Status Report: Summit Platform & GHG Accord Implementation MGA Governors Energy Steering Committee July 21, 2008

1. Status Report: Summit Platform & GHG Accord Implementation MGA Governors Energy Steering Committee July 21, 2008

2. Overview • Process Overview • MGA Platform Advisory Groups’ Scope of Work • Status Report Update by Advisory Group • EE • Bioeconomy and Transportation • RE, Advanced Coal, and CO2 Capture • Resolutions Implementation:C02 Management Infrastructure, Transmission Adequacy and Low-Carbon Corridors • Greenhouse Gas Accord and Subgroups • Overview of Modeling in MGA Process • Low Carbon Fuel Standard Policy Development

3. Policy Recommendations, Cooperative Regional Initiatives & Other Outcomes Governors Energy Summits 2007 & 2009 MGA Steering Committee of Governors and Premiers’ Staff State & Regional Implementation 2008-2009 • Four Stakeholder Advisory Groups • Energy Efficiency • Bioeconomy & Transportation • Renewable Elec., Adv. Coal & CO2 Capture • Greenhouse Gas Accord

4. Scope of Work for Platform Advisory Groups: EE, Bio, & RE/Advanced Coal Quantifiable Policy Measures • Identify, characterize, model, prioritize and recommend quantifiable policy measures to governors/premier’s staff to achieve MGA goals. • Recommend quantifiable policy measures to MGA Greenhouse Gas Accord advisory group to complement cap-and-trade in achieving broader regional emissions reductions targets and to reduce the cost of the cap and trade program itself. Other Initiatives • Identify, develop and, where appropriate, begin implementing critical initiatives to enable and/or reinforce quantifiable policy measures in achieving governors/premiers’ goals (e.g., technical assessments, public-private partnerships, collaborative projects, etc.).

5. Scope of Work (cont.) Regional Scenario Model Development • Provide input into design of a systems dynamics model to run regional scenarios of multiple combinations of energy efficiency, bioenergy, renewable electricity and advanced coal/CCS themes. MGA Energy Security & Climate Stewardship Roadmap • Develop regional roadmap outlining modeling results, recommended policies and initiatives, implementation results to date and next steps (will be primary documentary centerpiece for next Summit in Sept. 2009)

6. MGA Platform and GHG Cap-and-Trade Modeling

7. Cooperative Resolutions Assigned to RE, Advanced Coal & CCS Advisory Group • CO2 Management Infrastructure Partnership • Transmission Adequacy Initiative • Low-Carbon Energy Transmission Infrastructure • Establishment of resolution subcommittees • At least one in-person meeting of each, with breakout sessions at full Advisory Group meetings • Work integrated with larger Advisory Group, but decision-making distinct

8. Energy Efficiency Advisory Group • Organized into 4 subgroups: • Energy efficiency potential studies • Utility-related policies • Building codes, appliances standards & governments leading by example • Best practices • Fleshing out policy options to be analyzed and quantified by Center for Climate Strategies (complete set to be vetted at July 23-25 meeting in Kansas City) • CCS’ work with EE Advisory Group has advanced furthest: quantitative analysis to be complete in Sep-Oct. • In October, Forio’s systems dynamics model will enable Advisory Group to determine policy combinations capable of achieving MGA’s goal of 2 percent by 2015.

9. Energy Efficiency cont’d. • In October Advisory Group will draw on modeling results to make recommendations to Cap & Trade Advisory Group and MGA Steering Committee • Also identifying complementary non-policy initiatives (e.g., EE potential whitepaper development to be funded by Energy Foundation)

10. Bioeconomy & Transportation Advisory Group • Second in-person meeting on July 21 in Chicago • CCS policy measure characterization process at earlier stage than EE Advisory Group • Liquid fuels/transportation GHG reduction policies (to complement cap-and-trade) becoming important focus for Advisory Group • E.g. Low Carbon Fuel Standard: North Central Bioeconomy Consortium, Pew Center on Global Climate Change working with BTAG and GHG Advisory Group participants (4 webinars on different aspects of LCFS and in-person meeting in Des Moines) • Policies to reduce vehicle miles traveled (to be identified and characterized)

