Website:

1
Moving Forward on Carbon CapsThe Regional
Greenhouse Gas Initiative

• Oregon Carbon Allocation Task Force
• March 2006
• Richard Cowart

2
The Northeast Regional Greenhouse Gas Initiative
(RGGI)

• 7 states engaged
• 4 other states (MA and RI out for now) (PA, MD)
  are observing
• Begun 2003
• MOU signed by 7 Governors 12/05
• Model Rule -- coming soon
• State-by-state adoption 2006
• Launch 2009

3
Designing the RGGI Cap-and-Trade Program
Determine Total Emissions from Covered Sources
Set Cap
Sources Cover Emissions with Allowances and/or
Offsets
Issue Allowances (1 per ton) Distribute
Identify Sources to be Covered
Trade
4
RGGI Program Elements

• Coverage Power Plants of 25 Megawatts
• Cap levels Stabilize Emissions 2009 through
  2015 Reduce 10 by 2019.
• Allocation Each state has a budget, and
  allocates credits
• 3-Year compliance periods
• Offsets Generators can earn offsets from
  off-sector reductions
• Safety valve program if prices rise too much
• Leakage problem still to be addressed
• Review of Program in 2012.

5
RGGI innovation Consumer Allocation

• Allocate 50 --100 of initial credits to
  consumer representatives (eg, distribution
  utilities, Efficiency Utility)
• RGGI MOU - state minimum commitment is 25
• Most states will be higher Vermont can be 100
• Generators need to purchase allowances, recycling
  the windfall revenue BACK to consumers
• PUCs supervise use of the for benefit of
  consumers
• Best result focus on investments that lower
  carbon (EE RE)
• Result lower program cost, greater efficiency

6
Consumer allocation State-by-state decisions

• H 860 (passed by Vermont House)
• In order to provide the maximum long-term
  benefit to Vermont electric consumers,
  particularly benefits that will result from
  accelerated and sustained investments in energy
  efficiency and other low-cost, low-carbon power
  system investments, the public service board
  shall establish a process to allocate 100
  percent of (Vermonts) tradable power sector
  carbon credits and the proceeds from the sale of
  those credits through allocation to one or more
  trustees acting on behalf of consumers
• Regionwide, a 50 consumer allocation could raise
  250 million per year.
• Strong support for large CAs in New Jersey, CT,
  NY
• Less likely in NH, DE (at this point)

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RGGI Flexibility Devices

• 3-Year Compliance Period
• Banking Allowed
• Offsets permitted
• Safety Valve provisions
• (Leakage is NOT an acceptable safety valve and
  must be dealt with)

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Flexibility -- Offsets

• Offsetsproject-based reductions
• Types
• Natural Gas, Propane, Heating Oil Efficiency
• Land to Forest
• Landfill Gas Capture Combustion
• Methane Capture from Animal Operations
• SF6 Leak Prevention
• Leak Detection in Natural Gas Distribution
• Geographic Extent
• Anywhere in the United States
• Offsets from Outside RGGI States 21 Discount
• Limit on Use
• Each Source may cover up to 3.3 of its total
  reported emissions

9
RGGI Flexibility-- Safety Valve

• Allowance Price Safety Valves
• 7.00 Trigger
• Limit on offset use increased to 5 of a sources
  reported emissions
• Anywhere in North America
• Offsets from Outside RGGI States 11

10
RGGI Safety Valve (2)

• Allowance Price Safety Valves (Contd)
• 10.00 Trigger
• Compliance Period extended for 1 year for up to 3
  years (Maximum 6-year compliance period).
• 10.00 Trigger2 Consecutive Years
• Limit on use of offsets increased to 20 of a
  sources reported emissions
• Offsets may come from anywhere in North America,
  or from recognized international trading regimes.

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Modest Projected Impacts

• Using natural gas price projections widely
  accepted by industry analysts, regional average
  retail price increases range from 0.3 to 0.6
  in 2015, across all rate classes.
• Even under a high gas price scenario using gas
  prices that are higher than mainstream analysts
  expect, projected retail electricity price
  impacts range from 1.7 to 3.2 in 2015, across
  all rate classes.
• Improved energy efficiency over time, due to both
  RGGI and other state energy policies, is
  projected to produce average household bill
  savings that exceed the price impact of the RGGI
  program.

12
Efficiency in New England can reverse demand
growth
Source NEEP, 2004
13
and would lower the cost of carbon management
14

• Next Steps
• Model Rule Draft now out for comment
• 60-day Public and Stakeholder Review
• Julymodel rule will be final
• Leakage Working Group appointed
• Offsets Working Group continues
• States will initiate state-specific legislative
  and/or rulemaking processes.

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Three Lessons from RGGI

• 1.The Acid Rain program design
  smokestack-based, free allocations based on
  historic emissions is not the best design for a
  carbon cap/trade system for the power sector.
• 2. An effective power sector carbon program
  requires focus on the load side of the power
  system, not just the generation side.
• 3. Energy efficiency is not a collateral energy
  policy, it is the key to success of the carbon
  program.

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For more information
Another Option for Power Sector Carbon Cap and
Trade Systems Allocating to Load Addressing
Leakage in a Cap-and-Trade System Treating
Imports as a Source Why Carbon Allocation
Matters Issues for Energy Regulators Richard
Cowart, Regulatory Assistance Project Memos for
the Regional Greenhouse Gas Initiative (RGGI)
--Posted at www.raponline.org Email questions
to RAPCowart_at_aol.com