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6 NYCRR Parts 242 and 200 Rural Area Flexibility Analysis

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative, historic effort among New York and eight Participating States1 and is the first mandatory, market-based carbon dioxide (CO2) emissions reduction program in the United States. Since its inception in 2008, RGGI has utilized a market-based mechanism to cap and cost-effectively reduce emissions that cause climate change. Recently, New York along with the Participating States, completed a comprehensive program review and announced a proposal to lower the regional emissions cap established under RGGI to 91 million tons in 2014, declining 2.5 percent a year through 2020.2 Accordingly, New York and the Participating States committed to propose revisions, pursuant to state-specific regulatory processes, to their respective CO2 Budget Trading Programs to further reduce CO2 emissions from power plants in the region. To implement the updated RGGI program in New York State, the Department of Environmental Conservation (Department) proposes to revise 6 NYCRR Part 242, CO2 Budget Trading Program (the Program) and 6 NYCRR Part 200, General Provisions.

The promulgation of the proposed revisions to Part 242 and the amendments to Part 200 will apply equally to affected sources statewide; rural areas will not be disproportionately impacted. The Department will implement the proposed Program revisions through a cap-and-trade program because allowance based cap-and-trade systems are the most cost effective means for implementing emission reductions from large stationary sources. The regulatory flexibility inherent in a cap-and-trade program that allows for interstate trading of emission allowances best enables the Department to balance the competing interests of the protection of the public health and welfare with continued industrial development of the State. By revising the Program, the Department is further able to balance these competing interests and minimize any potential adverse impacts of the revised Program on a statewide basis.

The Propose Program Revisions

The proposed Program revisions, which will cap regional CO2 emissions at 91 million tons annually beginning in 2014, represent a nearly 45 percent reduction from the existing cap currently in place under the Program. After 2020, the cap will remain at 78 million tons annually. Further, to account for the existing private bank of CO2 emissions allowances already acquired at auction, and to help create a binding cap, the proposed Program revisions provide two distinct budget adjustments, namely the First and Second Control Period Interim Adjustment for Banked Allowances.

The proposed Program revisions also create the Cost Containment Reserve (CCR), which will help provide additional flexibility and cost containment for the revised Program. The CCR allowances will be triggered and released at auctions at $4/ton in 2014, $6/ton in 2015, $8/ton in 2016, and $10/ton in 2017. Each year after 2017, the CCR trigger price will increase by 2.5 percent. If the trigger price is reached, up to 10 million additional CCR allowances will be available for purchase at auction, except in 2014, when the reserve will be limited to 5 million allowances. The existing price triggers for expanding use of offsets and the one year compliance period extension will be eliminated in favor of the CCR.

Finally, the proposed Program revisions create an interim compliance obligation in part to align it with the annual compliance obligations under federal programs such as the Clean Air Interstate Rule and the Title IV Acid Rain Program. The proposed Program revisions also include minor revisions such as setting the reserve price at $2.00 in 2014, to rise at 2.5 percent per year in subsequent years, updating all references, and the deleting early reduction allowance provisions. The majority of the proceeds from the sale of New York's allowances will continue to be dedicated to strategic energy or consumer benefits, such as energy efficiency and clean energy technologies.

The nature of the proposed Program revisions, generally described above and discussed more thoroughly in the accompanying Regulatory Impact Statement (RIS), is such that they clearly will minimize any potential adverse impacts of the revised Program on a statewide basis.

Types and Estimated Number of Rural Areas Affected

The promulgation of the proposed Program revisions and the amendments to Part 200, will apply equally to affected public and private sources statewide; rural areas will not be disproportionately impacted.

Reporting, Record Keeping and Other Compliance Requirements

The proposed Program revisions will not change the applicability provisions of the current Program. Therefore, sources already subject to the current Program will remain subject to the proposed Program revisions. While the second control period under the current Program will remain unchanged and includes years 2012-2014 with a CO2 allowance transfer deadline of March 1, 2015, the proposed Program revisions will require affected sources and units to comply with the emission limitations of the Program beginning on January 1, 2014.

As noted above, the proposed Program revisions will create an interim compliance period which is defined as each of the first two years of each three-year control period. The first interim control period under the revised Program will take place in year 2015; the second interim control period will take place in year 2016. For each interim control period, (e.g., 2015 and 2016), the owners and operators of each source subject to the revised Program shall hold a number of CO2 allowances available for compliance deductions in the source's compliance account that is not less than 50 percent of the total tons of CO2 emissions for that interim control period, as of the CO2 allowance transfer deadline. A unit will be subject to the interim control period requirements of the revised Program starting on the later of January 1, 2015 or date the unit commences operation. Likewise, at the end of each control period, (e.g., 2017), the owners and operators of each source subject to the revised Program shall hold a number of CO2 allowances available for compliance deductions in the source's compliance account that is not less than the total tons of CO2 emissions for the entire control period less the CO2 allowances deducted for the previous two interim control periods, as of the CO2 allowance transfer deadline.

Additionally, for each control period in which a CO2 budget source is subject to the proposed revisions to Program, the CO2 authorized account representative of the source must continue to submit to the Department by the March 1st following the relevant control period, a compliance certification report for each source covering all such units.3 As noted above, since the second control period for the Program remains unchanged, the first CO2 allowance transfer deadline under the proposed revisions to the Program will occur on March 1, 2015.

