6 NYCRR Part 242 Revised Regulatory Flexibility Analysis for Small Businesses and Local Governments

On December 20, 2005, New York State entered into a historic regional agreement to reduce greenhouse gas (GHG) emissions from power plants, an important step to protect our environment and meet the significant challenge of climate change. Under the agreement, the governors of 10 Northeastern and Mid-Atlantic states have committed to propose the Regional Greenhouse Gas Initiative (RGGI), a program to cap and reduce carbon dioxide (CO₂) emissions from power plants in the region by 10 percent by 2019, for adoption in their states.¹ In order to carry out the State's commitment, the Department of Environmental Conservation (the Department) is proposing to establish the CO₂ Budget Trading Program (the Program) by promulgating 6 NYCRR Part 242, and to revise 6 NYCRR Part 200, General Provisions.

The burning of fossil fuels to generate electricity is a major contributor to a warming climate because fossil-fuel generators emit large amounts of CO₂, the principal GHG. Overwhelming scientific evidence suggests that a warming climate poses a serious threat to the environmental resources and public health of New York State-the very same resources and public health the Legislature has charged the Department to preserve and protect. The warming climate threatens the State's air quality, water quality, marine and freshwater fisheries, salt and freshwater wetlands, surface and subsurface drinking water supplies, river and stream impoundment infrastructure, and forest species and wildlife habitats. Not only will the Program help counter the threat of a warming climate, it will also produce significant environmental co-benefits in the form of improved local air quality, forest preservation, improved agricultural manure handling practices leading to better water and air quality in rural areas of the State, and a more robust, diverse and clean energy supply in the State.

Effects on Small Businesses and Local Governments

No small businesses will be directly affected by the adoption of new Part 242 and the amendments to Part 200.

The only local government affected by the Programs is the Jamestown Board of Public Utilities (JBPU), a municipally owned utility which owns and operates the S. A. Carlson Generating Station (SACGS). The emissions monitoring at SACGS currently meets the monitoring provisions of the Program, 40 CFR part 75. Therefore, no additional monitoring costs will be incurred. The costs associated with the Program will be dictated by how JBPU decides to comply with the provisions of the regulation.

Compliance Requirements

The JBPU, as owner and operator of the SACGS, will need to comply with the provisions of the Program, as described below.

The Program will require affected sources and units to comply with the emission limitation of the Program beginning with the 2009-2011 control period. In order to meet the necessary permit requirements, the authorized account representative of each CO₂ subject unit shall submit to the Department a complete CO₂ Budget permit application, by January 1, 2009 or 12 months before the date the unit commences operation.

Each year, the owners and operators of each source subject to the Program shall hold a number of CO₂ allowances available for compliance deductions, as of the CO₂ allowance transfer deadline (Midnight of March 1 or, if March 1 is not a business day, midnight of the first business day thereafter), in the source's compliance account that is not less than the total tons of CO₂ emissions for the control period. A unit is subject to this requirement starting on the later of January 1, 2009 or date the unit commences operation.

For each control period in which one or more units at a source are subject to the Program, the authorized account representative of the source must submit to the Department by the March 1st following the relevant control period, a compliance certification report for each source covering all such units.

Professional Services

The only local government affected by the Program, the JBPU, may need to hire outside professional consultants to comply with the Program and the amendments to Part 200. This work would likely be associated with any analyses of the Program. If it is determined that capital investments are needed to comply, design and construction management services will likely need to be procured.

Compliance Costs

In addition to the costs identified for regulated parties and the public, state and local governments will incur costs. The Jamestown Board of Public Utilities (JBPU), a municipally owned utility, owns and operates the S.A. Carlson Generating Station (SACGS). Since the emissions monitoring at SACGS currently meets the monitoring provisions of the Program, no additional monitoring costs will be incurred.

Notwithstanding this, the JBPU will need to purchase allowances equal to the number of tons emitted. The Department limited the analysis of control costs to the purchase of allowances to comply with the Program and assumed the costs of allowances will be $3 per ton for CO₂.² To estimate total costs for SACGS under the Program, the Department reviewed 2002 through 2004 emissions from Jamestown's affected unit. The highest emissions from the affected unit during that time frame were approximately 41,772 tons. Purchasing allowances to cover emissions will result in estimated costs of approximately $125 thousand annually. These costs will eventually be passed on to the consumers of electricity from the JBPU.

The JBPU has a range of compliance options open to it and can utilize the flexibility inherent under the Program to comply. Since the Program has a three year control period with the compliance obligation at the end of the control period, the emission peaks associated with electricity generation will be averaged out and more long term planning options will be available to SACGS. In addition, the Program allows affected sources to offset up to 3.3 percent of their emissions utilizing reductions from emission categories outside of the regulated sector.

Minimizing Adverse Impact

The promulgation of the Program and the amendments to Part 200 do not directly affect small businesses. Only one local government is affected by the Program, the JBPU. The Program constitutes an emissions allowance based cap and trade program. Cap and trade systems are the most cost effective means for implementing emission reductions from large stationary sources. By implementing the Program in such a manner, the Department will minimize the adverse economic impacts of the Program on the JBPU.

Small Business and Local Government Participation

The JBPU actively participated in the public forums established by the Department to discuss the Program with interested parties.

Economic and Technological Feasibility

The JBPU has the option to do any combination of the following to comply with the Program: increase the efficiency of the natural gas-fired turbine, co-fire biofuel; purchase allowances, or purchase offsets. It has never been demonstrated that any or all of these options are technologically or economically infeasible to apply to SACGS.

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^¹ In addition to New York, the other states participating in RGGI are: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island, and Vermont.

^² Regional Greenhouse Gas Initiative (RGGI): New York Electricity Sector Modeling Results, September 15, 2006, DRAFT.