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EPA's Winding Road

How we got here and what to expect.

Fortnightly Magazine - November 2011

in 2003, membership in the Regional Greenhouse Gas Initiative (RGGI) includes 10 Northeast and Mid-Atlantic states, including Maryland, New York, Massachusetts, and New Jersey. In January 2007, RGGI released its revised draft model rules for a carbon cap-and-trade market. The primary elements of RGGI’s model rule were: CO 2 cap-and-trade with the cap initially based on 2000-2002 emissions; a flat cap between 2009 and 2014 declining by 2.5 percent per year during 2015-2018; and at least 25 percent of the permits (allowances) to be auctioned by each state with proceeds going to “consumer benefits or strategic energy purposes,” such as efficiency programs, consumer rebates or other related public benefits.

As mentioned above, the RGGI allocations were based on 2000 through 2002 emission levels. Since that time, modern combined-cycle generation has been displacing oil-fired generation. Since oil-fired generation is more carbon-intensive than natural gas is, this ongoing shift in the generation mix alone might keep CO 2 emissions below the RGGI targets well into the next decade. Figure 4 shows historical CO 2 emissions in the RGGI region versus the cap. The bottom line is that RGGI is over-allocated, and the traded price for allowances is expected to continue clearing at the floor price. Additionally, some states have begun using the revenues from the program to offset budgetary shortfalls instead of using the proceeds to achieve further CO 2 reductions.

On the West Coast, GHG emissions are being addressed through the Western Regional Climate Action Initiative (WCI), and in California specifically through state legislation, Assembly Bill 32 (AB32).

In December 2010, the California Air Resources Board (CARB) finalized the draft resolution establishing state cap-and-trade regulations as one of the strategies to meet California’s AB32 requirements, reducing CO 2 emissions so that 2020 levels are equal to 1990 levels. The regulation will begin in 2012, but it’s expected that emission obligations won’t begin until 2013.

California continues to work with the other six states in the WCI to design regional programs to further reduce CO 2 emissions. In February 2007, the Western Governors Association signed the WCI, a memorandum of understanding to develop a regional target of lower GHG emissions and create a market-based approach to achieve that target. Although this group is a few years behind RGGI, it’s following a very similar path. It’s possible the WCI could learn from the Eastern states’ action and develop an RGGI-like plan in fairly short order.

In August 2007, WCI announced a goal of reducing GHG emissions to 15 percent below 2005 levels in WCI partner states by 2020. On March 3, 2008, WCI released a draft update to its cap-and-trade point of regulation for the electricity sector. While the WCI partners are still evaluating different approaches (retail, “first seller,” load-based, etc.), they currently agree that a generator-based option is preferable. There are also efforts to expand the WCI to include generators within the entire Western Electricity Coordinating Council (WECC) region. To prevent leakage, WCI is evaluating several plans to ensure that all electricity consumed within WCI’s jurisdiction is subject to the same CO 2 costs.