11. Renewable Electricity, Advanced Coal and Carbon Capture • First meeting held in May in Indianapolis; second meeting on July 30 in Dearborn • Initial identification and characterization by CCS staff of quantifiable policy measures for RE and CO2 capture and storage • Subgroup conference calls underway to further policy characterization and preliminary analysis: Renewable electricity and CO2 capture and storage • Aiming for full set of measures by July meeting for analysis and prioritization by fall • GPI staff interviewing commercial advanced coal/CCS project developers underway to refine and prioritize of specific policy measures

12. Transmission Adequacy Resolution: Preliminary Strategy • First meeting of subgroup in June in DC • Proposed eventual package recommendation to governors and premier addressing three resolution deliverables: • Evaluation of new generation and transmission needed to accommodate that new generation; • Regional transmission plan focused on required high-voltage interstate network additions to accomplish that transmission; and • Proposed cost recovery mechanism/ownership structure to facilitate financing it.

13. Transmission Adequacy: Emerging Approach • Deliverable 1: Evaluation of transmission needs • Expand current MISO survey of load-serving entities to all MGA states, regardless of regional transmission organization (RTO) membership • Status: Survey instrument ready and draft letter from governors/MGA proposed to encourage LSE participation • Use survey data to expand the scope of Midwest Transmission Expansion Plan (MTEP 09 to include the MGA footprint. MTEP 09 is national, and the MGA portion will be a regional look.) • Deliverable 2: Resolve transmission queue congestion for renewables projects • Status: Subgroup finalized draft comment letter to U.S. FERC for governors and premier’s consideration

14. Transmission Adequacy cont. • Deliverable 3: Transmission cost allocation and recovery • Develop model legislation to expand regulatory commission authorities, where needed, to consider public benefit in regional context • Status: survey of state/provincial regulatory commissions re statutory authorities about to begin • Pursue cost allocation/recovery agreement at subregional level first (up to 345 kV), with later expansion to agreement between subregions over cost allocation for needed high-voltage transmission between them (765 kV) • Status: staff assessment with MISO and participants of transmission studies underway that will be most useful in defining costs and issues to be resolved

15. CO2 Management Resolution: Emerging Approach • Deliverable 1: report on costs and benefits of CO2 enhanced oil recovery • Prepare MGA report to governors and premier that builds on existing Midwest reservoir screening and on accounting for net GHG emissions • Status: Staff to begin drafting report drawing on NETL-funded ARI report that has been peer reviewed by subcommittee as foundation for analysis of MGA footprint and recommendations from subcommittee • Deliverable 2: expand geologic assessment of reservoirs, especially in MN, WI and IA, and large-scale non-EOR CO2 storage tests • Federal appropriations letter to be drafted for governors and premiers consideration (staff and participants to craft letter) • Deliverable 3: inventory jurisdictions on existing statutes and regulations re CO2 management • Status: Inventory template completed and jurisdictional survey recipients identified and inventory to be sent to jurisdictional leads

16. CO2 Management Resolution cont. • Deliverable 4: Development of uniform model jurisdictional statutory and regulatory framework • Prepare draft comments on pending U.S. EPA draft underground injection rule for governors and premier’s consideration • Commitment to develop model statutory and regulatory template or toolkit: key policy elements that every jurisdiction needs to regulate and manage CO2 at scale (building on IOGCC and emerging federal component) • Status: staff to begin working with participants to draft model rule comments and template/toolkit elements • Deliverable 5: Identify and site inter-jurisdictional CO2 pipeline • Near term collaboration with participating state agency and NGO partners on development of regional CO2 pipeline network optimization model • Develop scenarios for location and scale of needed pipeline infrastructure in 2015, 2020 and 2050 to meet MGA technology commercialization, CCS deployment and regional GHG reduction targets • Status: Exploration of model development and funding underway among participants and staff

17. Low-Carbon Corridors Resolution • Staff worked with Hunter Roberts to convene small meeting of utility CEOs and NGO executive directors in June to explore how MGA resolution might be implemented in Upper Midwest part of the region • Participants agreed on the value in building a broader stakeholder consensus on next-generation, low-carbon renewable and fossil power supply, together with transmission expansion, in the 2015-2025 timeframe • They also want to add development and deployment of plug-in hybrids and smart-grid capabilities in conjunction with work on the low-carbon electricity supply side of the equation. • Status: They have proposed continuing with a small working group to flesh out options and recommendations for governors and premiers’ staff

