Carbon Caps and an Oregon RPS: Comments to the Carbon Allocation Task Force

1. Carbon Caps and an Oregon RPS: Comments to the Carbon Allocation Task Force Bill Drumheller Oregon Department of Energy June 1, 2006

2. Background • Carbon Allocation Task Force stems from Recommendation GEN-2 of Governor’s Advisory Group on Global Warming. • RPS recommendation listed as GEN-2a. • RPS intended to be a subset of carbon cap as, along with the public purpose charge, “tools to meet a greenhouse gas allowance standard and overall state CO2 goals.”

3. Renewable Energy Working Group • Formed by Governors Office and ODOE in Fall 2005 and Winter 2006 as called for in Renewable Energy Action Plan. • Initially only to “consider” an RPS. • Governor charged REWG to “develop” an RPS in State of the State speech, “Action Plan for Energy” and subsequent announcements.

4. Importance of 25 by 25 Goal • 25 percent by 2025 is goal in both the Renewable Energy Action Plan and Oregon Strategy for Greenhouse Gas Reductions. • By making the RPS goal compatible with existing plans it will not contradict ongoing efforts in either the REWG or CATF group. • With careful and deliberate design, the RPS can be developed in either group and used in both groups. • REWG currently has lead on crafting RPS details.

5. Credit Multipliers • Some RPS designs allow “extra credit” in terms of kWh for certain resources or project sizes (e.g, double credit for DG) • This can lead to a situation where RPS compliance is reached (at 25%) but with the actual emissions reductions expected from that level of compliance reduced accordingly.

6. Renewable Energy Certificates • REC = bundle of attributes associated with power generation (type, emissions, etc.) • “bundled” REC = power + attributes • “unbundled” REC = generated power sold separately from attributes • “disaggregated” REC = a REC in which one or more attributes is “stripped” off (e.g. CO2) and sold or used independently.

7. RECs for Compliance • Virtually all RPS programs use RECs the compliance mechanism. • CO2 used for carbon cap is an integral part of REC bundle of attributes. • Retiring a REC to comply with an RPS takes the affiliated CO2 attributes with it to the “grave”. • So does obtaining and using a REC satisfy the requirements of both an RPS and a carbon cap?

8. REC Accounting Terminology • Yes -- However, if the REC is disaggregated and the carbon used to satisfy the cap, then there would be partial double-counting of that REC. • Yes -- If it is understood the REC is being traded and disposed of solely within the RPS system, then the regulating entity (state) can allow double use if it so chooses, meaning a REC (with all of its attributes) can comply with both programs.

9. Implications of Double Use • The difference between double counting and double use is not purely semantics. • Disaggregating a REC is highly problematic from a consumer protection viewpoint. • Double usage makes sense, but the carbon attribute of that REC has no separate value and can’t be sold -- or perhaps more importantly, the carbon attribute can not be represented to others as having some separate value.

10. Bundled vs. Unbundled RECs • Straw proposal requires unit-specific power contracts to the utility, although utility can sell power separate without the REC. • Unbundled RECs could only be used as offsets, probably up to an upper limit. • Hence, strong incentive to only allow bundled RECs in both RPS and carbon cap.

11. Summary • RPS should be considered, and designed as, a subset of the carbon cap. • To the extent credit multipliers are used in RPS it decreases real carbon reductions. • Intent is to allow double usage of RECs. • If RPS uses bundled RECs, few problems. • Usage of unbundled RECs in RPS past offset limit in cap is a potential problem.