6 NYCRR Parts 242 and 200 Regulatory Flexibility Analysis for Small Businesses and Local Governments
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 only local government affected by the proposed revisions to the Program 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 proposed Program revisions, 40 CFR Part 75; no additional monitoring costs will be incurred. Additionally, the costs associated with JBPU's compliance with the proposed Program revisions will be similar to those incurred by other privately held sources. JBPU's exposure to compliance costs in addition to those already incurred for compliance with the Program will depend upon JBPU's need to solicit consultants or contractors for its compliance. No small businesses will be directly affected by the adoption of the proposed 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 Adjustments.
The proposed Program revisions also create the Cost Containment Reserve (CCR) from which 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 five 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. In addition to demonstrating full compliance at the end of each three-year compliance period, regulated entities must now demonstrate that they are holding allowances equal to at least 50 percent of their emissions at end of each of the first two years in each three year compliance period. 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.
1. Effects on Small Businesses and Local Governments.
No small businesses will be directly affected by the adoption of the proposed Program revisions. As noted above, however, the only local government affected by the proposed revisions to the Program is the JBPU, a municipally owned utility which owns and operates the SACGS. The costs associated with the proposed revisions to the Program will be similar to those incurred by other privately held sources and will depend upon JBPU's need to solicit consultants or contractors for its compliance.
2. Compliance Requirements.
The JBPU, as owner and operator of the SACGS, will need to comply with the proposed revisions to the Program, as described below.
The proposed Program revisions do not change the applicability provisions of the current Program. Therefore, sources already subject to the Program will remain subject to the proposed Program revisions. 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 to comply with the emission limitations beginning on January 1, 2014.
The proposed Program revisions create an interim compliance period which is defined as each of the first two years of each three-year control period. 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 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.
Accordingly, 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, as of the CO2 allowance transfer deadline in the source's compliance account that is not less than the total tons of CO2 emissions for the control period less the CO2 allowances deducted for the previous two interim control periods. Additionally, for each control period in which a CO2 budget source is subject to the proposed Program revisions, 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
3. Professional Services.
The JBPU is the only local government affected by the proposed revisions to the Program and like other privately held sources may need to solicit professional consultants and contractors for its compliance with the proposed revisions to the Program. The Department also confirmed that no capital improvements to plant operations will be needed for JBPU's compliance with the proposed Program revisions.
4. Compliance Costs.
Emissions monitoring at JBPU's SACGS currently meets the monitoring provisions of the current Program and no additional monitoring costs will be incurred under the proposed revisions to the Program. Notwithstanding this, like any other owner or operator of any source subject to the revised Program, the JBPU will need to purchase CO2 allowances equal to the number of tons of CO2 emitted. The Department limited the analysis of control costs to the purchase of allowances needed to comply with the proposed revisions to the Program and predicts that CO2 allowances will cost between $6.00 in 2014 and $9.00 in 2020 (in 2010 $) per ton for CO2 under the Program Case.
In order to estimate total costs for SACGS under the proposed revisions to the Program, the Department reviewed 2009 through 2012 emissions from Jamestown's affected unit. During that time period, SACGS's emissions ranged from a low of 4,261 tons to a high of 117,311 tons. Based on these emissions values, allowances needed to cover emissions are estimated to cost between a low of $25,600 and a potential high of $1 million, annually. These costs will eventually be passed on to the JBPU consumers.
The JBPU has a range of compliance options and can utilize the flexibility mechanisms inherent in the proposed revisions to the Program. Since the revised 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. Although the proposed Program revisions include an Interim Control Period that require JBPU to cover 50 percent of their emissions in each of the first two years of a three year control period, it is not anticipated that this interim requirement will significantly reduce the flexibility available to JBPU. The JBPU will also incur costs associated with the administration of the revised Program.
5. Economic and Technical Feasibility.
The JBPU has the option to do any combination of the following to comply with the proposed revisions to the Program: increase the efficiency of the natural gas-fired turbine, co-fire biofuel, purchase allowances, or purchase offsets. The addition of the CCR under the proposed Program revisions, in fact, adds more immediate relief to all affected sources, including the JBPU, by adding allowances to the market when the CCR triggers are hit. Any or all of these options are technologically and economically feasible to apply to SACGS.
6. Minimizing Adverse Impact.
The promulgation of the proposed revisions to the Program and the amendments to 6 NYCRR Part 200 do not directly affect small businesses. Only one local government is affected by the proposed revisions to the Program, the JBPU. The proposed revisions to the Program constitute 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 continuing to implement the Program and proposed Program revisions, the Department will minimize any associated adverse economic impacts on the JBPU.
7. Small Business and Local Government Participation.
The JBPU was included on every stakeholder invitation sent to the Department's list serve and the Department conducted public forums after the stakeholder notifications were mailed. The Department's records from those stakeholder meetings do not reflect that the JBPU attended those meetings nor is the Department otherwise aware of whether or not the JBPU attended them.
8. Cure Period.
The proposed revisions to the Program will be effective on January 1, 2014. No additional cure period or other additional opportunity for ameliorative action is included in the Program revisions. First, sources that will be subject to the proposed Program revisions are already subject to the existing Program, and have been since the regulation was initially promulgated in 2008 (or since they commenced operation). Second, because of the cap-and-trade nature of the revisions to the Program which includes periodic compliance deadlines, sources have flexibility to emit any amount of CO2 during a control period, provided such emissions are covered by an adequate amount of CO2 allowances by the relevant CO2 allowance transfer deadline. For example, the second control period under the existing Program dates from years 2012-2014, with a CO2 allowance transfer deadline of March 1, 2015. This is unchanged under the proposed revisions to the Program, and will continue to provide sources with flexibility and time to comply with the proposed revisions to the Program. Finally, while the proposed revisions include a new annual interim compliance requirement, the first interim compliance period will be year 2015 with a CO2 allowance transfer deadline of March 1, 2016. This provides additional time for sources to plan for compliance with the proposed new interim compliance obligation. For these reasons, no additional cure period or other additional opportunity for ameliorative action is necessary for the proposed Program revisions.
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.