For Release: Tuesday, August 15, 2006
DEC Announces Final Model Rule to Help States Implement RGGI
New York State Department of Environmental Conservation (DEC) Commissioner Denise M. Sheehan today announced that the model set of regulations to implement the Regional Greenhouse Gas Initiative (RGGI) has been finalized. The model rule will now be proposed in each participating state, with New York planning to propose a draft regulation by this fall. The RGGI States also released an amendment to their December 2005 Memorandum of Understanding.
"The finalization of the model rule is another important step towards implementing the RGGI initiative and achieving our goals of reducing emissions that cause global climate change," Commissioner Sheehan said. "Governor George Pataki and all of us at the DEC have been very pleased with the collaborative, public process that has gone into developing this model rule and we look forward to the continuing cooperation with the other RGGI states and our stakeholders on the rulemaking process here in our State."
Under the Regional Greenhouse Gas Initiative (RGGI), seven Northeast states agreed to implement a cap-and-trade program to reduce carbon dioxide (CO2) emissions, which are a major contributor to global warming. This will be the first mandatory cap-and-trade program for CO2 emissions in United States history. The states participating in RGGI are: Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont. The State of Maryland recently adopted legislation that requires Maryland to join RGGI by June 2007.
In December 2005, the governors from the seven states entered into a historic memorandum of understanding specifying the general framework of the program. On March 23, 2005, the states released draft model regulations that outlined proposed specific requirements for the program. The draft rule was the subject of a 60-day comment period and two public meetings were held. The model set of regulations released today reflects and incorporates many of the comments received and provides detailed rules for the program. Each state will use the model rule as a starting point for obtaining legislative or regulatory approval of the program.
In response to public comments received, the states also agreed to make certain minor modifications to their December 2005 memorandum of understanding. The states agreed to simplify the way the program will incorporate so-called "offset credits"- of greenhouse gas emissions that are achieved outside the electricity sector such as at landfills, farming operations or certain other project sites.
Peter R. Smith, President and CEO of the New York State Energy Research and Development Authority, said, "The importance of reducing emissions and global warming is critical. Today, this model will help the Regional Greenhouse Gas Initiative move toward the goals of Governor Pataki to combat global climate change in the Northeast and mid-Atlantic states. There are real benefits to this initiative and we commend the leadership of the Governor and DEC in spearheading this effort."
William M. Flynn, Chairman of the Public Service Commission, said, "Governor Pataki should be commended for reaching out to work cooperatively with states throughout the northeast to address environmental challenges that no state can resolve alone. RGGI should serve as a model for the nation in that it recognizes the impact that our energy production has on the environment and offers a means of mitigating that impact without sacrificing reliability or economic development. Implementation of RGGI is further proof that we can tackle difficult environmental challenges with the same types of progressive energy policies that bolster national energy security--policies that encourage greater efficiency and fuel diversity."
"This is a watershed moment in the fight against global warming," said Jim Marston, who heads the efforts to address global warming at the state level for Environmental Defense. "We commend Governor Pataki and the other Northeast state governors for their leadership on this vitally important issue. Now it's time for federal legislators to take their heads out of the sand and pass federal legislation to cut global warming pollution."
In 2003, Governor George Pataki initiated the RGGI process by sending a letter to the governors of the Northeast and mid-Atlantic states inviting them to pursue "a course of cooperation" and work together "to develop a strategy that will help the region lead the nation in the effort to fight global climate change." Since then, State representatives have been working to develop the program, which relies on a flexible, market-based approach to curb power plant emissions, while also promoting greater energy efficiency and energy independence.
The seven RGGI states will launch a regional cap-and-trade system that utilizes emissions credits or allowances to limit the total amount of CO2 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. Compared to the emissions increases the region would see from the sector without the program, RGGI will result in an approximately 35 percent reduction by 2020.
Under the cap-and-trade program, the 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 region. with a capacity of 25 megawatts or more will be included under RGGI.
The RGGI states have agreed that at least 25 percent of a state's allowances are 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.
The RGGI program allows power plants to utilize "offsets" - 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 facilities.
Under the model regulations and the MOU amendment, offset credits may come from anywhere in the United States, provided offset projects from outside of the participating states must take place under the regulatory watch of a cooperating agency in that state. States or other U.S. jurisdictions not participating in RGGI will need to enter into a memorandum of understanding with the RGGI state agencies and agree to take on certain administrative obligations to ensure the credibility of the offset projects.
The model regulations and the MOU amendment also streamline and simplify the so-called "safety valve" provisions of RGGI program, which are designed to ensure that the cost of allowances remains affordable. Under the program, if the average annual price of an emission allowance were to rise above $7, sources will be permitted to use offsets for up to 5 percent of a plant's reported emissions. If the average price rises above $10, then sources will be permitted to use offsets for up to 10 percent of a plant's reported emissions and offsets from international trading programs will be allowed. By allowing offsets to account for a greater percentage of emissions, the program will keep energy prices low while also achieving real reductions in climate changing emissions.
Any price impacts of this program are expected to be minimal, with estimates projecting that average household bills could increase by approximately $3-21 annually. However, it also is anticipated that RGGI will generate significant new investments in innovative and cleaner technologies and energy efficiency, which could lower electricity rates.
The participating states will next proceed with the required legislative or regulatory approvals to adopt the program. Pending the completion of this process, the RGGI program will take effect on January 1, 2009. For additional information on the RGGI program, please visit our web site at: www.rggi.org .
