Summary of Express Terms - 6 NYCRR Parts 200 and 242

Part 242 establishes the New York State CO₂ Budget Trading Program, which is designed to stabilize and then reduce anthropogenic emissions of carbon dioxide (CO₂), a greenhouse gas (GHG), from CO₂ Budget sources in an economically efficient manner.

Part 242 establishes emission budgets for CO₂. Part 242 establishes a trading program by creating and allocating allowances that are limited authorizations to emit up to one ton of CO₂ in each control period. Affected sources are required to hold for compliance deduction, at the respective allowance transfer deadlines, the tonnage equivalent to the emissions at the source for the control period immediately preceding such deadline.

For Part 242, the first control period commences on January 1, 2009 and concludes on December 31, 2011. Subsequent control periods begin on January 1st and conclude on the December 31st three years later. Part 242 applies to units that serve an electrical generator with a nameplate capacity equal to or greater than 25 megawatts of electrical output and sells or uses any amount of electricity.

Part 242 includes a limited exemption provision that allows units otherwise affected by the regulation to be exempt from nearly all of the reporting, permitting and allowance compliance requirements. A limited exemption is available to industrial units that restrict the supply of the unit's electrical output to the grid during a control period to less than 10 percent of the gross generation of the unit.

Part 242 requires each CO₂ budget unit to have a CO₂ authorized account representative (AAR) who shall be responsible for, among other things, complying with the CO₂ budget permit requirements, the monitoring requirements, the allowance provisions, and the recordkeeping and reporting requirements. The owner and/or operator of the unit may also designate an alternate CO₂ AAR to perform the above duties. The CO₂ Budget Trading Program was designed to allow for the use of agents that can make electronic submissions on behalf of the AAR and Alternate AAR. If the CO₂ budget source is also subject to the CAIR NO_x Ozone Season Trading Program, CAIR NO_x Annual Trading Program, or CAIR SO₂ Trading Program then, for a CO₂ Budget Trading Program compliance account, this natural person shall be the same person as the alternate CAIR designated representative under such programs. If the CO₂ budget source is also subject to the Acid Rain Program, then for a CO₂ Budget Trading Program compliance account, this natural person shall be the same person as the alternate designated representative under the Acid Rain Program.

In order to meet the necessary permit requirements, the authorized account representative of each CO₂ budget unit shall submit a complete application for a facility operating permit or a modification to an existing permit in accordance with the provisions of 6 NYCRR Parts 201 and 621. The CO₂ AAR shall submit to the department a compliance certification report for each control period by March 1st immediately following the relevant control period.

The Statewide CO₂ Budget Trading Program base budget is 64,310,805 tons per year for the first two control periods (2009-2011 and 2012-2014). The base budget decreases as follows: to 62,703,035 tons in 2015, to 61,095,265 tons in 2016, to 59,487,495 tons in 2017 and to 57,879,725 tons per year for 2018 and beyond. By January 1, 2009, the department or its agent will record in the energy efficiency and clean technology account the CO₂ allowances for all allocation years.

The department will allocate most of the CO₂ Budget Trading Program base budget to the energy efficiency and clean energy technology account. The New York State Energy Research and Development Authority (NYSERDA) will administer the energy efficiency and clean technology account so that allowances will be sold in an open and transparent allowance auction or auctions. The proceeds of the auction or auctions will be used to promote the purposes of the energy efficiency and clean technology account and for administrative costs associated with the CO₂ Budget Trading Program. The auction will be carried out to achieve the following objectives to the extent practicable: achieve fully transparent and efficient pricing of allowances; promote a liquid allowance market by making entry and trading as easy and low-cost as possible; be open to participation for bidding by any individual or entity that meets reasonable minimum financial requirements; monitor for and guard against the exercise of market power and market manipulation; be held as frequently as is needed to achieve design objectives; avoid interference with existing over-the-counter allowance markets; align well with wholesale energy and capacity markets; and be designed to not act as a barrier to efficient investment in existing or new electricity generating sources.

New York has agreed to specific design elements of the auction. These include: reserve price, auction structure and format, allowance sale schedule, participation, unsold allowances, notice of auctions, monitoring, and auction results.

The Reserve Price represents the price below which no allowances will be sold at the auction. It will be used to mitigate the potential for auction prices to clear significantly below current market prices, due to tacit or explicit collusion, weak competition, or to maintain a minimum rate of progress in reducing emissions below business as usual. The Department and the Authority will disclose the Reserve Price before every auction.

The hybrid reserve price mechanism includes two components: 1) a Minimum Reserve Price (MRP) of $1.86 (adjusted for the Consumer Price Index); and 2) a Current Market Reserve Price (CMRP) that is 80 percent of the Current Market Price of a CO₂ Allowance for the particular allowance vintage year. The reserve price for each auction will be the higher of the Minimum Reserve Price or Current Market Reserve Price.

