Regional Greenhouse Gas Initiative

1
Regional Greenhouse Gas Initiative

• Presentation to the Air and Waste Management
  Association
• Sonia Hamel
• Office for Commonwealth Development in the
  Commonwealth of MA
• November 5, 2004

2
Starting RGGI

• April 2003 - New York Governor Pataki asked the
  11 governors from Maine to Maryland to work
  together to develop a regional CO2 cap-and-trade
  program
• August 2003 - RGGI Staff Working Group formed
  with staff representatives from nine
  participating states' environmental and energy
  agencies (2 states and ECP observing)
• September 2003 - Action Plan was endorsed by
  environmental and energy agency heads, laying out
  18 month work plan.

3
Regional Greenhouse Gas Initiative (RGGI)

• A cooperative effort that seeks to reduce carbon
  dioxide emissions while maintaining affordability
  and reliability of electricity
• Initial focus is implementation of a multi-state
  cap-and-trade program for emissions from power
  generation
• After initial phase is implemented, the states
  will consider developing programs for other
  sectors.

4
Participation

• Participants ME, NH, VT, MA, RI, CT, NY, NJ, DE
  District of Columbia
• Observers MD, PA, New Brunswick, Quebec
  Eastern Canadian Premiers
• Stakeholder Group
• Resource Panel

5
Why Take Action at a State Level?

• 3rd Largest World Economy
• 14 US GHG Emissions
• 3.2 of World GHG Emissions (? Germany)
• Greatest value in what the Northeast can do is in
  being a path-breaker.
• Sending a first market signal on carbon.

6
Why Take Action at a State Level?

• Relative GHG Emissions
• NESCAUM States gt Canada, Korea, Italy, Mexico,
  Australia, Brazil, France, or Spain
• RGGI Region gt Germany
• New York gt Taiwan or Venezuela
• New England gt Netherlands or Argentina
• New Jersey gt Egypt or Belgium
• Massachusetts gt Greece, Austria, Kuwait, Sweden
  or Israel
• Connecticut gt Switzerland, Ireland or New Zealand
• Maine gt Croatia, Estonia, or Tunisia
• New Hampshire gt Lithuania or Jordan
• Rhode Island gt Jamaica or Kenya
• Vermont gt Paraguay or Tanzania

7
Program Goal

• Develop a multi-state cap and trade program
  covering greenhouse gas (GHG) emissions.
• The program initially be aimed at developing a
  program to reduce carbon dioxide emissions from
  power plants in the participating states, while
  maintaining energy affordability and reliability
  and accommodating, to the extent feasible, the
  diversity in policies and programs in individual
  states.
• The goal is to have an agreement on program
  design by April 2005 or sooner.
• After the cap and trade program for power plants
  is implemented, the states may consider expanding
  the program to other kinds of sources.

8
Program Goal

• Develop a multi-state cap and trade program
  covering greenhouse gas (GHG) emissions.
• The program initially be aimed at developing a
  program to reduce carbon dioxide emissions from
  power plants in the participating states, while
  maintaining energy affordability and reliability
  and accommodating, to the extent feasible, the
  diversity in policies and programs in individual
  states.
• The goal is to have an agreement on program
  design by April 2005 or sooner.
• After the cap and trade program for power plants
  is implemented, the states may consider expanding
  the program to other kinds of sources.

9
Principles Guiding Design

• The program will emphasize uniformity to
  facilitate interstate trading in GHG allowances
  and will build on successful cap and trade
  programs and mechanisms already in place.
• The program will be expandable and flexible,
  permitting other states to seamlessly join in the
  initiative when they deem it appropriate.

10
Principles Guiding Design

• The program shall start simply and develop over
  time.
• The initial phase of the cap and trade program
  will entail the allocation and trading of carbon
  dioxide allowances to and by sources in the power
  sector.
• States are working together to develop reliable
  protocols for offsets (i.e., creditable
  reductions outside the power sector) that may be
  used to achieve compliance with the cap.

11
Staff Working Group

The development of the program is being
accomplished through the cooperative efforts of
the participating states, acting principally
through their designated representatives. Each
state has designated representatives from
environmental and energy regulatory agencies.
Collectively, these designated representatives
make up the Staff Working Group.
12
Stakeholder Group
13
Stakeholder Process Overview
14
Resource Panel

• ISOs New England, New York, PJM
• Research organizations WRI, Pew, RFF
• Emissions Traders Natsource
• Energy assistance Regulatory Assistance Project
• Environmental assistance NESCAUM

15
Essential Components

• Adoption Not taken for granted
• Stringency better a modest successful program
  than an ambitious failure
• Simplicity of design Inspire others to follow
• Key to strict accountability and flexibility
• Enforcement

16
The Pew Foundation Report Offers Lessons for RGGI

• Cap-and-trade is appropriate for this problem
• Environmental goals will not be compromised, and
  perhaps even enhanced
• Keeping it simple is important. Recognize that
  allowances are limited property rights and avoid
  complex review procedures
• Allocations dont affect program performance,
  however they play a vital role in adoption of the
  program

17
The Path-breaker Model

• Two requirements for success environmental
  leadership
• Path leads to environmental improvement
• Induces others to follow
• Setting an example and creating easy linkages
  that allow others into the system

18
Quantitative Impacts of a Regional Carbon Cap

• Carbon emissions
• Other emissions
• Electricity prices
• Total electricity system costs
• Fuel use and diversity
• Reliability
• Imports and exports of electricity

19
Key Issues

• What factors to consider in setting cap levels to
  model and, ultimately, to recommend?
• How to minimize cost in implementing a workable
  system?
• What assumptions should be used to model
  benchmark scenario and reference scenario?
• Should reductions from sources not covered by the
  cap qualify for credit? If so, what sources?

20
Modeling Plan

• Model the impacts over a 12 state region with
  individual inputs for 53 sectors in each state
• Estimate contributions from energy efficiency and
  renewable energy
• Outputs will include predicted impacts on
  personal income, gross state product, employment,
  imports, industrial sector consumption/production
• Estimate corollary benefits for public health
  Benchmark and Reference Case Scenarios
• CO2 Cap and Trade Level Scenarios
• Policy, Structure, and Flexibility Scenarios
• Model Rule Scenario

21
Economic Model Selection

• Selected REMI Policy Insight as modeling tool
• REMI will prepare a 12-region/state 53-sector
  model with I/O for each state and full region
• sample outputs personal income, gross state
  product, employment, imports, industry sector
  consumption/production
• REMI Modeling Plan integrated with IPM Modeling
• I/O data transformations
• Policy Simulations based on IPM scenarios

22
Additional Analyses

• Air Quality/Public Health Modeling
  Co-Benefits from Emission Reductions
• Evaluation of Energy Efficiency and Renewable
  Energy Industry Sectors
• Impacts on product/service demand and industry
  cluster growth

23
Potential Applicability

• For initial phase, focus is on electricity
  generating units larger than 25 MW
• Over 95 of GHG emissions come from units larger
  than 25MW
• Units have better historical data than smaller
  units
• Second phase will consider
• Electric generators smaller than 25MW
• Municipal solid waste combustors
• Biomass-fired units
• Large industrial boilers

24
Connecting Programs is one Goal

• Working on an Emissions Trading Registry to be
  created along side of RGGI
• All of New England NY, NJ, and DE
• Coordination with CA, EU and UK.
• Other states are watching to be included at some
  point including OR, WA, NC, MD, PA, WI and others.