Regional Greenhouse Gas Initiative: A Carbon Market for the Northeast

1. Regional Greenhouse Gas Initiative: A Carbon Market for the Northeast Briefing to APPA – Climate Change Task Force Washington D.C. January 2007 Tina Palmero NYS Department of Public Service

2. Overview of Presentation Background Purpose of Initiative Cap and Trade Primer Key Components of Program Status of Rulemaking/Next Steps

3. Background April 2003 Invitation from NY Governor Pataki July 2003 Launch September 2003 Action Plan

4. RGGI Purpose and Goals “Develop a multi-state cap-and-trade program…initially covering carbon dioxide emissions from power plants while maintaining energy affordability and reliability…” (from September 2003 Action Plan)

5. What Are We Trying to Achieve? • Reduce regional greenhouse gas emissions and other emissions • Promote energy efficiency • Promote low-carbon resources • Establish a carbon price • Encourage innovative technologies • Establish national model

6. Cap-and-Trade Program Goal: Achieve a Reduction in Emissions through a Flexible, Market-based Approach Determine Total Emissions from Covered Sources Issue Allowances (1 per ton) & Allocate Allowances to Sources Identify Sources to be Covered Set Cap Trade

7. Individual State Budgets Each State Allocates Allowances Regional Cap Trade Regional Cap-and-Trade Program • Each State: • Agrees to a budget under the cap • distributes allowances • agrees to accept allowances originating in other states • State to State Reciprocity Allows Trading • Key: Ensure Uniform “Currency” and Free Flow of Allowances across State Lines

8. Why Cap-and-Trade? • Proven Results • Lower Cost compared to Command & Control Approaches • Market-Based, Flexible • Incentive to Reduce at Source of Emissions Leads to Innovation

9. Why a Regional Cap-and-Trade Program? • Greater reduction • More options for lower cost reductions • Larger the market, the larger the incentives for innovation • More states = greater influence on future policies

10. The Groundwork MOU December 2005 Post- Model Rule Data Assembly Rulemaking Electric Sector Modeling & Economic Modeling Analysis Model Rule August 2006 Regional Organization Stakeholder Process Key Program Components

11. Summary of the Process • Staff Working Group  Agency Heads  Governors • Energy & Environmental Agencies in Collaboration for more than 3 Years • Extensive Open Stakeholder Processes at State & Regional Levels • Expert Input from ISOs, Environmental Think Tanks, Generators, etc.

12. RGGI Program Components • Start Date of 2009. • Cover Power Plants 25 Megawatts+ • Two-Phase Cap—Stabilize Emissions through 2015; Reduce 10% by 2019. • Starting cap for 7 states ~ 121.2 short million tons (with MA ~147.80 short million tons) • Comprehensive Review of Program in 2012.

13. RGGI Program Components • Allowance Allocations: • 25% for Consumer Benefit and/or Strategic Energy Purpose • Remaining 75% of the allocations left to each state to allocate • 3-Year Compliance Period • Banking Allowed

14. RGGI Program ComponentsOffsets—project-based reductions • Types: • Natural Gas, Propane, Heating Oil Efficiency • Land to Forest • Landfill Gas Capture & Combustion • Methane Capture from Animal Operations • SF6 Leak Prevention

15. RGGI Program ComponentsOffsets—project-based reductions(cont’d) • Geographic Extent: • Anywhere in the United States • If located outside the Signatory States: • State/jurisdiction must have an established cap and trade program in which a specific tonnage limit has been placed on the greenhouse gas emissions from one or more significant economic sectors in such state; and/or • Enter into an MOU with signatory States and agree to carry out responsibilities to ensure credibility of offset allowances from that state or other jurisdiction

16. RGGI Program ComponentsOffsets—project-based reductions • Limit on Use: • Each Source may “cover” up to ~3% of its total reported emissions. • Under special circumstances, additional offsets may be used. • Allowance =$7; 5% offsets • Allowances =$10; 10% offsets+ international trading programs (CDMs)

17. Status of Effort in New York • NYS begins Rule-Making Process • DEC released Pre-proposal (draft Rule) in Dec. 2006 • New York Specific Provisions: • Calls for the allocation of all allowances through an auction • Auction revenues to be used for “energy efficiency and clean energy technology purposes” • Approx. 18 months to complete rule-making process: • Includes: GORR review, SEQR, public comment period and public hearings • PSC Staff involvement throughout, especially important on issues of system reliability, wholesale markets and ratepayer impacts

18. Next Steps for RGGI States • Continue/Start with rulemaking/legislative processes • On-Ramp for MA, MD and RI (?) • Set Up Auction Guidelines/Mechanism • Release Report on Emissions Leakage • Regional Organization – draft by-laws