The first component of the hybrid reserve price mechanism, the Minimum Reserve Price of $1.86, was established based on the ICF International's Integrated Planning Model. Some of the critical program impacts evaluated with the model include CO₂ emission reductions achieved, projected CO₂ allowance prices, and projected impacts on electricity prices. According to the model, the projected CO₂ allowance price under the selected RGGI program design is $2.32/ton (2009 dollars) at the beginning of the Program in 2009. Because the modeled value of $2.32 is the expected Current Market Price for the first auction, it was determined that $1.86, or 80 percent of the modeled value of $2.32, will be Minimum Reserve Price.

The second component of the hybrid reserve price mechanism, the Current Market Reserve Price, is 80 percent of the Current Market Price of a CO₂ Allowance for the particular allowance vintage year. A volume-weighted average of market transactions will be used to produce an estimate of the Current Market Price.

All unsold allowances will be available for sale in auctions where the reserve price in effect is greater than the Minimum Reserve Price. Since unsold allowances may exist at the end of the first control period, the Department will decide whether to retire any unsold allowances from the first control period or to roll these allowances into auctions during the second control period.

The department will also include a voluntary renewable energy market and long term contract set-aside allocation. Accordingly, the department shall allocate 700,000 and 1,500,000 tons to the voluntary renewable energy market and long term contract set-aside accounts, respectively, from the CO₂ Budget Trading Program annual base budget.

The department may award early reduction allowances to a CO₂ budget source for reductions in the CO₂ budget source's CO₂ emissions (inclusive of all emissions from the CO₂ budget units at the CO₂ budget source) that are achieved by the source during the early reduction period (2006, 2007 and 2008). Total facility shutdowns or reductions that result from enforcement actions shall not be eligible for early reduction allowances. Early reductions during the control period will be demonstrated against the baseline period (2003, 2004 and 2005).

The department will establish one CO₂ compliance account for each CO₂ budget source. Deductions of allowances for compliance purposes will be made from the compliance account. Allowances may be banked without discount until deducted for compliance. The CO₂ AAR may specify the allowances by serial number to be deducted for compliance purposes in the compliance certification report or utilize the first in, first out protocols in the regulation. In order to meet the source's budget emissions limitation for the control period immediately preceding, CO₂ allowances must be submitted for recordation in a unit's compliance account by midnight of March 1st. After making the deductions for compliance, if a unit has excess emissions the department will deduct from the source's compliance account, allowances allocated for a subsequent control period, allowances equal to three times the unit's excess emissions. If the source has insufficient CO₂ allowances to cover three times the number of allowances in its compliance account, the source shall be required to immediately transfer sufficient allowances into its compliance account.

Part 242 will provide for the award of CO₂ offset allowances to sponsors of CO₂ emissions offset projects or CO₂ emission credit retirements that have reduced or avoided atmospheric loading of CO₂, CO₂ equivalent (a metric measure used to compare the emissions from various greenhouse gases based upon their global warming potential) or sequestered carbon as demonstrated in accordance with the offset consistency application and monitoring and verification report requirements of the program. Offsets can be obtained from eligible landfill methane capture and destruction projects, reduction in emissions of sulfur hexafluoride, sequestration of carbon due to afforestation, reduction or avoidance of CO₂ emissions from natural gas, oil or propane end-use combustion due to end-use energy efficiency, and from avoided methane from agricultural manure management operations. CO₂ retirements include the permanent retirement of GHG allowances or credits issued pursuant to any governmental mandatory carbon constraining program outside of the United States that places a specific tonnage limit on GHG emissions, or certified GHG emissions reduction credits issued pursuant to the United Nations Framework Convention on Climate Change (UNFCCC) or protocols adopted through the UNFCCC process.

For CO₂ offset allowances, the number of CO₂ offset allowances that are available to be deducted for compliance with a CO₂ budget source's CO₂ budget emissions limitation for a control period may not exceed the number of tons representing 3.3 percent of the CO₂ budget source's CO₂ emissions for that control period. If the department determines that there has been a stage one trigger event, five percent will be allowed and if the department determines that there has been a stage two trigger event, offset up to 10 percent will be allowed. A stage one trigger event is the occurrence of any 12 month period that completely transpires following the market settling period and is characterized by an average CO₂ allowance price that is equal to or greater than the stage one threshold price ($7.00 adjusted annually by the consumer price index). A stage two trigger event is the occurrence of any 12 month period that completely transpires following the market settling period and is characterized by an average CO₂ allowance price that is equal to or greater than the stage two threshold price ($10.00 adjusted annually by the consumer price index plus two percent).

Part 200 cites the portions of Federal statute and regulations that are incorporated by reference into Part 242.