant during a 6-month period in which the plant burned the refined coal as emissions for the refined coal. Emissions must be determined for purposes of this section 6.03(1)(b)(ii) without regard to any reduction attributable to physical improvements or replacements of pollution control devices or other physical changes to the plant made after the beginning of the base period.

(c) Verification of Test Results . A verification of test results for purposes of this section 6.03(1) must contain the following:

(i) The name, address, and telephone number of the qualified individual.

(ii) A statement that the person providing the verification of test results is a qualified individual.

(iii) A statement that the testing satisfied all the requirements specified in either section 6.03(1)(a)(i) through (vii) or (if applicable) section 6.03(1)(a)(i) through (iv) and (b) of this notice.

(iv) In the case of any changes to operating conditions permitted under section

6.03(1)(a)(iv) of this notice, a statement that such operating changes are directly attributable to the change in fuel and are consistent with good air pollution control practices.

(v) A statement that the amount of the emissions reduction was determined in accordance with the provisions of section 6.01 and section 6.02 of this notice. (vi) A declaration, signed by the qualified individual, in the following form: “Under penalties of perjury, I declare that I have examined this verification statement and, to the best of my knowledge and belief, it is true, correct, and complete.”

(d) Qualified Individual . A qualified individual for purposes of this section 6.03(1) is an individual that— (i) is not related (within the meaning of § 45(e)(4)) to the taxpayer claiming the refined coal credit;

(ii) is properly licensed as a professional engineer; and

(iii) has the requisite qualifications to provide the verification required under this section 6.03(1).

(e) Reliance Permitted . If CEMS field testing is used to determine the emissions reduction, the Service will not, on examination, require any additional proof of the emission reduction achieved. The Service may, however, require the taxpayer to establish that the testing used qualifies as CEMS field testing.

(2) Other Testing Methods. Methods other than CEMS field testing may be used to determine the emissions reduction. If a method other than CEMS field testing is used, the Service may require the taxpayer to provide additional proof that the emission reduction has been achieved. Permissible methods include the following:

(a) Demonstration Pilot-Scale Combus- tion Furnace. A testing method using a demonstration pilot-scale combustion furnace if it is established that the method accurately measures the emissions reduction that would be achieved in a boiler described in section 6.03(1)(a)(i) of this notice and a qualified individual verifies the test results in a manner that satisfies the requirements of section 6.03(1)(c)(i), (ii), (v), and (vi) of this notice.

(b) Laboratory Analysis of the Feed- stock Coal and the Refined Coal. A laboratory analysis that complies with a currently applicable EPA or ASTM standard and is

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