6 NYCRR Parts 242 and 200 Express Terms Summary
The New York State CO2 Budget Trading Program, 6 NYCRR Part 242 (CO2 Budget Trading Program or Part 242), 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. The proposed revisions to Part 242, including most notably the proposed reduction in the annual CO2 emission budgets, are designed to further these objectives.
While the proposed revisions to Part 242 maintain annual base budgets for CO2, the most significant proposed revision to Part 242 is the approximately 45 percent reduction in the amount of such annual base budgets. In particular, the proposed revisions to Section 242-5.1 establish that, for allocation year 2014, the Statewide CO2 Budget Trading Program base budget will be reduced from 64,310,805 tons to 35,228,822 tons1. The annual base budgets under Part 242 then decrease thereafter, as follows: to 34,348,101 tons in 2015, to 33,489,399 tons in 2016, to 32,837,536 tons in 2017, to 32,016,597 tons in 2018, to 31,216,182 tons in 2019, and to 30,435,778 tons for 2020. Each year thereafter, the annual CO2 Budget Trading Program base budget will remain at 30,435,778 tons.
In addition to the proposed reduction in the annual CO2 Budget Trading Program base budgets, the proposed revisions to Part 242 also include a new Section 242-5.2 for annual CO2 Budget Trading Program adjusted budgets. The CO2 Budget Trading Program adjusted budget is defined as the annual amount of CO2 allowances allocated each year. In order to account for the existing private bank of CO2 emissions allowances already acquired, and in order to help create a binding cap, the proposed revisions to Part 242 provides for two distinct budget adjustments. The First Control Period Interim Adjustment for Banked Allowances will reduce the budget for 100 percent of the first control period private bank of allowances (vintages 2009, 2010, and 2011) held by market participants after the first control period. The first adjustment will reduce New York's budget (the annual cap) by this amount, multiplied by New York's portion of the RGGI regional cap (approximately 38.93 percent), in each allocation year over the seven year period 2014-2020. The Second Control Period Interim Adjustment for Banked Allowances will reduce the budget for 100 percent of the surplus 2012 and 2013 vintage allowances held by market participants as of the end of 2013. The second adjustment will reduce New York's budget (the annual cap) by this amount, multiplied by New York's portion of the RGGI regional cap (approximately 38.93 percent) in each allocation year over the six year period 2015-2020. These are referred to as the CO2 Budget Trading Program adjusted budget(s).
The proposed revisions to Part 242 also include the creation of the Cost Containment Reserve (CCR), which will help provide additional flexibility and cost containment for the Program. The CCR allocation and the rules for the sale of CO2 CCR allowances are set forth in subdivision 242-5.3(b) of the proposed revisions to Part 242. CO2 CCR allowances are separate from and additional to CO2 allowances allocated from the CO2 Budget Trading Program base and adjusted budgets. 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 CCR trigger price is reached, up to 10 million additional CCR allowances will be available for purchase at auction regionally under the RGGI program, except in 2014, when the reserve will be limited to five million allowances in the RGGI region. New York's portion of the regional CCR is approximately 38.93 percent, such that the State's portion of the CCR in Part 242 is limited in 2014 to 1,946,639 CO2 CCR allowances in 2014 and 3,893,277 CO2 CCR allowances in 2015 and each calendar year thereafter.
The proposed revisions to Part 242 create a new interim compliance obligation, set forth in proposed paragraph 242-1.5(c)(2). An interim control period is defined as a one-year period, consisting of each of the first and second calendar years of each three year control period. In addition to demonstrating full compliance at the end of each three-year control period, at the end of each interim control period, regulated entities must now demonstrate that they are holding CO2 allowances equal to at least 50 percent of their CO2 emissions during the previous year.
Under the proposed revisions to Part 242, the second control period, which commenced on January 1, 2012, still concludes on December 31, 2014. Likewise, under the proposed revisions to Part 242, the CO2 allowance transfer deadline for the second control period will remain March 1, 2015. Subsequent control periods begin on January 1st and conclude on the December 31st three years later. In each of the first two calendar years of each three year control period 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. For example, the first interim control period will be the year 2015 and the second interim control period will be the year 2016 under the proposed revisions to Part 242, with associated CO2 allowance transfer deadlines of March 1, 2016 and March 2017 respectively. At the end of the control period in 2017, all sources must demonstrate full compliance and account for 100 percent of their control period emissions with an allowance transfer deadline of March 1, 2018. Under the proposed revisions to Part 242, a compliance certification report is still required at the end of each control period; however, a report is not required at the end of each interim control period. Moreover, pursuant to the proposed revisions, the so-called treble damages provision in paragraph 242-6.5(d)(1), which applies to excess emissions, will not apply to excess interim emissions.
