Midwestern Greenhouse Gas Reduction Accord

1. Midwestern Greenhouse Gas Reduction Accord Ray Hammarlund Kansas Corporation Commission April 28, 2009

2. Midwestern Greenhouse Gas Reduction Accord • November 2007 – Jurisdictions agreed to establish reduction targets & multi-sector cap-and-trade program • December 2008 – Preliminary recommendations released by Advisory Group • Advisory Group comprised of public, private, non-governmental institutions • May 2009 – Finalize design recommendations • September 2009 – Release model rule • January 2012 – Planned program commencement

3. Core Design Elements • Will be finalized in May • Emission reduction targets • 15-25% below 2005 levels by 2020 • 60-80% below 2005 levels by 2050 • Preliminary Scope • Electricity generation and imports • Industrial combustion sources • Industrial process sources w/ credible monitoring protocols • Fuels serving residential, commercial and industrial buildings [phased in during the 2nd comp. period] • Transportation fuels [pending modeling results] • Offset limits not yet finalized

4. Unique MidwesternParameters • Borrowing is allowed • Allowance allocation designed to smooth transition to low-carbon economy • Robust offsets framework with formalized mechanism to develop new high-quality standards-based protocols

5. Offset Principles • Must not compromise the integrity of the cap-and-trade program, and therefore must be real, additional, verifiable, permanent, and enforceable • Must address uncertainty, leakage, and non-compliance • Must be adaptable, transparent, and as administratively simple and cost effective as possible without compromising the other principles • Should be developed in a manner that will facilitate linkage with other programs

6. Offset Requirements Real • Offsets must represent actual emission reductions and not artifacts of incomplete or inaccurate accounting. • The effects of a project on GHG emissions must be comprehensively accounted for, and “leakage” in emissions must be factored into the quantification of emission reductions. • Conservative assumptions should be used where there are uncertainties in quantifying emission reductions or removals.

7. Offset Requirements (cont.) Additional • The reductions resulting from offset projects must be shown to be “in addition to” reductions that would have occurred without the incentive provided by offset credit. • To be eligible for offsets, offset projects cannot be required by law or regulations, and must exceed baseline criteria. • The baseline criteria must use standardized criteria (including but not limited to, performance standards, financial feasibility criteria, market penetration, and project start date) that serve to exclude “business as usual” projects from eligibility.

8. Offset Requirements (cont.) Permanent • Emission reductions or removals must be backed by guarantees if they can be reversed, i.e., re-emitted to the atmosphere. • For emission reductions or sequestration activities that can be reversed, adequate safeguards should be established to minimize the risk of reversal, or a mechanism should be provided for the replacement of those tons.

9. Preliminary OffsetRequirements Verifiable • Offsets must result from projects or programs whose performance can be readily monitored and verified, and whose effects can be measured with reasonable precision and certainty. Enforceable • Offsets must be consistent with regulations and administrative rules that define their creation, provide for transparency, and meet defined standards of ownership to avoid double counting.

10. Protocol Development • Hybrid Approach • Standards-based • Positive list • Built-in process to expand list that includes scientific and technical committee review as well as provisions for public comment • Allowing program evolution should promote innovation

11. Thank you. Ray Hammarlund Kansas Corporation Commission r.hammarlund@kcc.ks.gov