(a) "SO2" shall mean sulfur dioxide.

(b) "SO2 allowance credit" shall mean any SO2 credit issued to a generating source within the United States pursuant to the provisions of title four of the Federal Clean Air Act Amendments of 1990.

(c) "select SO2 allowance credits" shall mean any SO2 allowance credit issued to generating sources located within the boundaries of the state of New York.

(d) "acid precipitation source states" shall mean the following states: New Jersey, Pennsylvania, Maryland, Delaware, Virginia, North Carolina, Tennessee, West Virginia, Ohio, Michigan, Illinois, Kentucky, Indiana and Wisconsin. 2. Air pollution mitigation offset. (a) The commission shall assess an air pollution mitigation offset equal to any sum received by any utility corporation, person or entity entering into contracts or engaging in the sale or trade of select SO2 allowance credits for use in operations, permits or for maintaining compliance with SO2 emission requirements in acid precipitation source states, where such select SO2 allowance credits are found to have been transferred to the allowance deductions reserve account by a generating source located in an acid rain source state.

(b) Any utility corporation, person or entity entering into contracts or engaging in the sale or trade of any select SO2 allowance credits shall provide the commission with written notice of any select SO2 allowance transaction with five business days of such transaction. Such notice shall include the purchase price, and shall provide the commission a copy of the Allowance Transfer Form of the United States Environmental Protection Agency upon the issuance and/or signing of said form relating to the sale, exchange or trade by the utility corporation, person or entity, its subsidiaries, agents, employees, successors and assigns of select SO2 allowance credits.

(c) The commission will annually review information contained in the SO2 allowance tracking database operated by the United States Environmental Protection Agency for select SO2 allowances as identified by their unique serial number.

(d) Any moneys collected as an air pollution mitigation offset pursuant to this subdivision shall be deposited in the air pollution mitigation fund established pursuant to section ninety-nine-g of the state finance law and administered by the New York state energy research and development authority pursuant to subdivision ten-a of section eighteen hundred fifty-four of the public authorities law. 3. Exemptions. (a) The commission, in consultation with the department of environmental conservation, shall produce by rule or order a model restrictive covenant for use by any utility corporation, person or entity entering into contracts or engaging in the sale or trade of select SO2 allowance credits. The model restrictive covenant will be a self-enforcing contract that shall include at a minimum, the requirement to give notice to the commission of any SO2 allowance transaction covered by the restrictive covenant; the requirement that any subsequent holders of the SO2 allowance covered by the restrictive covenant include an identical restrictive covenant in any document relating to the sale or purchase of the covered SO2 allowances; provisions restricting usage in acid precipitation source states; and provisions for the enforcement of the terms of the restrictive covenant by the state of New York.

(b) Any utility corporation, person or entity entering into contracts or engaging in the sale or trade of select SO2 allowance credits may attach a restrictive covenant as a standard provision in any document relating to the sale or trade by the utility corporation, person or entity, its subsidiaries, agents, employees, successors and assigns, of select SO2 allowance credits. Such restrictive covenant must conform with the required provisions of the model restrictive covenant produced by the commission pursuant to this subdivision.

(c) Any utility corporation, person or entity acting in conformance with the provisions of this subdivision shall be exempt from the assessment of an air pollution mitigation offset. 4. Nothing contained in this section shall restrict a utility corporation from use or transfer of SO2 allowances at New York facilities owned, controlled or operated now or in the future by the utility corporation, its successors, assigns or purchasers that come to own, control or operate such facilities. 5. Nothing in this section shall discourage or prohibit allowance trades (such as for retirement purposes) that will have a beneficial impact on sensitive receptor areas in the state of New York. 6. Nothing within this section will invalidate or subvert any prior contractual commitments and/or obligations made by a utility corporation, person or entity identified in subdivision two of this section prior to the effective date of this section.