The proposed revisions to Part 242 do not change the applicability provisions of the regulation, and maintain the limited exemption for units with electrical output to the electric grid restricted by permit conditions pursuant to subdivision 242-1.4(b). The proposed revisions do, however, eliminate the provision in paragraph 242-1.4(b)(4) to reduce the CO2 Budget Trading Program base budget and remove the tons equal to the exempt unit's average annual emissions from the previous three calendar years. These allowances will now be available to the market.
The Department will continue to allocate most of the CO2 Budget Trading Program adjusted budget to the energy efficiency and clean energy technology account. Although New York State Energy Research and Development Authority's (NYSERDA) CO2 Allowance Auction Program (21 NYCRR Part 507) will not be revised as part of this rulemaking, NYSERDA will continue to administer the energy efficiency and clean technology account so that allowances will be sold in an open and transparent allowance auction. The proceeds of the 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 Reserve Price is the minimum acceptable price for each CO2 allowance in a specific auction. Under the proposed revisions to Part 242, the reserve price at an auction is either the Minimum Reserve Price (MRP) or the CCR trigger price, depending on the level of demand for allowances at the auction. The proposed revisions to Part 242 provide that the MRP will be set at $2.00 in 2014 and increase by 2.5 percent each year thereafter. The provisions for a current market reserve price are eliminated under the proposed revisions.
Under the proposed revisions to Part 242, the Department has maintained the inclusion of two set-asides in subdivisions 242-5.3(c) and (d). In particular, the department shall continue to allocate 700,000 and 1,500,000 tons each year, respectively, from the CO2 Budget Trading Program adjusted budgets to these two set-asides.
While the amount of allowances set-aside remains the same, the revisions to Pat 242 include a proposal to modify the existing "voluntary renewable energy market set-aside" in subdivision 242-5.3(c) to include eligible biomass. This revision expands eligibility for retiring CO2 allowances from the set-aside to include CO2 budget sources that co-fire eligible biomass as a compliance mechanism. Therefore, when a CO2 budget source deducts CO2 emissions from its compliance obligation as a result of co-firing eligible biomass, the Department proposes to also allow for the retirement of the corresponding number of CO2 allowances from the set-aside. The proposed revisions to the Program maintain the existing provisions for voluntary renewable energy purchases. The Department will continue to retire allowances under the voluntary renewable energy market and eligible biomass set-aside for voluntary renewable energy purchases.
Similarly, while the amount of allowances set-aside remains the same, under the proposed revisions to Part 242, the long-term contract set-aside in subdivision 242-5.3(d) will continue to be available to CO2 budget sources that can make the necessary demonstration to the Department's satisfaction. The changes proposed in this subdivision are merely intended to clarify the operation and administration of the set-aside, consistent with the Department's interpretation of subdivision 242-5.3(d) pursuant to Declaratory Ruling 19-18, which the Department issued on November 5, 2009.
The proposed revisions to Part 242 delete the existing stage one and stage two triggers and associated provisions. These price triggers raised the allowable percentage of offsets to be used for compliance, allowed for the use of international CO2 emission credit retirements, and created the potential extension of the control period to four years. The offset price triggers and the potential extension of the control period to four years are replaced by the CCR mechanism, to provide measurable cost control in an efficient, transparent and predictable manner. For CO2 offset allowances, the proposed revisions retain 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 at 3.3 percent of the CO2 budget source's CO2 emissions for that control period.
The proposed revisions to Part 242 eliminate the provision to award early reduction allowances, in existing subdivision 242-5.2(b), as those provisions are no longer applicable. Finally, the proposed revisions to Part 200 include updated cites for the portions of Federal statute and regulations, as well as other documents, that are incorporated by reference into the proposed revisions to Part 242.
1 This amount reflects New York State's portion of the regional cap of 91,000,000 tons for 2014, proposed by the states participating in the Regional Greenhouse Gas Initiative (RGGI).