Environment DEC
From the January 2006 issue
Governor Pataki Announces Regional Agreement to Curb Greenhouse Gases
New York has documented a
loss in marshland, possibly
due to global warming
Governor George E. Pataki announced an historic regional agreement to reduce greenhouse gas emissions from power plants, an important step in protecting our environment and meeting the significant challenge of climate change. Under the Regional Greenhouse Gas Initiative (RGGI), seven northeast states have agreed to implement a cap-and-trade program to lower carbon dioxide (CO2) emissions, which are a major contributor to global warming. This is the first mandatory cap-and-trade program for CO2 emission in U.S. history. In addition to New York, other states signing the regional memorandum of understanding (MOU) for RGGI include: Connecticut, Delaware, Maine, New Hampshire, New Jersey and Vermont. The MOU also allows other states to join the regional program.
The Governor emphasized the importance of enacting a regional pact to better protect our environment and promote new energy-efficient technologies at the lowest possible cost. "Our environment is a vibrant, living resource that needs to be protected, and I am proud that a coalition of northeast states is taking action to address this major environmental challenge," Governor Pataki said. "Under this program, we will use a market-based system to curtail harmful CO2 emissions and spur the development of innovative technologies that will reduce our dependence on foreign energy, strengthen our economy and take meaningful steps in the fight against climate change."
Methods and Goals
Under RGGI, the seven states will create a regional cap-and-trade system that uses emissions credits or allowances to limit the total amount of emissions. Beginning in 2009, emissions of CO2 from power plants in the region would be capped at current levels-approximately 121 million tons annually-with this cap remaining in place until 2015. The states would then begin reducing emissions incrementally over a four-year period to achieve a 10 percent reduction by 2019.
The New York Power Authority
installed these electric
generation units in Queens
to meet growing demand
Participating states will issue one allowance, or permit, for each ton of CO2 emissions allowed by the cap. Each plant will be required to have enough allowances to cover its reported emissions. The plants may buy or sell allowances, but an individual plant's emissions cannot exceed the amount of allowances it possesses. The total amount of the allowances will be equal to the emissions cap for the seven-state region. Electric generating units with a capacity of 25 megawatts or more will be included under RGGI.
State Department of Environmental Conservation (DEC) Commissioner Denise M. Sheehan said, "Today's historic agreement, first initiated by Governor Pataki, establishes a flexible market-based, cap-and-trade program to reduce carbon dioxide emissions in New York State and our region. Collaborating with the other states and New York's partners in government, business and the environmental community has been an extraordinary experience and has resulted in an agreement that will help address the challenge of climate change and create a vibrant market for investments in clean energy technologies."
Details of the Agreement
The RGGI agreement calls for at least 25 percent of a state's allowances to be dedicated to strategic energy or consumer benefit purposes, such as energy efficiency, new clean energy technologies and ratepayer rebates. A power plant also could purchase these allowances for its own use. The funds generated from these sales will be used for beneficial energy programs.
Reforestation will be allowed as
an "offset" under the program
This agreement allows power plants to use "offsets," or greenhouse gas emission reduction projects from outside the electricity sector, to account for up to 3.3 percent of their overall emissions. Offset projects provide generators with additional flexibility to meet their compliance obligations at the lowest cost. A power plant owner/operator will be allowed to select the lowest cost emission reductions and apply them to a portion of the plant's emissions requirement. Examples of offset projects include: natural gas end-use efficiency, landfill gas recovery, reforestation and methane capture from farming or natural gas transmission facilities. Under the program, offset projects will be accepted from anywhere in the United States, with a 2:1 preference for projects undertaken in the participating RGGI state.
The program incorporates additional measures to ensure that the cost of allowances remains affordable. For example, if the average annual price of an emission allowance were to rise above $7, offsets would then be allowed from anywhere in North America at a 1:1 ratio and could be used to offset up to 5 percent of a plant's reported emissions. By expanding the regional area from which to find offset projects and allowing offsets to account for a greater percentage of emissions, this will help to keep energy prices low while also achieving real reductions in greenhouse gas emissions.
The agreement also establishes a $10 per allowance "safety valve." Under this provision, if allowances exceed $10 for a sustained period of time, the compliance period would be extended by the states, and the generators would be allowed to use offsets for up to 20 percent of their reported emissions. Under the "safety valve," offset projects also would be allowed from international trading programs.
Economic Effects
The effect of this program on prices is expected to be minimal, with average household bills increasing by approximately $3-21 annually. However, RGGI may generate significant investments in innovative technologies and energy efficiency, possibly lowering electricity rates.
Participating states plan to issue a draft model regulation for public review and comment in early 2006. Individual states will then proceed with required legislative or regulatory approvals to adopt the program. Pending completion of this process, the RGGI program is slated to begin on January 1, 2009.