Costs

The Department, New York State Energy Research Development Authority (NYSERDA) and New York State Department of Public Service (DPS) analyzed costs, including statewide impacts to jobs, total Gross State Product and total Personal Income, associated with compliance with the proposed revisions to Part 242. As discussed below, this analysis concludes that the proposed Program revisions will not disproportionately affect sources in rural areas of the State and best enables the Department to balance the competing interests of the protection of the public health and welfare with continued industrial development on a statewide basis. By revising the Program, the Department is able to balance these competing interests and minimize any potential adverse impacts of the revised Program.

To evaluate the potential cost impacts of the reduced CO2 emissions cap and budget adjustments, Integrated Planning Model (IPM®4) was used to compare a future case with the proposed Program (Program Case) to a Reference Case (Business As Usual scenario) to project how the regional electricity system would function if the Program remained unchanged and proposed revisions were not implemented. The modeling assumptions and input data were developed through a stakeholder process, including representatives from the electricity generation sector, business and industry, environmental advocates and consumer interest groups. Subsequently, modeling results were presented to stakeholders for review and comment throughout the development of the proposed Program revisions. For a greater explanation of NYSERDA's analysis and a summary of the (IPM®) modeling conducted by ICF International (ICF), see Regulatory Impact Statement pages 45-62.

Utilizing the New York's Investments of RGGI Allowance Proceeds and output data from IPM®, the REMI macroeconomic study estimates that the impact of the reduced CO2 emissions cap, budget adjustments and the remainder of the proposed Program revisions5 on jobs, the economy and customer bills6, 7 in New York will be very small and generally positive. The REMI study estimates a cumulative, positive change in employment in New York associated with the proposed Program revisions will be about 80,500 additional job-years over the period 2012 to 2040. A job-year is equivalent to one person employed for one year. Further, the REMI study estimates that the cumulative changes in New York's Gross State Product and Personal Income associated with the proposed Program revisions will increase approximately $5.8 billion and $4.7 billion, respectively.8 Although these cumulative changes are minimal, they represent positive impacts for total State employment, total Gross State Product and total Personal Income.

Minimizing Adverse Impact

The Department will implement the proposed Program revisions through a cap-and-trade program because allowance based cap and trade systems are the most cost effective means for implementing emission reductions from large stationary sources. The regulatory flexibility inherent in a cap-and-trade program that allows for interstate trading of emission allowances will not disproportionately affect sources in rural areas of the State and best enables the Department to balance the competing interests of the protection of the public health and welfare with continued industrial development of the State. By revising the Program, the Department is further able to balance these competing interests and minimize any potential adverse employment impacts of the revised Program.

Rural Area Participation

The Department complied with Sections 202-a, 202-b and 202-bb of the State Administrative Procedures Act through an extensive Regional program review process that included public participation by all Participating States. New York coordinated an additional stakeholder process to gather input from the public within its borders. New York and the Participating States had committed to a comprehensive program review during the initial development of RGGI and agreed to evaluate: program success; program impacts; additional emissions reductions; imports and emissions leakage; and offsets. The Participating States initiated program review in the fall of 2010 with the announcement of the first stakeholder meeting and concluded the process in February, 2013. The Participating States and RGGI Incorporated (RGGI, Inc.)9 conducted more than a dozen stakeholder meetings and webinars during this period whereby they obtained public input on a number of program elements. Prior to each stakeholder meeting, agency staff and RGGI, Inc. distributed pertinent written material to the over 250 participants on the list serve and posted meeting documents on the RGGI, Inc. website. The stakeholder meetings were open to the public and all interested parties were encouraged to provide comment. All stakeholder comments were ultimately considered in the development of the Draft Updated Model Rule, which contained detailed regulatory text, and was released to the stakeholders for comment on November 20, 2012. On February 7, 2013, the Participating States released the final version of the Updated Model Rule, which contained additional updates based on stakeholder feedback received on the Draft Updated Model Rule.

New York conducted an in-state stakeholder process designed to provide updates on the status of the regional process and to afford additional opportunity for New York's stakeholders to provide comment. The Department held seven meetings and staff availability sessions in New York and when possible, the Department sent list-serve notices to over 250 New York stakeholders announcing regional meetings and webinars. This included, for example, presentations by Department representatives, regarding RGGI program review and the proposed revisions to the Program, at the Business Council's10 Spring Environmental Conference on April 18, 2013 and Annual Meeting in Bolton Landing on September 19, 2012.

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1 In addition to New York, the RGGI Participating States include: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, and Vermont.
2 The Participating States released the Updated Model Rule on February 7, 2013.
3 Sources will not be required to submit a compliance certification report for any interim control periods.
4 IPM® is a nationally recognized modeling tool used by the U.S. Environmental Protection Agency (EPA), state energy and environmental agencies, and private sector firms such as utilities and generation companies.
5 The estimated impact of the RGGI Program is the increment calculated as the difference between the Reference Case and the "91 Cap Bank MR IPM Scenario."
6 "REMI Economic Impacts Analysis," by the Northeast States for Coordinated Air Use Management (NESCAUM), dated May 29, 2013. http://www.dec.ny.gov/docs/administration_pdf/remi91cap2013.pdf.
7 "IPM Potential Scenario Customer Bill Analysis," by the Analysis Group, dated May 24, 2013. http://www.dec.ny.gov/docs/administration_pdf/custbillanaly2013.pdf
8 This is provided in 2010 dollars, calculated as the present value of estimated annual changes over the period 2012 to 2040, discounted at three percent per year to account for the time-value of money.
9 RGGI, Inc. is a 501(c)(3) non-profit corporation created to provide technical and administrative services to the Participating States.
10 The Business Council of New York State, Inc., is the leading business organization in New York State, representing the interests of large and small firms throughout the state. Its membership is made up of thousands of member companies, as well as local chambers of commerce and professional and trade associations.


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