6 NYCRR Parts 242 and 200 Regulatory Impact Statement Summary
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. 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 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 statutory authority to revise the Program to reduce the CO2 emissions cap, provide for the budget adjustments, add a cost containment reserve, and create an interim compliance obligation derives primarily from the Department's authority to use all available practical and reasonable methods to prevent and control air pollution, as set out in the Environmental Conservation Law (ECL) at Sections 1-0101, 1-0303, 3-0301, 19-0103, 19-0105, 19-0107, 19-0301, 19-0303, 19-0305, 71-2103, 71-2105. Although the Allowance Auction Program (21 NYCRR Part 507) will not be revised as part of this rulemaking, the statutory sections that grant NYSERDA authority to implement the Allowance Auction Program, which were outlined in the Regulatory Impact Statement accompanying such rulemaking, are briefly outlined in the full Regulatory Impact Statement as background and context for the proposed Program revisions.
The warming climate represents an enormous environmental challenge for the State, because unabated, climate change will continue to have serious adverse impacts on the State's natural resources, public health and infrastructure. New York power plants represent approximately one-fifth of all GHG emissions in the State.3 In 2012, New York power plants subject to the Program emitted approximately 35 million tons of CO2 into the atmosphere.
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. New York conducted an in-state separate 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.
Mitigating the impacts of a changing climate represents one of the most pressing environmental challenges for the State, the nation and the world. Extensive scientific data demonstrates the need for immediate worldwide action to reduce emissions from burning fossil fuels and supports the conclusion that great benefits will accrue if fossil fuel-fired emissions are reduced through programs like RGGI.
A naturally occurring greenhouse effect has regulated the earth's climate system for millions of years. CO2 and other naturally occurring GHGs trap heat in our atmosphere, maintaining the average temperature of the planet approximately 60°F higher than it normally would be. An enhanced greenhouse effect and associated climate change results as large quantities of anthropogenic GHGs, especially CO2 from the burning of fossil fuels, are added to the atmosphere. Since the mid-1700's, atmospheric concentrations of GHGs have increased substantially due to human activities such as fossil fuel use and land-use change. Today, atmospheric CO2 concentrations have reached 400 parts per million - nearly 40 percent higher than preindustrial levels.4
The need for the reduction of CO2 emissions is clearly supported by numerous direct impacts that have been observed in New York State. Temperatures in New York State have risen during the twentieth century, with the greatest warming coming in recent decades - temperatures have risen by approximately 0.6°F per decade since 1970, with winter warming more than 1.1°F per decade.5 This warming includes an increase in the number of extreme hot days (days at or above 90°F) and a decrease in the number of cold days (days at or below 32°F). New York experienced record high nighttime temperatures in the summer of 2010.6 Sea level in the coastal waters of New York State and up the Hudson River has been steadily rising over the 20th century. Tide-gauge observations in New York indicate that rates of relative sea level rise were significantly greater than the global mean, ranging from 2.41 to 2.77 millimeters per year (0.9 to 1.1 inches per decade).7
Predictions of future impacts associated with emissions in New York further support the need for a substantial reduction in the CO2 emissions cap. 'Responding to Climate Change in New York State: The ClimAID Integrated Assessment for Effective Climate Change Adaptation' (ClimAID) project examines how sea level rise, changes in precipitation patterns, and more frequent severe weather conditions will affect New York's economy, environment, community life and human health. The ClimAID project predicts the following: Air temperatures are expected to rise across New York, by 1.5°F to 3°F by the 2020s, 3°F to 5.5°F by the 2050s, and 4°F to 9°F by the 2080s. Annual average precipitation in New York is projected to increase by up to five percent by the 2020s, up to 10 percent by the 2050s and up to 15 percent by the 2080s, with the greatest increases in the northern part of the State. A recent study based upon 60 years of tide-gauge records indicates that the rate of increase for sea level rise along approximately 1000 km of the east coast of the United States, including New York, remains at approximately three to four times higher than the global average.8 Extreme climate events, such as heat waves and heavy rainstorms, significantly impact New York's communities and natural resources.