18. Greenhouse Gas Advisory Group • Three full advisory group meetings to date, plus one round of in person subgroup meetings and two rounds of conference calls • Fourth meeting in Milwaukee next week includes public input session • Subcommittees formed, each with a governor’s representative chairing and staff leads from the Pew Center or World Resources Institute: • Scope • Allowances • Target-Setting, Data and Compliance • Modeling • Offsets

19. Subgroup Status • Scope • Preliminary recommendation, subject to modeling, that cap and trade program will cover electricity and large industrials (just under half of regional emissions) • Major questions: • Which complementary policies will be recommended to supplement for greater economy-wide coverage? • How will implementation be assured?

20. Allowances • Subcommittee in process of agreeing on technologies and practices that should receive special incentives through allowance distribution (e.g. energy efficiency, CHP, CCS, etc.) • Participants must still make basic recommendation about allowance value distribution mechanism(s): allocation based upon past emissions, auction or hybrid

21. Modeling • ICF selected as vendor • IPM power sector model with build-out for additional sectors, together with REMI for modeling of macroeconomic impacts • Subcommittee and ICF team now meeting on assumptions book and development of reference case

22. Target-Setting • Subgroup has recommended, subject to modeling results, ranges for interim and mid-century regional targets of 15-25 percent reductions from 2005 levels by 2020 and 60-80 percent reductions by 2050. • Generally consistent with MN statutory and IL executive order targets • Participants have also recommended that the cap-and-trade targets and program be reviewed periodically based on evolving science and technology and on results of program to date.

23. Offsets • Subgroup is developing a proposed mechanism for offsets governance and administration • Participants have begun identifying a list of offset categories to undergo technical review and evaluation for potential inclusion in a program • Recommendation that offset participation at 10 percent and 50 percent of emissions under capped sectors be modeled • Recommendation on whether offsets, which ones, and how much is forthcoming

24. Modeling in the MGA Process

25. Update on NCBC Low Carbon Fuels Policy Initiative • Organized by North Central Bioeconomy Consortium, with participation and input from MGA advisory group participants and staff • Chaired by Iowa Secretary of Agriculture Bill Northey, with a regional steering committee • 4 webinars, 1 in-person meeting planned to date for stakeholder information and discussion

26. LCFP Process Goals • Articulate a Midwestern position on the development of state and federal policies • Make recommendations to the Midwestern Governors Association • Make recommendations on how to integrate state efforts • Assure that Midwestern interests have a voice in the development of low carbon policies at the national level • Improve life cycle estimates for corn ethanol • Understand how implementation of Low Carbon Fuel Standards will impact the corn-ethanol industry

27. Four LCFS Webinars • Webinar 1: Overview of process and issues • Webinar 2: Status of major Low Carbon Fuels Policy efforts: CARB, Lieberman-Warner, US EPA, EU • Webinar 3: Life Cycle GHG Assessment for Biofuels • Webinar 4: Midwestern state Low Carbon Fuels Policy initiatives.

28. MGA Advisory Group Representatives BTAG group: • Mary Blanchard • Charles Griffith • Robert Craig • Dennis Banasiak • Mike Doherty GHG group: • Doug Scott • Nancy Jackson

29. Potential LCFS Study Goal: Develop a credible analytical basis for the LCFS. Audience: Policymakers and key stakeholders (biofuels, electric utilities, automakers, oil companies, environmentalists)Key Questions:1. What role could LCFS play in reducing GHG emissions from transportation (vs. vehicle standards, fuels in cap, VMT, incentives, etc.)?2. How does an LCFS work: broad programmatic design choices and linkages to other climate and transportation policies?3. How could the Midwest meet an LCFS, including with biofuels, electricity, and hydrogen? Broad research team planned: expertise from key solutions areas (biofuels, electricity, hydrogen) with geographic diversity. Status: Foundation willing to fund study, pending MGA support.

30. www.midwesterngovernors.org www.midwesternaccord.org