Staff Working Group Update on Development of Potential Offsets Chris Sherry, NJ DEP RGGI Stakeholder

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Staff Working Group Update on Development of
Potential OffsetsChris Sherry, NJ DEPRGGI
Stakeholder Group MeetingBoston, MAMay 19, 2005
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Overview

• Offsets Development Action Items -- In Process
• Expand Phase-I offsets
• Elaborate process for expansion of offsets scope
  post-model rule
• Identify Phase-II offsets for development
  post-model rule
• Identify options for favoring in-region offsets
  while maintaining international interaction
• Identify options for limitation of quantitative
  scope of offsets
• Process Update
• Example model rule outline
• Offsets modeling update

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Expansion of Phase-I Offsets

• Add oil/propane, solar thermal to current natural
  gas end-use energy efficiency offsets standards
• Would not require significant redesign of
  standards
• Significant additional emissions reduction
  potential
• Analyze viability of complimentary standards for
  industrial sector, in addition to current focus
  on building sector

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Elaborate Process for Expansion of Offsets Scope
Post-Model Rule

• Elaborate general standards criteria (e.g.,
  additionality) to inform development of future
  standards
• May be specified formally in model rule, or by
  agreement among participating states
• Specify post-model rule development process and
  role of regional organization
• Concurrent with development of design proposal
  for regional organization

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Identify Phase-II Offsets for Development
Post-Model Rule

• Stakeholder input welcomed, considering context
  of SWG evaluation criteria elaborated at prior
  meetings
• What is viable for development of standards in
  next two years?

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Identify Options for Favoring In-Region Offsets
while Maintaining Robust International Interaction

• In-Region
• Capture environmental co-benefits
• Capture investment in region (ratepayer impacts
  reinvested in state/region)
• International
• Functional price cap (RGGI as price-taker)
• Agency Heads asked for possible mechanisms to
  balance these policy objectives

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Identify Options for Favoring In-Region Offsets

• Possible Mechanisms
• Expansion of categorical scope based on sustained
  price trigger (applied to CDM, possibly EU ETS
  allowances)
• Agency heads expressed comfort with use of EU ETS
  allowances, some reservations related to CDM
• Would need to determine mechanism for identifying
  if threshold met
• Discounting out-of-region offsets credits
• Incentives for in-region offsets credits
• Treatment through allocations (e.g., percentage
  of source compliance through offsets factored
  into state allocation methodology - presumes
  updating allocation)

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Options for Limitation of Quantitative Scope

• Key Issue
• Place limit on state budget?
• Place limit on source?
• Related Issue
• Should there be any guidance on which states
  project developers apply to for offsets approval?
• Requirement to apply to state where offset
  project occurs?

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State Budget Mechanism

• State emissions budget limitation (equivalent to
  of states emissions budget)
• No differentiation of RGGI allowances based on
  origin would be necessary
• No limitation placed on individual sources (first
  come, first served)
• Would limit number of offsets that could enter
  RGGI market
• Could limit availability of certain offsets types
  if also requirement that project developers apply
  to state in which project occurs
• Regulators could potentially be in position of
  denying applications based on quantitative
  limitation

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Source Limitation Mechanism

• Source limitation (based on region-wide
  emissions limitation applied to sources, of
  individual source allocation, other?)
• If limitation placed on source, an unlimited
  number of offsets credits could enter the market,
  but only a finite number of offsets credits could
  be utilized by individual sources to meet their
  compliance obligations
• RGGI allowances would need to carry a marker
  indicating that they were generated from an
  offset
• States would need to track compliance with this
  additional requirement at the end of each
  compliance period when emissions and allowances
  are trued-up for each source