The need for the significantly reduced CO2 emissions cap and budget adjustments are further supported by the ClimAID Study9 which enumerates a number of predictions specifically for New York's valued resources such as: 1) Rising air temperatures intensify the water cycle by driving increased evaporation and precipitation. The resulting altered patterns of precipitation include more rain falling in heavy events, often with longer dry periods in between; 2) high water levels, strong winds, and heavy precipitation resulting from strong coastal storms already cause billions of dollars in damage and disrupt transportation and power distribution systems. Barrier islands are being dramatically altered by strong coastal storms, such as Hurricane Sandy, as ocean waters over wash dunes, create new inlets, and erode beaches; 3) within the next several decades, New York State is likely to see widespread shifts in species composition in the State's forests and other natural landscapes; 4) lakes, streams, inland wetlands and associated aquatic species will be highly vulnerable to changes in the timing, supply, and intensity of rainfall and snowmelt, groundwater recharge and duration of ice cover; 5) increased summer heat stress will negatively affect cool-season crops and livestock unless farmers take adaptive measures such as shifting to more heat-tolerant crop varieties and improving cooling capacity of livestock facilities; 6) demand for health services and the need for public health surveillance and monitoring will increase; 7) over the next few decades, heat waves and heavy precipitation events are likely to increase transportation problems such as flooded streets and delays in mass transit; 8) communication service delivery is vulnerable to hurricanes, lightning, ice, snow, wind storms, and other extreme weather events, some of which are projected to change in frequency and/or intensity; 9) impacts of climate change on energy demand are likely to be more significant than impacts on supply. Climate change will adversely affect system operations, increase the difficulty of ensuring adequate supply during peak demand periods, and exacerbate problematic conditions, such as the urban heat island effect.
The reduction in the CO2 emissions cap to current levels represents a critical step to combat the significant challenges presented by climate change and to advance sound energy policies that foster energy efficiency and energy independence. The proposed Program revisions will cap regional emissions at 91 million tons annually beginning in 2014 and will reduce that level by 2.5 percent each year through 2020. 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 (cap) adjustments. To provide additional flexibility and cost containment the proposed Program revisions also create the Cost Containment Reserve (CCR). Finally, the proposed Program revisions create an interim compliance obligation. The Department proposes to maintain the amount of CO2 allowances allocated to the two existing set-aside accounts under the Program and proposes a modification to the existing voluntary renewable energy market set-aside to include eligible biomass, and minor clarifications to the long term contract (LTC) set-aside.
The Department, NYSERDA and the New York State Department of Public Service (DPS) analyzed costs and impacts associated with compliance with the proposed revisions to the Program. CO2 allowance prices (the cost of complying with RGGI) are projected to increase from approximately $6.02/ton (2010 dollars) in 2014 to about $6.73/ton in 2016 and to about $8.41/ton in 2020. Under the Program Case, New York's wholesale electricity prices (including both energy and capacity costs) are projected to be $1.64/MWh higher in 2016 and $2.12/MWh higher in 2020, than the Reference Case. RGGI is projected to increase wholesale electricity prices in New York State by about 3.0 percent in 2016 and 3.9 percent in 2020. For a typical New York residential customer (using 750 kWh per month), the projected increase in wholesale electricity prices in 2016 translates into a monthly retail bill increase of about 1.0 percent or $0.86. In 2020, the projected increase in wholesale electricity prices translates into a monthly residential retail bill increase of about 0.8 percent or $0.71. For commercial customers, the projected retail price impact of RGGI is about 1.1 percent in 2016 and 0.7 percent in 2020 ($7.87 and $5.00 per month, respectively). For industrial customers, the projected retail price impact of RGGI is about 1.7 percent in 2016 and 1.2 percent in 2020. A macro-economic impact study of the Program was also conducted. The study concluded that the economic impacts of RGGI on the economies of the participating states, including New York, were generally positive, albeit relatively small.
There will be costs associated with the administration of the Program. The Department will continue to incur staff costs associated with the implementation of the revised Program. NYSERDA will also continue to incur costs to administer and evaluate the use of auction proceeds from the Program. It should be noted, that the Department's costs and NYSERDA's administrative and evaluation rates are expected to remain unchanged as a result of the Program revisions. A significant portion of Program costs are allocated to the operation and administration of COATS and conducting allowance auctions. It is anticipated that these costs will not change in the future.
Under the existing Program and the proposed revisions to the Program, the owners and operators of each source and each unit at the source shall retain the following documents for a period of ten years from the date the document is created: account certificate of representation form; Emissions monitoring information; copies of all reports and compliance certifications; copies of all documents used to complete a permit application; copies of all documents used to complete a consistency application; and copies of all documents required as part of an auction application.
For each control period in which one or more units at a source are subject to the CO2 budget emission limitation, the CO2 authorized account representative of the source shall submit to the Department, a compliance certification report for each source covering all such units. This must be submitted by the March 1st following the relevant control period for all units subject to the Program.
The Department examined the "No Action" alternative which would leave the current Program in place and the Program cap and flexibility provisions within it would remain unchanged. Since the "No Action" alternative would leave the Program unchanged and would not address the issue of over allocation, it was not selected. The Department also considered different regional emissions cap levels as additional alternatives, rather than the 91 million ton regional emission cap that is proposed to be implemented under the revised Program. Lastly, flexibility provided for under the Program provided through the expansion of allowable offset usage, the addition of international offsets and an extension of the compliance period were evaluated. During program review, the Participating States recognized complexity associated with these provisions and their inability to provide immediate cost containment for the Program. Accordingly, the proposed revisions to the Program include a new CCR.
The proposed revisions to the Program are protective of public health and the environment in the absence of similar federal emission standards. The potential adverse impact to global air quality and New York State's environment from CO2 emissions necessitates that New York State take action now to minimize CO2 emissions that contribute to climate change. Due in part to the lack of a federal program, the Department has determined that fossil fuel-fired electricity generators must reduce emissions of CO2 now.
The proposed revisions to the Program do not change the applicability provisions of the current Program. Therefore, sources already subject to the current Program will remain subject to the proposed revisions to the Program. While the second control period under the current Program will remain unchanged and will include 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.
The proposed revisions to the Program create a modified compliance schedule called 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. In each of the first two calendar years of each three year 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, as of the CO2 allowance transfer deadline (midnight of March 1st or, if March 1st is not a business day, midnight of the first business day thereafter), 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. A unit is subject to the interim control period requirements of the Program starting on the later of January 1, 2015 or date the unit commences operation.
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 "Patterns and Trends New York State Energy Profiles: 1996-2010," Final Report, April 2012.0http://www.nyserda.ny.gov/BusinessAreas/Energy-Data-and-Prices-Planning-and-Policy/Energy-Prices-Data-and-Reports/EA-Reports-and-Studies/Patterns-and-Trends.aspx?sc_database=web
4 National Research Council of the National Academies. Climate Change: Evidence, Impacts, and Choices. 2012. Available at http://nas-sites.org/americasclimatechoices/more-resources-on-climate-change/climate-change-lines-of-evidence-booklet/.
5 Rosenzweig, C., W. Solecki, A. DeGaetano, M. O'Grady, S. Hassol, P. Grabhorn (Eds.). 'Responding to Climate Change in New York State: The ClimAID Integrated Assessment for Effective Climate Change Adaptation'. New York State Energy Research and Development Authority (NYSERDA). http://www.nyserda.ny.gov/climaid
6 Natural Resources Defense Council (NRDC). 'The Worst Summer Ever? Record Temperatures Heat Up the United States'. September 2010. NRDC. http://www.nrdc.org/globalwarming/hottestsummer/
7 Titus, J.G. 'Coastal Sensitivity to Sea-Level Rise: A Focus on the Mid-Atlantic Region. Synthesis and Assessment Product 4.1'. U.S. Climate Change Science Program. 2009. http://www.epa.gov/climatechange/effects/coastal/sap4-1.html
8 Sallenger, A.H., Doran, K.S., Howd, P.A. Hotspot of accelerated sea-level rise on the Atlantic coast of North America. Nature Climate Change. Published online June 24, 2012. doi: 10.1038/NCLIMATE1597.
9 Rosenzweig, 'op.cit.'